Natural disasters are on the rise, not just around the world but here in Canada. Climate change is causing wildfires in BC and Alberta. The heat it generates leads to warmer sea surface temperatures that create more hurricanes. And let's not forget the melting ice caps are increasing floods across our country, wreaking havoc on our homes and cities.
Climate change is here and will undeniably impact our home insurance premiums (and car insurance, too).
What financial experts are saying about climate change insurance
Recently, Kerry K Taylor, a financial influencer, tweeted that she “rented a storage locker because evacuation alerts are a dime a dozen in British Columbia and timing a wildfire is as possible as timing the market.” Essentially, we never know when the next disaster will strike and affect us.
The reason why, as told to Global News, is the adage holds, “hope for the best, prepare for the worst." Taylor recommends reviewing your home, condo, and renters insurance because “insurance companies are loath to update these policies when a crisis is imminent.”
So, I reached out to Morgan Roberts, director of sales for RH insurance brokerage.
She says “Insurance is harder to get in flood and wildfire season because your home is at a bigger risk of having a claim. Insurers look at what is happening in your city and surrounding area when providing insurance. If there is a higher chance of a claim, companies tend to back away."
In other words, get your insurance in order before a natural disaster. Here’s what you need to know.
Climate change and your home
Canadians often auto-renew their policies without reviewing them. Sadly, the unthinkable only becomes a reality after the inevitable. For instance, my uncle's cottage burned down due to arson 20 years ago. Despite having cottage insurance, the land where the cottage once stood is still barren because he was underinsured, meaning there wasn't enough money in the claim payout to rebuild.
When was the last time you got a new quote for home insurance? Ask yourself when the last ime you reviewed your policy, carefully evaluating any exclusions therein.
Let's take a quick look at the Financial Services Regulatory Authority of Ontario’s commonly excluded risks in many homeowners insurance policies as they relate to climate change.
- Whether caused by flood, underground water or water that enters through cracks in your foundation.
Essentially, your home insurance only covers floods from burst pipes and leaky appliances.
So, a heavy rainfall causing floods by overloading the city sewers and end up backing into your basement and coming up through your floor and bathtub drains. Without flood protection, you'll be paying for removing the sludge and repairs to any damage to your stuff. This may include expensive mechanical repairs to your furnace or hot water tank.
- Damage caused to the exterior of your home as the result of freezing, melting or moving snow or ice and heaving frost.
Climate change on your home in the spring also extends into the winter. If you're not regularly shovelling around the foundation of your home, as the snow melts, it can leak into your home through cracks in the foundation.
Finding the source of this kind of flood is difficult because water wicks to its lowest point. In other words, water could enter your basement from the back of the house but flood the front of your home as it makes its way through the unseen crevices.
- Damage caused by snowslide, landslide and other forms of earth movement (e.g., earthquakes). Note: However, damage from a fire or explosion caused by earth movement may be covered.
Climate change increases the risks of earthquakes and landslides. Earthquakes happen at different magnitudes, and you can see the history of earthquakes on Canadian soil here, including the ones that occurred in the last 30 days.
According to the insurance bureau of Canada, a magnitude of 7.1 could cause up to $65 billion in damages. According to government studies, at some point in the next 30 years, there is a reasonable chance an earthquake of that magnitude could hit BC.
There are options to buy endorsements or add-ons to your existing policy for these risks or perils. So, if you have concerns, speak to your insurance broker, and ask if you can access these coverages from your insurance company since not all do. If not, consider changing house insurance companies.
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Home insurance for natural disasters in Canada
Here are some climate change insurance products you can add for extra coverage on your home insurance policy.
Flood insurance comes in many forms.
You can add “overland water" which covers damage caused by bodies of water overflowing onto dry land. If you live in a floodplain, this coverage may not be available to purchase. For example, over 200,00 homes were damaged in Hurricane Harvey, and only 75% of those had flood insurance because they were not on a floodplain. You just don't know what could happen.
You can also add sewer backup insurance to protect yourself from the city drains backing up into your basement.
Many insurers offer a comprehensive flood insurance policy that covers both overland and sewer backup.
Do you live in an earthquake zone? Earthquakes are often not included in standard policies. However, insurance would cover fire damage if an earthquake caused a fire. Adding earthquake insurance ensures against earthquake damage. It likely covers you for additional living expenses if you can't live in your home and need a hotel, but it can depend on the provider.
You don't need an add-on for fire. Your comprehensive homeowner's insurance policy covers you for instances of fire. A standard policy covers the structure of your home and its "outbuildings," such as a garage or toolshed. Your insurance company will pay to rebuild or repair your home, remediate smoke damage, and yes, this includes damage from wildfires.
Does car insurance cover natural disasters?
None of the mandatory policies for auto insurance in Canada cover natural disasters. However, weather-related car insurance claims have coverage through a common add-on – comprehensive car insurance, which will protect your car from floods and fires. It also covers you if a tree falls on your car or if someone steals your vehicle. Consider it an essential part of your auto insurance policy, especially if you're worried about climate change.
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The cost of climate change on insurance
In 2016, The Fort McMurray fire was the costliest disaster in Canadian history at $3.6 billion in insured losses. Three years earlier, the floods in Alberta cost $1.7 billion in insurable damages. The 2017 BC Wildfires cost a record-setting $563 million in damage and caused more than 39,000 people to evacuate their homes.
In 2018, a devastating tornado in Ottawa and massive rains in Toronto showed how climate change might affect insurance. According to the Insurance Bureau of Canada, insurers paid out over $800 million in severe weather-related claims that year.
Already in 2021, wildfires are raging in BC and Alberta, and the smoke is causing closures. According to Canadian Underwriter, the six tornadoes that hit Barrie in July cause $75 million in insured damage.
How hard will this hit Canadians insurance premiums?
Who pays for all these home insurance claims?
Some insurers are taking note. Intact Insurance supports a University of Waterloo initiative to find ways to protect Canadians from extreme weather events. A recent survey revealed that not many insurance companies are changing their policies or plans due to climate change, despite the evidence and the costs increases.
As severe weather becomes more common and insurers pay out more claims, they will raise premiums which directly impacts the costs to Canadians.
The federal and provincial governments offer financial assistance for natural disasters. If response and recovery costs exceed what communities could pay for on their own, Disaster Financial Assistance Association (DFAA) steps in to help.
There's also something called Reinsurance – which is insurance for insurance companies. It spreads the risk around the globe. For instance, if disaster strikes in Japan, insurance companies can reach out to their reinsurers in an unaffected part of the world to ensure reserve funds are available.
However, if we as a nation aren’t careful, if we don’t plan for the increase in natural disasters with better wildfire strategies, improved flood protection, and robust infrastructure to climate resiliency, insurance companies could raise premiums to unaffordable levels.
How do I keep my home insurance premiums low?
Call your insurance provider or broker and ask all your "What if" questions so you understand what happens when disaster strikes. Ask about floods, earthquakes, and other natural disasters that could impact your premiums and what you can do about them.
Of course, the first step is to protect you and your family because homes and cars can be repaired or bought anew. So have a plan in place including what you'll bring with you if you need an emergency exit.
What can I do to lower my risk of natural disasters affecting my home?
Make sure you have a backflow preventer in your home to avoid sewer backup. Ensure your eavestroughs divert water away from your house, and hire a professional to check the foundation around your house. Ask about its condition and what you can do to prevent flooding.
If you're doing renovations, ask your contractor about using materials rated for fire. Have a fire extinguisher in the home, and always make sure your fire alarms are in good working order.
Consider opening a high-interest savings account in Canada to "self-insure" over and above what's available in your policy. You can fund any repairs yourself, especially if you're deductible (the portion of any claim you pay before your insurer pays the rest) is high.
As an example, a home insurance deductible may be as high as $5,000, but a fix from a fallen tree through a window may only be $2,000, so it’s best to have some money set aside.
The bottom line
Call your insurance company and ask how you're covered, or not, against natural disasters. Have a clear understanding and know where they may be gaps in your policy. Understanding the gaps helps you prepare for issues not covered by your insurance.
For instance, your contents insurance on your home policy may not be enough. So, do an inventory and note the stuff you have, and if it warrants it, consider increasing this coverage.
Add comprehensive to your car insurance if you don't have it already.
Then, speak with contractors about waterproofing your home, upgrading your roof, and using materials that withstand fire and wind better.