Insurance companies have dished out about $1.7-billion worth of claims related to the floods in southern Alberta, and the high price tag will likely mean changes to the insurance business – with customers paying more for coverage.
The floods have become the costliest insured natural disaster in Canadian history, according to the Insurance Bureau of Canada. Backed-up sewers, business claims, and auto damage make up the majority of costs. The 1998 ice storm in Ontario, Quebec and Atlantic Canada is the second-most expensive natural disaster for insurance companies in Canada. That cost $1.57-billion, according to the IBC. That total is calculated in 1998 dollars.
The IBC believes changes for the industry and its customers are likely. Canada’s insurance companies may re-examine deductibles, create new products and tinker with payouts, said Bill Adams, head of the IBC’s Western and Pacific region. And while Mr. Adams would not explicitly say premiums are headed upward, he hinted the growing number of claims due to changing weather patterns means insurance customers may have to foot the bill.
“The difficulty the insurance industry is having is that as these severe weather events happen with greater frequency and severity, they are very costly to pay for,” Mr. Adams said on Monday in an interview. “Ultimately, that cost is borne by policy-holders. Long-term trends in claims in any private insurance market is indicative of where premiums are going.”
The insurance industry covered about 25,000 claims after the floods, he said, but he does not know how many were rejected. The $1.7-billion payout is expected to climb higher, although the IBC believes most of the claims have been processed. By comparison, the IBC expects the flooding that hit Toronto in July to cost insurance companies about $850-million.
The Alberta government expects total flood recovery costs to reach $5-billion, shared among insurance companies, and federal, provincial and municipal governments. That is small compared with recent disasters south of the border. Super storm Sandy’s losses total $65-billion (U.S.), according to the National Climate Data Center at the National Oceanic and Atmospheric Administration in the United States. The year-long U.S. drought in 2012 cost $30-billion, the agency said.
Evidence from the United States backs up Mr. Adams’ argument that severe weather events are becoming more frequent.
In 2012, there were 11 weather and climate disaster events with losses exceeding $1-billion each across the United States, according to the National Climatic Data Center (NCDC), a U.S. government agency. That puts it in second place for number of $1-billion disasters, behind 2011, which had 14, the NCDC said when it examined the economic affects of weather and climate events between 1980 and 2012.
The 11 disasters in 2012 cost more than $110-billion, making it the second-costliest year on record. Top spot goes to 2005, in which weather-related damage cost $160-billion (in 2005 dollars), including the devastation of Hurricane Katrina.
Insurance companies, Mr. Adams said, could combine options, such as adjusting deductibles while creating new packages of coverage, to deal with rising claims.