Canadians are paying more for insurance as risks related to climate change become more severe, but they’re still “for the most part, insurable” while more Americans lose their coverage, a senior industry executive says.
As another high-profile insurer in the United States halts coverage due to climate risks, experts say Canada needs a more comprehensive, society-wide approach to climate resilience.
Canada’s relative insurability comes into the spotlight amidst a broad trend of U.S. insurers backing away from some regions facing heightened climate risks. Just two months after State Farm halted new coverage in California citing “rapidly growing catastrophe exposure,” Farmers Insurance has flown the coop in Florida, with the insurer dropping home, auto, and umbrella policies across the Sunshine State.
This latest exit could affect 100,000 people, or around 30% of Farmers’ policyholders, reports the Tampa Bay Times. It’s the fourth insurance company to jettison its Florida clients in the last year, with the company stating that the business decision “was necessary to effectively manage risk exposure.”
Farmers’ latest move comes less than a month after it decided to stop writing new policies in Florida after facing “historically high” hurricane recovery and rebuilding costs.
Climate Insurance Soars in Canada
In Canada, homes and businesses remain “for the most part, insurable,” according to Craig Stewart, vice-president of climate change and federal affairs at the Insurance Bureau of Canada.
But it is becoming “more difficult and pricey” to insure, relative to other countries, Stewart added in a recent TVO interview alongside Prof. Daniel Henstra of the University of Waterloo’s climate risk research group and Kathryn Bakos, climate finance and science director at UW’s Intact Centre on Climate Adaptation.
With extreme weather events becoming more common and fierce, the number of natural disaster claims has more than quadrupled in Canada since 2008, noted TVO presenter Steve Paikin. Such disasters accounted for C$3.1 billion in insured losses last year alone. House insurance prices have risen around 14% over the last three years, with premiums “skyrocketing” by 5% in the last 12 months.
With higher premiums linked to extreme weather, 10% of Canadian homes, or 1.5 million households, are now at high risk of flooding and beyond the pale for insurance companies. Those homes can get general house insurance, but will be unable to secure private insurance against flood damage, Bakos said.
While Canada’s insurance market “hasn’t seen the same volatility as in the States,” Henstra added, “we can’t be complacent.”
“Climate risk is real, and it is increasing, and we need to manage it.”
Risk Awareness is Crucial
Bakos said Canadians must educate themselves about the methods and materials that protect from flooding, wildfires, and severe storms, and quickly deploy them across Canada to keep the housing market insurable and stable.
Building climate resilience will require an “all of society approach” to mobilize expertise, she added, suggesting that officials take simple, cost-effective steps to support residents who lack the bandwidth to seek out information for themselves. A number of communities across Canada have worked with the Intact Centre to mail out one-page infographics on wildfires and weather safety along with property tax notices, Bakos said. Some 70% of homeowners who received the information implemented at least two of the recommended actions for risk reduction within six months.
Stewart added that the federal government has dedicated funding for a new website where Canadian homeowners can see at a glance whether houses in their postal code are at risk of flooding. A similar tool is already available in the United Kingdom. The flood risk portal is expected to be up and running in the next few years, and the risks of wildfire, hail, and wind will be added at a later date.
Raising awareness about climate risks is critical, but all three panelists agreed that information on risk reduction must also be shared. For instance, anyone looking to buy a house should know if their dream home is built in a floodplain. And they should make it a priority to install a sump pump—maybe even ahead of granite countertops, Henstra said.
Stewart said the federal government is developing a resilience rating for homes, similar to the one that already exists for energy efficiency.
He added that Ottawa is working on an insurance facility/flood program for the 10% of Canadian homeowners who are unable to get flood insurance. The program is expected to launch in 2025.
Last month, Henstra told CBC News that the government must ensure that the benefits from federal programs flow to homeowners—not private companies.
“The political risk in my mind is that that’s the way it’s going to be cast as corporate welfare, basically,” he said. Ottawa’s flood program could become “a big win” for insurance companies, “because they’re businesses backstopped by the deep pockets of the federal government.”
A More Complex Picture in Florida
The details behind the Farmers Insurance retreat in Florida remain a closely guarded secret, but factors other than climate change have been at play in other recent cases. “Financial autopsies of failed insurers in Florida regularly point to excessive payouts, high salaries, and fees to affiliated companies as the main problem that leads to bankruptcy,” the Tampa Bay Times suggests, citing its own investigative report from December, 2022.
“Large payouts to executives were at the heart of the biggest insurer collapse in the state’s history: the 2008 failure of the Tampa-based Poe Insurance Group, which left Floridians on the hook paying roughly US$850 million in outstanding claims from the 2004 and 2005 storms,” the local paper wrote. A forensic audit revealed that Poe paid $143.5 million to shareholders between 2004 and 2005, even as the company staggered under the hit of back-to-back hurricanes. The CEO collected $25 million during the same period.
There are several other examples of CEOs and shareholders making a fortune as their companies floundered and premiums soared. Sean Downes, former CEO of Fort Lauderdale-based Universal Insurance Holdings, collected between $14 and $25 million each year from 2014 to 2018, corporate filings showed. The company has reduced its policies in Florida over the last year, the Times notes.
Across the state, average premiums are 42% higher than last year and sometimes double the national average, said Mark Friedlander, corporate communications director for the Insurance Information Institute.
In California, meanwhile, homeowners are reeling from State Farm’s announcement in May that it will no longer accept new applications for any type of property or casualty insurance. Affecting both businesses and individuals, State Farm’s decision is “part of a broader trend of companies pulling back from dangerous areas,” the New York Times reported when the news broke.
Louisiana was on the bleeding edge of those departures, with its insurance market beginning to buckle in 2005 after Hurricane Katrina. The coastal state is now in serious trouble, debilitated by a record storm season in 2020, when three major hurricanes topped off two tropical storms. Louisiana saw a 63% increase in premiums last December, and in March, the state was forced to borrow $500 million in bonds to pay the claims of homeowners whose private insurers had decamped.
If insurers are not fleeing outright, they are pushing homeowners to absorb up-front costs. Flood insurance “is set to quadruple” in Kentucky after last summer’s devastating floods in the eastern part of the state, the Times writes.
