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Climate Change and Its Effect on Your Home Insurance

Natural disasters are on the rise, and not just around the world but here at home in Canada. Climate change has led to drier summers causing wildfires, warmer sea surface temperatures which create more hurricanes and melting ice caps increasing floods across our country wreaking havoc on our homes and cities. Climate change is here and will have an undeniable impact on our home insurance.

Canadians often renew their policies without review. The unthinkable only becomes real after something happens. When is the last time you received new home insurance quotes carefully evaluating any exclusions in your policy? Let’s take a quick look at the Financial Services Commission of Ontario’s commonly excluded risks in many homeowners insurance policies as they relate to climate change.

  • Water damage caused by flood, underground water or water that enters through cracks in your foundation.
  • Damage caused to the exterior of your home as the result of freezing, melting or moving snow or ice and heaving frost.
  • 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.  

There are options to buy endorsements or add-ons to your existing policy for these perils so, if you are concerned, speak to your provider. If your current provider does not have these endorsements, it may be time to get some new house insurance quotes and review what they offer.

Here are some standard endorsements for extra coverage to consider adding to your home insurance policy.

  • Flood: This is also known as overland water on some policies. It 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. Over 200,00 homes were damaged in Hurricane Harvey and only 75% of those had insurance because they were not on a floodplain.
  • Windstorm: This endorsement covers damage to the structure of your home – things like broken windows, damaged contents and even cleaning up debris as a result of the damage. Be aware though as water damage from rain and hail may not be covered. It’s important to check your policy.
  • Earthquake: Do you live in an earthquake zone? Earthquakes are often not included in standard policies; however, if an earthquake caused a fire, the fire damage would be covered. Adding earthquake insurance insures against earthquake damage, and it may even cover you for additional living expensesif you can’t live in your home and need a hotel.

The cost of climate change on home insurance

In 2016, The Fort McMurray fire is said to be 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 is said to have cost a record-setting $563 million in damage and caused more than 39,000 people to evacuate their homes. This year, a devastating tornado in Ottawa and massive rains in Toronto show how climate change may affect insurance.

According to the Insurance Bureau of Canada, so far in 2018, insurers have paid out over $800 million in severe weather-related claims. How hard will this hit Canadians insurance premiums?

Who pays for all these home insurance claims?

Some insurers are taking note. Intact Insurance is supporting a University of Waterloo initiative to find ways to protect Canadians from extreme weather events. A recent survey from the institute revealed not many insurance companies are changing their policies or plans due to climate change, in spite of the evidence and the costs increases.

As the severe weather becomes more common and insurers pay out more claims, they will be forced to raise premiums which directly impacts the costs to Canadians.

The federal and provincial governments offer financial assistance to affected communities after a natural disaster through the Disaster Financial Assistance Association (DFAA) if response and recovery costs exceed what they could pay for on their own.

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,  who are based in an unaffected part of the world, to make sure their coffers aren’t depleted.

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?

The first step is to protect you and your family. Call your insurance provider and, based on your unique needs, have a conversation about what endorsements they offer, ask about a flood and fire insurance protection plan for your home.

Next, do what you can at home – make sure you have a backflow preventer in your home to avoid sewer back up, ensure your eavestroughs are diverting water away from your house, make sure the foundation around your house is solid  – all to prevent flooding. If you’re doing renovations, ask your contractor about using materials rated for fire. You should also explore the idea of having a fire extinguisher in the home and always make sure you’re fire alarms are in good working order.

You could open a high-interest savings account in Canada to self-insure in addition to what’s provided in your policy. This way, if you’re worried, you can fund any repairs yourself, especially if you’re deductible is high. A home deductible may be as high as $5000, but a fix from a fallen tree through a window may only be $2000, so it’s best to have some money set aside.

Also make sure you compare car insurance quotes while you’re at it because while you may have comprehensive coverage covering your car from a fallen tree, you may not have flood or fire protection as specific perils and you may want to add them if you’re in a high-risk area.

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