With the book, Watsa partly wanted to ensure that outsiders understood Fairfax’s culture well enough not to dismantle it after he’s gone. I was drawn to the book not only because Watsa and I share an alma mater, the Ivey Business School, but also because of the curious gap between Watsa’s philosophy and the application of it when it comes to climate risk. 

The irony is that by carefully documenting why Fairfax is designed for permanence, the book also exposes how ill-prepared it is for the most significant long-term risk facing the insurance industry from which it derives most of its revenue. Fairfax prioritizes reducing long-term losses over achieving short-term gains, led by a founder who cares about doing good and having a positive impact on the world. Yet it is the world’s third-largest insurer of fossil fuel projects and has little to no plan on how it manages climate risk. 

I’ve spent the last two years trying to approach both Fairfax and its shareholders to address the climate risk that is facing their industry and business. This includes two shareholder resolutions, a bunch of letters – they refuse to meet – and even a complaint to the Ontario Securities Commission over lack of disclosure. 

A long-term philosophy meets a long-term risk

Watsa’s value-investing philosophy favours patience, downside protection and trust over market fashions and short-term profits. This long-term orientation makes Fairfax’s position on climate risk harder to reconcile than for companies that justify inaction by pointing to short-term shareholder pressure. 

“Our favourite holding period is forever” is a Warren Buffett line that Watsa returns to often. In the abstract, this is a refreshing counterweight to short-termism. In practice, it raises uncomfortable questions about the kinds of assets Fairfax intends to hold indefinitely. Those holdings include oil and gas investments, and “forever” is a long time to finance industries whose business models depend on expanding physical risk across the global economy, thereby biting the insurance industry.

Climate change barely appears in The Fairfax Way. A short section acknowledges that catastrophe losses are increasing and that Watsa finds watching the weather channel nerve-racking. Missing is any explanation of how accelerating climate damage fits into Fairfax’s commitment to downside protection, sound underwriting and enduring value creation. The company is simultaneously betting on long-term stability while underwriting and financing industries that undermine it.

Watsa has also said that “everything we do as a company rests on the strength of our insurance assets. Without them, there is no Fairfax.” The value of those assets depends on their ability to generate underwriting profits over long periods. Climate change directly weakens that equation. Insured wildfire losses in Canada have risen more than 1,000% in a little more than a decade, reflecting not a temporary spike in claims but a structural shift in the loss profile facing insurers. Fairfax itself reported approximately US$1.1 billion in catastrophe losses in 2024.

Why climate risk may be getting misclassified

One is left wondering whether climate risk simply does not arrive in the categories Fairfax is accustomed to managing. Fairfax can handle specific shocks that show up as short‑term volatility in a particular stock or line of business. Climate risk is different. It is systemic, cumulative and physical – the kind of risk that compounds quietly, until it doesn’t.

Watsa has repeatedly demonstrated an ability to navigate stress. Fairfax has anticipated multiple market shocks and had to navigate an attack by a U.S. hedge fund. That experience likely reinforced an institutional instinct that external pressure, whether from markets, media or activists, will not determine the company’s direction. Fairfax’s success in resisting noise became part of its identity.

That same instinct may have led Fairfax to misclassify climate risk as politics, as fashion or as ESG rhetoric rather than as signal. 

Fairfax’s decentralized structure does not prevent clear direction from the top. Watsa is described as values-driven rather than prescriptive but decisive when principles are involved. That combination could support a serious response to climate risk if leadership chose to name it as such.

There is also a moral tension that feels unusually relevant because Watsa has made values central to Fairfax’s identity. He speaks often about honesty, integrity, humility, loyalty and the Golden Rule. He capped his own salary, donates hundreds of millions of dollars annually, and has said that success carries an obligation to give back and that “to whom much is given, much is expected.” Insurance, at its core, exists to help people recover when things go wrong. 

Profiting from activities that intensify those harms is in direct competition with that purpose.

Even so, reading The Fairfax Way left me cautiously optimistic. If Fairfax is truly a contrarian institution focused on multi-generational success, then addressing climate risk is not optional; it is necessary. Trust, in a world of accelerating physical damage, means not funding the forces that undermine collective resilience.

The book presents the Fairfax approach as a shared agreement about how to live and operate, followed by the courage to act accordingly. Our collective response to climate change is based on the same thing.

Kiera Taylor is a senior policy analyst at Investors for Paris Compliance.

The post The giant oversight in Prem Watsa’s long-term investing strategy appeared first on Corporate Knights.

We are now in the “find out” phase of climate change: 2024 was a record year for insurance claims in Canada at about $9.1 billion, driven by extreme weather, and a fraction of the more than $24 billion in uninsured damages.

The industry’s response to such claims is to increase premiums and reduce coverage to remain profitable. On average, Canadians’ home insurance costs rose 76% over the past decade, no matter whether they have made claims, and insurers expect increases greater than inflation this year too. Where there have been disasters, such as a suburban Calgary hailstorm last year, rates have spiked much higher.

It’s not fair to expect either a policy holder or a taxpayer to foot the bill for damages being caused by companies making a profit by putting emissions into our atmosphere.

– Kiera Taylor and Matt Price, Investors for Paris Compliance

Unlike in the United States, home insurance rates in Canada are not regulated. Our provincial market-conduct authorities do not even publish information regarding rates or regional coverage withdrawals. Nor will you see panels on insurance affordability at the annual conference. The industry is content to quietly pass along rising costs as long as it is able. Insurance companies like Intact and Definity are even raising shareholder dividends while doing so.

Unfortunately, this is now an established cycle of damages, claims and rate increases. The global reinsurer Swiss Re estimates that because of climate change, insured losses will rise by an annual rate of 5% to 7%, which, if we take the midpoint, amounts to a doubling in 12 years and a tripling in 19 years.

Where does this end? Logically, it ends in system buckling as people’s ability to pay higher rates diminishes. We see signs of this in places like Florida and California, which are ahead of us in extreme weather impacts. That’s a pretty big elephant to ignore, not just for the industry but also for the provincial and federal regulators that are supposed to safeguard the system. And, the knock-on effects include real estate devaluations, mortgage defaults and possible contagion into the broader financial system.

The industry’s plan for climate damages

To be sure, the insurance industry acknowledges the role of climate change in driving extreme weather and higher claims. Its response can be summarized in one word: adaptation. Homeowners are being asked to flood- and fireproof homes, and the industry is advocating that new homes not be built in risky areas, which is still ongoing. This is all worthwhile.

The industry is also advocating for taxpayer dollars both for infrastructure preparedness and for directly assuming some of the risk of flood-prone homes. The problem with that advocacy is not the content, but rather the fact that the industry does not have “clean hands” in making the case. Companies like TD Insurance – particularly via its parent – invest heavily in fossil fuels, while other insurance companies like Fairfax profit by insuring fossil fuel projects around the world. This activity fuels climate change and the damages that the industry is expecting the taxpayer to cover.

Some Canadian insurance companies have made net-zero commitments and are leaders in the space, such as Cooperators. But others like Fairfax have not, and the Insurance Bureau of Canada has no stream of work encouraging net-zero by its members, nor does it advocate for emission-reduction policies. Until this changes, politicians would be right in challenging the industry to put its own house in order before granting an audience.

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Ultimately, the industry needs to acknowledge that adaptation will go only so far. As a board member of the German insurer Allianz recently said, “The damage at 3C will be so great that governments will be unable to provide financial bailouts and it will be impossible to adapt to many climate impacts.” Property and casualty insurers should be front and centre making the case for strong climate policy, both to safeguard their own industry and to protect their policy holders.

And, since we are already experiencing the financial costs of climate damages, we need to have a bigger conversation about who pays. It’s not fair to expect either a policy holder or a taxpayer – often the same person – to foot the bill for damages being caused by companies making a profit by putting emissions into our atmosphere. Some U.S. states have started to seek cost recovery from polluters. Canadian insurers and legislators should be looking at the same.

Kiera Taylor is a senior analyst and Matt Price is executive director of Investors for Paris Compliance, a shareholder advocacy organization holding Canadian companies accountable to their net-zero commitments. 

The post Canadian insurers need to get real about climate damages appeared first on Corporate Knights.

Insurers paid out a record-breaking $7.7 billion for extreme weather claims in 2024, including for flooding, wildfires and hailstorms. This doubled last year’s total. Summer alone saw 228,000 insurance claims, a 406% increase compared to the 20-year average. Insured losses often cover only a fraction of the damages. For example, many Torontonians lack overland flood insurance, so the $1 billion from this summer’s southern Ontario floods represent only a quarter to a third of the total cost. Yet consumers are still warned to expect premium increases.

As profit-seeking entities, insurance companies pass these costs on to their clients. Home and mortgage insurance rates have climbed by nearly 350% over the past two decades, outpacing every other shelter-related cost, including electricity and rent. Saskatchewan and Alberta have seen the steepest increases this decade, at 106% and 90% respectively. But even provinces with fewer climate-related damages have experienced home insurance inflation, with a 7.7% rise across Canada this year.

Higher premiums are just the start. Insurers are also retreating from the most vulnerable areas. Over the summer, Aviva Canada announced it would phase out its direct-to-consumer home insurance business in Alberta, and Desjardins won’t provide new mortgages for properties with more than 5% chance of flooding in Quebec. This mirrors a troubling trend in the United States, where insurers are pulling out of states like Florida and California. If this continues, Canadian homeowners face an unsettling future where some homes are uninsurable and lose their value.

The Canadian insurance system isn’t prepared for this escalating crisis. A simulation of a one-in-100-year flood event estimated $9.1 billion in residential damage in Vancouver, $6.1 billion in Montreal and $1.6 billion in Calgary. This year has shown that these catastrophic scenarios are no longer hypothetical. They are here now and getting worse unless we change course.

International comparisons reveal another reality: Canadians pay more for property insurance than nearly any other wealthy nation. Canada spends 1.23% of gross domestic product on property insurance premiums, almost double the average of 0.66% in the Group of Seven countries. It’s not surprising to hear that over the past five years, more than 10,000 Canadians have turned to crowdfunding when disaster strikes.

While the insurance industry recognizes the central role of climate change and preaches adaptation, it is silent on its own complicity. Canadian insurers invested more than $19.5 billion in fossil fuels in 2023, fuelling extreme weather and damages to property. Toronto-based Fairfax Financial ranked as the fifth-largest underwriter of fossil fuels globally.

Meanwhile, the insurance industry is seeking government support, such as a national flood insurance program and government backstops. Taxpayers would be right to ask that insurance companies stop contributing to the problem as a condition for assistance.

Globally, insurance companies like Allianz, Zurich, Munich Re, Suncorp, Generali and others are aligning themselves with net-zero by halting the underwriting of fossil fuel expansion. Yet no Canadian insurer has made such a commitment, and few have even published plans to achieve net-zero. Governments must intervene to ensure that the insurance industry cleans up its act, particularly if they are being asked for help.

Canadians need a more honest conversation about the costs of climate change. Climate disasters are growing in scale and frequency, and this is showing up in our insurance bills and food costs. Simplistic slogans like “Axe the tax” sow confusion and do nothing to tackle climate-driven inflation.

The coming year will bring both provincial and federal elections. As voters, homeowners and taxpayers, Canadians must demand better from insurers and governments alike. Rising premiums and shrinking coverage are not inevitable; they’re the price of inaction.

Kiera Taylor is a senior analyst with Investors for Paris Compliance, a shareholder advocacy organization that holds Canadian companies accountable to their net-zero commitments.

The post What 2024’s costly climate disasters mean for home insurance rates in 2025 appeared first on Corporate Knights.

As temperatures rise, so do the intensity and the frequency of floods. In part this is because warmer temperatures lead to increased evaporation, which means more moisture in the atmosphere and, consequently, heavier rainfall. This pattern is evident in Toronto’s recent deluge, compounded by too much impermeable concrete and inadequate storm infrastructure, echoing a broader trend seen across Canada and the world.

Flooding has caused the highest insured losses in Canada over the past few years. Last summer, flash floods in Ontario caused more than $340 million in insured losses. Tuesday’s flood is expected to surpass $1 billion in insured losses. The Canadian Climate Institute projects that flood damage to homes and buildings could increase fivefold in the next few decades.

While severe weather escalates, the insurance industry continues to foster those very risks by underwriting and investing in fossil fuels. The seven biggest property and casualty insurers in Canada invested more than $19.5 billion in fossil fuel assets in 2023. By supporting fossil fuel expansion, insurance companies are, in essence, underwriting the climate disasters themselves – including Toronto flooding.

In response to rising claims, insurers are hiking premiums and cutting back on coverage. Many homeowners find themselves without sufficient protection, having to face the costs out of pocket or resorting to crowdfunding. More than 1.5 million Canadian households now lack affordable flood coverage, and an estimated 6 to 10% of Canadian homes are currently uninsurable against flooding. Twenty percent of Canadians are exposed to some degree of flooding, and 94% of people living in high-risk flood areas are unaware of that risk.

In February 2024, Desjardins pulled its coverage for mortgages on homes with a 5% chance or more of flooding each year, affecting more than 3,000 homes in just one borough of Quebec. Desjardins was the last major lender to offer mortgages in higher-risk flood zones. Some homeowners in Ottawa also can’t get flood insurance if they are situated close to the Ottawa River.

Meanwhile in B.C., just under half of policyholders were covered for flood damage in 2021, while 5% of homeowners are at too great a risk to access flood insurance.   One B.C family’s home collapsed into the Nicola River last November, and while they believed they were fully insured, their payout was only a fraction of the damage costs. Windsor residents are also unsure of their flood coverage; even some homeowners who spend tens of thousands on preventative flood measures cannot get full coverage.

There is an unspoken assumption within the insurance industry that it can indefinitely pass on cost increases to consumers. But there’s an inevitable breaking point when rising costs make insurance unaffordable for the average household. The lack of conversation around this issue allows insurers to continue this practice unchecked, placing an ever-increasing burden on consumers while undermining their own long-term viability.

Related:

• Canada’s life insurers have a fossil fuel problem
• Insurance giants exit net-zero pact
• Is the insurance industry walking away from fossil fuels? 

It’s clear that the insurance industry needs to be cleaned up. Companies cannot perpetually pass risks and costs down to consumers and taxpayers while continuing to funnel billions of dollars into the industries driving climate catastrophes. Insurers should develop and publicize robust and credible transition plans outlining their path to net-zero. Regulators should step in to accelerate this and introduce penalties for misalignment.

The recent flooding in Toronto is a harbinger of future challenges. Without immediate action to address the root causes of climate change and reform industry practices, the cycle of destruction and financial loss will only intensify. The insurance sector in particular has a critical role to play in this transformation.

Kiera Taylor is a senior analyst at Investors for Paris Compliance.

The post By backing fossil fuels, insurance companies are underwriting climate disasters like Toronto’s floods appeared first on Corporate Knights.