Canada’s 2024 catastrophe season has been nothing short of historic, causing over $7 billion in insured losses. From torrential floods in Toronto and Quebec to the Jasper wildfires and Calgary’s hailstorm, these events triggered a staggering 228,000 insurance claims — a 406% increase compared to the previous 20-year average.
Canada’s rising natural catastrophe losses were a key topic at KPMG's 2024 Insurance Conference. During the panel Weathering the Storm: A View on Climate-Related Catastrophes and Insurance, industry experts examined the factors driving the surge in claims, explored the key contributors to rising losses, and discussed whether the insurance industry is adequately prepared to tackle growing nat cat challenges in the year ahead.
While 2024 saw several major natural catastrophe events, the year was, unfortunately, no exception to a growing trend. KPMG panelist Denise Cheung, vice president of actuarial at Munich Re, discussed the troubling rise of insurance losses driven by climate change and urbanization. "We’re seeing that more and more large natural catastrophe events are happening," Cheung said, referencing Quebec’s 1998 ice storm as Canada’s first $1 billion loss, with major events now happening more frequently.
“Following the 2013 Calgary and Toronto floods, major losses exceeding $1 billion are happening within increasingly shorter timeframes,” confirmed Cheung. This rising frequency is accompanied by rising costs. According to Statistics Canada, from 1983 to 2008, insurers averaged $400 million yearly in catastrophic weather event payouts, and, since 2009, the yearly average has risen to nearly $2 billion.
What’s behind the surge in natural catastrophe costs? According to panelist Farhan Karamat, vice president of finance at Travelers Canada, it involves a combination of man-made factors. Increased exposure, economic growth, and inflation are amplifying the financial impact of catastrophic events. “We need to think about prevention,” Karamat emphasized, noting that upcoming OSFI regulations will aim to measure and address these challenges. He highlighted this as an opportunity to enhance nat cat models and data, helping the industry better prepare for and mitigate future risks.
Karamat also emphasized the role of urban expansion. Referencing the recent Calgary hailstorm in August, he explained, “If that storm happened 20 years ago, the impact would not be how it came out to be, which was the second costliest in Canadian history.” As populations grow, more people move into urban areas, leading to denser concentrations of assets - homes, businesses, and infrastructure. More assets mean more potential for damage when a catastrophe strikes, thereby increasing the overall cost of losses.
According to data models from Swiss Re, population growth has caused the annual expected losses from Hurricane Ian in Fort Myers to be 340-350% higher today than in the 1970s.
Another contributing factor to surging nat cat costs, according to Karamat, is the increase in construction and home renovations that took place during the pandemic. “During COVID, a lot of people were working on their basements to make their homes more functional for remote work,” Karamat explained. “People were adding rec rooms, wine cellars, home offices, and theaters.”
These additions, often located below grade, are typically included in policyholders' guaranteed replacement cost coverage. Since basements are particularly prone to flooding, these upgrades have amplified potential risks. In the event of a catastrophe, insurers face the burden of covering the replacement costs of these high-value additions, significantly increasing overall claim expenses.
Karamat stressed the critical importance of prevention, saying, “Dollars spent on prevention will yield multiples in terms of mitigated loss.” He advocated for strategies such as avoiding construction in floodplains, enforcing stricter building codes, and recommending risk management measures such as hurricane roof clips and sewer backwater valves to clients. “Most water claims happen because people don’t have those valves,” he pointed out.
Despite the widespread devastation from hurricanes and wildfires last year, Cheung remained optimistic about the future. “Having gone through this really busy catastrophe season, we now know what we can handle, what we cannot handle, and where we can find help,” she said.
In contrast, Karamat expressed doubt about Canada's preparedness for future natural catastrophe risks. “While we’ve learned a lot, and we hope next year will be better, hope alone isn’t a strategy,” he said. “There are more meaningful conversations that we absolutely need to be having within the industry.”
