Canadians could potentially see rate increases for home and auto insurance, in addition to deductibles for sewer backup flood coverage, following a spate of catastrophes over the past month.
Canadian insurers stand a chance of paying out $3 billion in catastrophe losses in 2013, according to broker estimates. In just one month, Canada has seen historic flooding in two of its major cities, and a train derailment and subsequent explosion that has levelled the downtown area of Lac-Megantic, a Quebec town of 6,000 residents.
“For Canada, this is a lot of cat loss all in one year, all in a very short period of time,” David Mew, national placement leader at
Marsh Canada, told Insurance Business.
Industry observers say personal lines property (home and auto) insurance could see some premium rate increases as a result of the floods. One broker said this likely wouldn’t happen until the end of the year, after insurers renew their reinsurance treaties and assessed their reinsurers’ premium rates.
“Property, especially personal property, was already hardening before these events,” MSA Research president Joel Baker said of the potential for rate increases. “So we expect that to continue – especially in Alberta.
"The optics of a sharp rate increase in Alberta won't be good, as many consumers found out to their dismay that their policies didn't cover what they might have expected.”
Flood is the chief culprit of the damage losses. In response, Canadian insurers may start to introduce peril-specific deductibles for sewer backup flood losses, said Mew.
Canada already has policy deductibles of 3% or 5% for wind coverage. Also, in B.C. and Quebec, policyholders may see quake deductibles of 3% or 5%, with minimums of $250,000 to $1 million.
“Flood used to be part of an all-loss deductible, and I think what you are going to see is a similar approach you are seeing in other parts of the world, where flood now will be treated as a proper catastrophe deductible,” Mew said. “And whether it’s a higher dollar amount, or whether it’s a 2% or 3% or 5% deductible with a much higher minimum, I think that will be one of the outcomes of [the 2013 flooding] over time.”
An official, preliminary figure of insured claims losses due to the record flooding in Calgary in Alberta is expected to be released in about a week.
Alberta’s premier predicted the flooding would cost roughly the same amount as the losses following a wildfire that swept through Slave Lake in 2011 – about $700 million. But brokers and other insurance industry analysts think insured losses could easily reach the $2-billion mark.
They point out that insurers could pay between $200 million and $300 million alone to the City of Calgary to cover damage to City Hall, the zoo, police headquarters, etc. That’s not to mention the flooding in the Saddledome, an $80-million sports facility, which was covered 14 rows of seats deep in water. Brokers say the big question is whether the Saddledome will be considered a total loss.
In commercial lines, hotels, which carry insurance for access to and from their buildings, would have business interruption losses covered. In personal lines, comprehensive coverage would apply to cars damaged in the flood. And while overland flooding is not covered under homeowner policies, sewer backup claims are.
Toronto, a city with a population of more than 2.7-million people, also saw record flooding in July. Record rains knocked out power and flooded highways and public transportation facilities, triggering more than 1,000 calls to the city’s telephone help line, according to published reports.
Insurance industry representatives are guessing that insured damages for the Toronto flooding will be in the neighbourhood of between $700 million and $800 million.
It is too early to tell how much the rail disaster that killed 13 people and resulted in 50 missing in Lac-Megantic, Quebec may cost insurers. Canadian and local Quebec insurance companies will pay claims at the outset, but it remains to be seen whether or not they will be able to recover their costs from the insurer of the U.S.-owned railway.
One broker estimated the damages in Lac-Megantic may come in under the $700-million cost to rebuild homes in Slave Lake. Damage to the downtown core is said to include bars, two major shopping stores, and at least 10-15 homes in the area.
