The National Insurance Conference of Canada, the main annual gathering of the property- and casualty-insurance industry, kicks off today in Gatineau, Quebec. Unfortunately, we expect that the elephant in the room will continue to be ignored, having to do with both the future health of the industry and the pocketbooks of Canadian homeowners.
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.
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