With climate change and the wildfires and other extreme weather events associated with it, Canada’s risk environment is changing.
Media reports say last year’s BC wildfire season resulted in $720 million in insurance claims. According to the Insurance Bureau of Canada, insured damage from severe weather events eclipsed $3.1 billion in 2023, the fourth-worst year for insured losses and the second year in a row that damage from severe weather events exceeded $3 billion.
According to the Weather Network, Canada will be hotter than normal this summer, with more sunshine and fewer rainy days than usual. Public Safety Canada released a forecast for the 2024 “Wildfire Season” on June 12, predicting that wildfire risk would remain high in the summer months, especially in regions experiencing “intense drought,” such as northwestern Alberta, northeastern BC, and the southern Northwest Territories.
Alana Scotchmer is a partner at Gowling WLG's Toronto office and a member of the firm’s financial services regulation group. Her practice involves advising clients in banking, insurance, and reinsurance, among other industries.
According to Scotchmer, wildfires were not part of the conversation about risk of catastrophic loss in Canada ten to fifteen years ago. This raises a problem for insurance policies sold years ago before the risk of loss “increased dramatically.”
“The problem that insurers are facing, and that I'm hearing a lot of people in the industry talk about, is that their risk, as they once calculated it, is now off. The data that they use is no longer predictive of what the current risk environment is like.”
She says the increase in insurance payouts caused by wildfires and other extreme weather events will chill the availability of insurance in high-risk locations.
According to the insurance comparison website MyChoice, the cities with the highest wildfire risk are Kamloops, BC; Saskatoon, SK; Regina, SK; Kelowna, BC; Medicine Hat, AB; Lethbridge, AB; Grande Prairie, AB; and Fort McMurray, AB.
“If you live in a high-risk area, or your property is located in a high-risk area, it may be the case that the insurance for these particular perils – where they happen all the time – become so expensive that it's not affordable,” says Scotchmer.
She says the flood risk in some areas of Canada is so great that flood protection is unavailable.
The federal government has responded by developing a public-private solution to the lack of insurance for flood protection. In 2023, the Ministry of Finance pledged seed funding for a National Flood Insurance Program for homes in areas that are at the highest risk of flooding.
“I don't think we're there yet with wildfires,” says Scotchmer. “I think it's going to take a few more years of experience.” But insurance companies look long into the future and far into the past, as well as what climate scientists and wildfire analysts are saying about the development of wildfire risk, to estimate whether the odds are increasing that catastrophic events will occur.
“If those odds go up, the cost goes up, or the coverage goes down. And the insurance, over time, becomes less available to Canadians.”
Wildfires produce claims involving the destruction of property, such as houses and cars, as well as claims associated with illness from poor air quality.
“It's bigger than the property and casualty insurance industry in Canada,” says Scotchmer. “We may see the effects spill over into the life and health insurance industry as well.”
