Insurers see hefty payout from severe weather in 2020

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Canada’s insurance industry paid out $2.4-billion because of severe weather events last year, dominated by a flood and a hailstorm in Alberta, continuing a trend of mounting losses amid a warming climate.

Catastrophe Indices and Quantification Inc. (CatIQ), a Toronto-based disaster analysis firm, found that 2020 was the industry’s fourth most expensive year since record keeping began in 1983.

Laura Twidle, managing director of CatIQ, said annual catastrophic losses have been on the rise over the past decade. Climate change produces more extreme weather events, she said, but continued development of urban areas also plays a significant role.

“We’re developing over our wetlands in areas that are capable of naturally absorbing all of this moisture that’s coming in rainfall,” she said. “And now that we’re hardening our surfaces, it’s harder for sewer systems to catch up.”

A hailstorm in Calgary on June 13 cost $1.3-billion, the most expensive Canadian hailstorm on record. Craig Stewart, vice-president of federal affairs for the Insurance Bureau of Canada, said the storm prompted 100,000 insurance claims.

“It really overwhelmed the industry,” he said. “We’ve settled about three quarters of the claims, but we actually still have claims coming in from that event.”

An ice jam in Fort McMurray last spring overwhelmed the city’s partly-constructed network of flood defences, inundating its predominantly commercial downtown area and causing $562-million in insured losses. The Regional Municipality of Wood Buffalo estimated losses not covered by insurance were even greater, at $617-million.

In a statement, Matthew Hough, the municipality’s deputy chief administrative officer, said all damaged infrastructure will be repaired by this spring. “We don’t expect any lasting damage, but we do expect some change,” he wrote, referring to the city’s flood-protection strategy.

Most notably, the municipality has changed plans for flood-prone areas. It’s offering voluntary buyouts in one neighbourhood that the city’s network of berms can’t protect, and considering a grant program to help residents in another neighbourhood protect their homes. It’s also trying to bolster the insurance industry’s confidence in the city’s new defences.

“In December, we highlighted our direct investments of $150-million in flood, wildfire and other mitigation projects to an audience of 14 major insurance companies at a meeting coordinated by the Insurance Bureau of Canada,” Mr. Hough wrote.

But if 2020′s weather was bruising for Canada, it brought unprecedented destruction to the United States. The U.S. suffered six of the year’s 10 costliest natural disasters worldwide, according to Munich Re, one of the world’s largest reinsurance companies.

Hurricane Laura, a Category 4 hurricane that struck western Louisiana in late August, cost a staggering US$10-billion in insured losses. That was the worst event in what Munich Re dubbed a “hyperactive” hurricane season in the North Atlantic Ocean, which produced a record-breaking 30 storms. Some of them exhibited rapid intensification before landfall, another trend in recent years.

Meanwhile, wildfires ravaged the Western U.S., burning large areas of land in California, Oregon and Colorado amid drought conditions. In California, four times more land burned than the average over the preceding five years.

By comparison, Western Canada’s wildfire season was muted.

“Something that we did luck out with was the fires,” Ms. Twidle observed. Although High Level, Alta., and parts of British Columbia experienced some fires, she added, “we’ve had a few quiet years.” Higher rainfall has been credited with protecting Canadian forests last year.

Canada’s most costly year for insured losses was 2016, when the Horse River wildfire burned swaths of Fort McMurray. Insured losses totalled $5.2-billion that year, more than double 2020’s amount. The Insurance Bureau of Canada cautioned that more bad fire seasons loom.

“Climate models are predicting a dryer western part of the country,” said Mr. Stewart, “which means we are going to have more fire events.” And they’ll be more intense, he added.

Mr. Stewart praised the federal government for recently unveiling its strategy to lower the country’s future greenhouse-gas emissions. “But it’s only half a plan,” he said. “That plan does nothing to lay out programming for protecting Canadians from floods and fires and hailstorms and wind today. We were quite disappointed with that omission.”

He urged Ottawa to renew or replace its now-expired Disaster Mitigation and Adaptation Fund, which committed $2-billion toward large infrastructure projects to lower risks associated with natural hazards.

Worldwide, insurance losses amounted to US$82-billion in 2020, according to Munich Re’s estimate. While Europe enjoyed a relatively benign year by historical standards, Asia suffered several catastrophes that were largely uninsured. Notably, Cyclone Amphan struck the border areas between India and Bangladesh in May. China suffered the year’s costliest natural disaster in the form of severe flooding during summer monsoon rains, but a mere 2 per cent of the losses were insured.

On Thursday, the United Nations Environment Programme released a report assessing the progress of countries in adapting to climate change. It estimated that more than 50 million people were directly affected by floods, storms, wildfires and droughts. And it warned that current pledges under the Paris Agreement put the world on a trajectory to experience a 3C temperature rise this century.

“If this happens, 2020 will seem like a walk in the park,” predicted Inger Andersen, the UNEP’s executive director, in her foreword to the report.

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