Insurers are not yet able to determine the total cost of damage from the wildfire that destroyed the village of Lytton, B.C., but a senior industry analyst estimates it could result in almost $100-million of insurance claims.
“If the fire is contained and doesn’t spread beyond Lytton – which we have heard has already destroyed 90 per cent of homes – we are going to see insured damages around $100-million,” Marcos Alvarez, head of insurance for DBRS Morningstar, said in an interview with The Globe and Mail.
The Canadian insurance industry has seen an increase in the number of natural disaster claims in recent years including losses because of floods, hail storms and wildfires. One of Canada’s largest wildfires was in 2016 in Fort McMurray, Alta., where a fire spread across 590,000 hectares over two months during the summer. The fire wiped out more than 2,400 homes and caused $9.9-billion in damages – the most expensive disaster in Canadian history.
Of those total damages, approximately $3.6-billion, or 36 per cent, were insured, Mr. Alvarez said.
“Despite 2016 being a record year for total catastrophe losses with $5.6-billion for the insurance industry, which included the Fort McMurray wildfire, the industry was able to absorb those losses,“ he said. “The financial impact is still manageable for most [property and casualty] insurance companies, which in turn also rely on reinsurance programs to mitigate large natural catastrophes.”
Fire insurance is a standard inclusion in every home and business insurance policy, and typically includes coverage for additional living expenses when an individual cannot return home after a fire, including items such as food, clothing and hotel stays.
After the wildfires in Fort McMurray, homeowners, particularly in Western Canada where there is a high number of wildfire occurrences, have paid closer attention to the amount of additional living expenses included in a policy, says Mr. Alvarez, which for some can be as low as $5,000.
With Lytton still deemed unsafe for residents to return, insurance adjusters have not yet been able to enter the village to begin to assess the damages, says Aaron Sutherland, vice-president of the Insurance Bureau of Canada’s Pacific and Western regions.
“We don’t have an idea yet of what we are going to see as it relates to the damages, but it is clear it is going to be substantial,” Mr. Sutherland said in an interview. “Fire coverage has really been the basis of insurance coverage since its creation and Canada’s insurers will be part of helping rebuild Lytton over the long term.”
The initial estimate of damages could take several weeks from the date insurers are able to access Lytton – and can be “refined” over the coming months, he added. Secondary costs – such as the rising price of lumber – could also affect the total cost of rebuilding the village.
“With lumber prices being the way they have been during the pandemic, repairing your home can be much more costly,” Mr. Sutherland said.
Jason Storah, chief executive of property and casualty insurer Aviva Canada, told analysts during a corporate call on Tuesday the company has seen a “small number” of claims reported so far – worth “a couple of million dollars” but also noted most residents haven’t been able to get back into Lytton yet.
During the call, Mr. Storah estimated his company’s exposure could be between $10-million and $13-million, based on the number of insurance policies for the region.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.