Climate change and its impact on your insurance

This post was originally published on August 19, 2021, and was updated on July 3, 2024.

Natural disasters are increasing in frequency and intensity, affecting communities worldwide, including Canada. Climate change is causing more wildfires in British Columbia and Alberta, generating heat that leads to warmer sea surface temperatures and creating more hurricanes. Additionally, melting ice caps are increasing flood risks across the country, wreaking havoc on homes and cities. As a result, climate change is undeniably impacting home insurance premiums – and car insurance too.

The financial impact of climate change on insurance

Kerry K Taylor, a financial influencer, recently highlighted the reality of frequent evacuation alerts in British Columbia due to wildfires, emphasizing the unpredictability of natural disasters. She advises reviewing home, condo, and renters insurance policies because insurance companies are reluctant to update these policies when a crisis is imminent.

Morgan Roberts, Director of Sales for RH Insurance, notes, “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."

What are insurance companies doing about climate change? 

The TomorrowStrong Program by Co-operators 

In response to these increasing risks, Co-operators has introduced the TomorrowStrong program, a preventative insurance coverage model designed to help homeowners fortify their properties against future climate-related disasters. Unlike traditional insurance, which primarily focuses on compensation after damage has occurred, TomorrowStrong emphasizes prevention and resilience.

With TomorrowStrong, clients can access up to $3,000 or $1,500 for various upgrades aimed at disaster resistance. These upgrades include installing resistant roofing, hurricane straps, sump pumps, and surge protectors. By investing in these preventive measures, homeowners can significantly reduce the likelihood and severity of damage during extreme weather events.

Sustainable claims and funding prevention

TomorrowStrong is funded through savings generated by sustainable claims practices. Rather than encouraging clients to replace damaged parts or goods, Co-operators promotes repairing them when feasible. This approach not only reduces waste but also lowers costs associated with claims. The savings accrued from these sustainable practices are then reinvested into the TomorrowStrong program, creating a cycle of sustainability and resilience.

A recent survey underscores the importance of this approach:

• Less than a quarter of Canadians know repair or restoration is even an option for insurance claims.
• Two-thirds (65%) said they would prefer to repair items if they can be restored to their original condition.
• Eight in ten Canadians (78%) agree that the country generates too much waste.

Expert insight: Building community resilience

Lisa Guglietti, Executive Vice President of Property and Casualty Insurance and Chief Operating Officer at Co-operators, emphasizes the importance of reinvesting savings from sustainable claims into community resilience. She explains that the traditional reactive model of insurance is no longer sufficient in the face of escalating climate risks. Instead, a proactive approach that helps clients prepare for and mitigate potential damages is crucial.

“By focusing on prevention and resilience, we’re not only protecting individual homeowners but also contributing to the broader goal of building more resilient communities,” Guglietti says. “Our sustainable claims practices enable us to fund preventive measures, ensuring that our clients are better equipped to handle future climate-related challenges.”

Understanding climate change exclusions in home insurance

Canadians often auto-renew their policies without reviewing them. This oversight can lead to underinsurance, as was the case with my uncle's cottage, which burned down due to arson 20 years ago. Despite having cottage insurance, the payout was insufficient to rebuild. Regularly reviewing and updating your policy is crucial to ensure adequate coverage.

Common exclusions related to climate change

• Water damage: Home insurance typically covers floods from burst pipes and leaky appliances but not overland flooding from heavy rainfall or melting snow.
• Exterior damage: Damage caused by freezing, melting, or moving snow or ice is often excluded.
• Earthquakes: Damage from earthquakes, snowslides, landslides, and other forms of earth movement is generally excluded, although fire or explosion caused by earth movement may be covered.

Adding endorsements or riders to your existing policy can provide coverage for these risks. Speak to your insurance broker to explore options and ensure your policy covers climate change-related perils.

Climate change insurance products in Canada

Here are some climate change insurance products you can add for extra coverage on your home insurance policy:

Flood insurance

Flood insurance comes in many forms. Overland water coverage protects against damage caused by bodies of water overflowing onto dry land. If you live in a floodplain, this coverage may not be available. Comprehensive flood insurance policies cover both overland flooding and sewer backups.

Earthquake insurance

If you live in an earthquake zone, consider adding earthquake insurance. Standard policies often exclude earthquake damage but may cover fire damage resulting from an earthquake. Earthquake insurance also typically covers additional living expenses if you need temporary housing.

Fire insurance

Standard homeowner's insurance policies cover fire damage, including damage from wildfires. This coverage includes the structure of your home and its outbuildings, such as a garage or tool shed. Your insurance company will pay to rebuild or repair your home and remediate smoke damage.

Car insurance and natural disasters

Most mandatory auto insurance policies in Canada do not cover natural disasters. However, comprehensive car insurance, a common add-on, protects your car from floods, fires, falling trees, and theft. This coverage is essential if you are concerned about climate change-related risks.

The cost of climate change on insurance

The financial impact of climate change on insurance is significant. For example:

• The 2016 Fort McMurray fire was the costliest disaster in Canadian history, with $3.6 billion in insured losses.
• The 2013 floods in Alberta caused $1.7 billion in insurable damages.
• The 2017 BC wildfires resulted in $563 million in damage and displaced over 39,000 people.

In 2021, wildfires and tornadoes continued to cause substantial damage, with six tornadoes in Barrie alone causing $75 million in insured damage.

Keeping your home insurance premiums low

To keep your home insurance premiums low, review your policy regularly and ask your insurance provider about coverage for natural disasters. Take preventive measures to protect your home, such as installing a backflow preventer, diverting water away from your house, and using fire-rated materials during renovations.

Consider opening a high-interest savings account to "self-insure" for repairs not covered by your policy. For example, a home insurance deductible might be $5,000, but a repair from a fallen tree could cost only $2,000.

The bottom line

Climate change is reshaping the risk landscape for insurance. Programs like TomorrowStrong by Cooperators exemplify how insurers can innovate to address these challenges. By emphasizing prevention and resilience, homeowners can protect themselves against climate-related disasters and keep insurance premiums manageable. Review your policy, explore additional coverage options, and take preventive measures to safeguard your home and family.

Also read: 

• How to save money using a zero waste lifestyle 
• How to Reduce Home Insurance Costs with Renovations 
• Will Your Insurance Cover Fallen Tree Damage? 
• Can you get insurance for your home furnace?