Adjusters have yet to gain access to the city of Fort McMurray to assess the fire damage, but the resulting cost resting on reinsurers is determined to be enormous – likely the largest in Canada’s history.
Paul Cutbush, Senior Vice President of Catastrophe Management at
Aon Benfield, says the only comparable incident that comes to mind are the 2013 south Albertan floods, which resulted in an estimated $1.8-billion loss - $600 million of which was retained by Canada’s primary P&C insurers, and two thirds shouldered by reinsurers.
“If you use that event as a scale to judge how a large catastrophe is distributed between primary insurers and reinsurers, this indicates the Fort McMurray event is going to be a much larger loss than that $1.8-billion figure due to the nature of catastrophe,” he says.
Phillip Wassenberg, President and CEO of Munich Reinsurance Company of Canada and Temple Insurance Company, concurs the cost will be steeper than usual, though it’s still too early to have a concrete idea. “The serious estimates are between $1.5 - $4.5 billion – we also think it’s going to be in there ( in terms of market-insured loss), he says, likening the event to the 1998 Quebec ice storm in cost.
The extent of the fire and Fort McMurray’s location also create unique challenges for reinsurers as costs will go far beyond initial property damage. Cutbush points to the city’s long winter season as a hurdle for rebuilding efforts, in turn driving up the cost of covered additional living expenses for displaced residents.
“Fort McMurray is going to have a very short building season compared to southern Alberta because they have such an extensive cold period,” he says. “If you’re possibly rebuilding 2,000 homes, this could take years to complete. I think that means your additional living expense load is going to be high, because you have to put people in hotels, etc. - ALE is the big one.”
Additional costs to come out of the woodwork include smoke damage incurred by buildings still standing, as well as commercial business interruption payouts for businesses with coverage. Perhaps ironically, water damage may be a main contributor to homes that need repair.
“Aside from repairing or replacing property damage that was destroyed by fire, additional things to be considered are water damage for example,” Cutbush says. “That’s preventable water damage, where there’s the watering down pf homes to prevent them from burning, or homes where there are fires being fought, so water comes down and in - so that has to be considered.”
Adds Wassenberg, “There are a lot of grey zones, and every little insurance contract is different… always find some busineses that have business interruption coverages, but most will not.”
