Climate change is having a direct impact on home insurance rates

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Last weekend in B.C.’s Kelowna region, the air was still strong with wildfire smoke after a summer of seemingly endless fires, including the fire that destroyed nearly 200 homes in West Kelowna.

In the past seven years, the province has experienced “four of the most severe wildfire seasons of the last century,” according to a paper in Nature, written by Canadian academics.

Fires across Canada are predicted to increase in frequency and severity, according to Health Canada. As well, there is an ongoing risk of floods, landslides and earthquakes, depending on the region.

In the meantime, homeowners and developers can expect insurance premiums to increase, which will have an impact on an already beleaguered housing supply. In turn, that will impact the affordability of housing, which is already a crisis.

Craig Stewart, who is the vice-president of climate change and federal issues for the Insurance Bureau of Canada, the association for property, automobiles and business insurance, Stewart said insurance premiums have gone up on average 5 to 10 per cent in the last year, according to Statistics Canada figures. That’s the biggest bump he’s seen in premiums for property insurance. And we can blame that on climate change, he says.

Insurers buy their coverage from global reinsurance companies that are raising their premiums because they see higher risk. As a result, so too have a lot of local insurers. Some expect those reinsurance premiums to continue to rise, he says.

“Global reinsurers price risk for countries and regions around the world. So if you live in a place of high risk, such as California or Louisiana – and now Western Canada – we are seeing reinsurance prices are going up in those areas,” he says. Mr. Stewart is based in Nova Scotia, which experienced catastrophic wildfires and flooding this summer.

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The risks are so high that some homes no longer qualify for insurance. Mr. Stewart said there are about 1.5 million homes in Canada that cannot get flood insurance, although the IBC is working with the federal government to address the issue.

Insurers are extremely concerned about the potential for an earthquake disaster in B.C., says Mr. Stewart. That, combined with higher reinsurer premiums are largely the reasons behind increased premiums in the Lower Mainland.

In Richmond and Surrey, there are areas where soil subsidence is a potential issue, so there are some homes that do not have insurance if they were to suddenly sink into the ground because of an earthquake, he said.

“There is some overall cross-subsidization, but most of [the increased cost] is location specific. You are typically paying for your own risk. Earthquake premiums have gone up because in 2019 the federal government realized the impacts from a significant quake in B.C. were double than what was previously understood.”

The strain on the housing system is compacted by the high cost of rebuilding housing lost in natural disasters.

“When you add rebuilding to the mix, it can be very expensive to rebuild a home, in the present labour market,” said Mr. Stewart.

“When insurers are pricing policies, they take a look at what it would cost in a particular market at this point in time to rebuild that house,” he says. “And what we are seeing is, it’s often costing much more to rebuild a house than the value of the house itself.”

As well, between B.C. and Nova Scotia alone, there might be 1,000 homes that need to be rebuilt due to disaster.

“That takes away from labour available to build new homes,” he says.

The real estate community is becoming increasingly aware of climate change as an ongoing challenge.

“[Climate change] will become increasingly important and get focus,” says Andrew Lis, director of economics and data analytics for the Real Estate Board of Greater Vancouver.

“But with things climate-related, history has shown people prefer to kick the can as far down the road [as possible],” he adds.

“As we move into the future with climate change, the risks are hard to forecast. [They] can seemingly come out of the blue, with furious consequences.

“Already, some condo and strata insurance premiums are rising dramatically, and some buildings are not even insurable. If it gets bad enough, the government might have to step in and become insurer.”

Vancouver resident and developer Michael Geller said he was shocked to find the insurance coverage for his own home had reached $8,000 this year. After surveying neighbours and friends, he found premiums that were “all over the map” in terms of cost. Developers, he says, are also facing steep hikes, which will add to the cost of housing.

“It used to be that insurance was a line item in a pro forma, but it wasn’t a major cost. But just as property taxes [have increased], now we have property insurance adding significantly to the cost.”

The financial implications of climate change include the impact it has on affordable housing, says Lindsay Brugger, vice-president of urban resilience for the Urban Land Institute in Washington.

Ms. Brugger recalled Hurricane Sandy, the deadly storm that hit the New York area in 2012. “When a disaster of that scale hits New York City and you consider the amount of GDP that comes out of that specific region, it was a huge wake up call for a lot of people across the industry.”

“Climate change is a threat multiplier, so it makes everything worse,” says Ms. Brugger.

“When we think about all the housing we already need before a disaster even strikes, and then after a disaster, that housing is even further dwindling. We want to address shocks and stresses. Shocks are acute disasters; stresses are the chronic issues, like lack of affordable housing already plaguing our communities that are made all the worse when a disaster does happen.”

She says that for every dollar spent on developing resilient buildings, more than $6 is saved in recovery.

“When consumers start asking questions like, ‘Is my home elevated?’ and ‘Is my home ember resistant?’ I think then there will be more motivation for home builders and others in the real estate pipeline to design for that consumer demand.

“I anticipate that consumer demand for resilience will only increase. The market indicators are there. We are already seeing it in some leading developers, some leading master-planned communities.”

On emotional bus tours, residents return to West Kelowna, B.C., to view the ashes

Kelowna realtor Richard Deacon says in terms of sales it was a slower summer than last year. A couple of his buyers decided to pause their home search because of the wildfires. It’s becoming part of a realtor’s job to educate buyers on neighbourhoods that are safer than others, such as places that only have one road in and out, or are distant from a firehall.

He predicts that in the Kelowna neighbourhood where 200 homes were lost, all will be rebuilt in the next two years. The question will become how they get rebuilt.

“This is when insurance companies and lenders, hopefully, the building code, and builders come into play so that everyone understands you shouldn’t just slap up the same home.

“You get your $1-million insurance cheque, and you want to build the same dream home you had before. But shouldn’t we be looking at sprinkler systems, fireproof materials and landscaping design that can mitigate fire?”

Melissa Hamer lives on the top floor of a Vancouver apartment building that becomes uncomfortably hot during the summer. She also works with the construction industry as part of a B.C. Institute of Technology program, helping to implement the new zero carbon step code for energy efficiency. Reducing carbon emissions and resiliency to climate change go hand in hand, she says.

The industry is increasingly discussing airtight homes, filtered home ventilation systems to protect occupants from smoke, using fireproof exterior materials, and even houses that are light-coloured instead of heat-absorbing dark colours, she says.

“A big thing is getting a general understanding, having public awareness, about what impact our buildings have on our environment,” she says.

Mr. Stewart said the insurance industry is advocating for a federal system that would rate the resiliency of a home in the face of disaster, much the way that energy efficiency programs operate. The insurance companies could base premium costs on how resilient the home is and realtors could use the rating system as a marketing and educational tool to help buyers.