Skip to main content

The Globe and Mail

Higher insurance premiums in the forecast after months of wild weather

Pedestrians pass a fallen tree in Toronto on Dec. 21, 2013 after a devastating ice storm.

Deborah Baic/The Globe and Mail

Insurers are expected to increase homeowners' premiums by hefty amounts as the industry seeks to protect itself against the steepening costs of severe weather.

Some property and casualty (P&C) insurers are already charging more for home insurance following a particularly expensive year for claims from flooding, ice storms and hail.

While the rate hikes will be a burden on consumers, they will help improve the profitability of a sector that has been hurt by a string of extreme climatic events.

Story continues below advertisement

Analysts at BMO Nesbitt Burns estimate that the recent damage caused by ice storms in Ontario, Quebec and Atlantic Canada last December could result in between $400-million and $600-million in gross losses for the P&C industry in Canada.

This comes on the heels of the rain storms and flooding that ravaged Alberta, Ontario and Quebec in recent months.

The storms that swept through Alberta last June caused $1.7-billion in insured damages, making it Canada's costliest natural disaster, according to the Insurance Bureau of Canada.

Intact Financial Corp., the country's largest P&C insurer, took its first underwriting loss in a decade because of the disasters, and other insurers also announced losses.

"Extreme weather events from the summer have made it clear that the sustainability of home insurance in its current form is being challenged," said Charles Brindamour, chief executive of Intact, in the company's last conference call in November.

To improve profitability, Intact has begun to raise premiums, typically by between 15 and 20 per cent. It is also increasing deductible amounts in some provinces, and reducing water coverage limits in an attempt to reduce its financial exposure to unusual weather.

"Water damage, wind and hail claims now represent more than 50 per cent of our insured losses," Intact spokesman Gilles Gratton said in a statement on Tuesday.

Story continues below advertisement

Intact also wants to encourage consumer education and damage prevention. It now offers incentives to consumers with sump pumps, backflow valves and alarm systems. Other insurers are taking similar steps.

While Intact, which controls 17 per cent of Canada's P&C market, is leading the move to raise homeowner premiums, the rest of the industry is expected to follow suit, BMO analyst Tom MacKinnon said, a move that may help to improve profits and add lustre to the sector's stocks.

"In addition to the summer storm activity…the late December storms could push the property insurance industry towards more market firming," BMO said in a recent report. A firm or "hard" market is one characterized by rate increases and tougher underwriting.

Both measures could help Intact improve its "combined ratio," a key measure of profitability for property insurers. The ratio compares the amount an insurer pays out in claims and other expenses to the amount of premiums it takes in. The lower the ratio, the better a company's underwriting profits.

Intact wants to reduce the combined ratio on its personal property line of business by 10 percentage points over the next two years.

If Intact can achieve its goal of an 85 per cent combined ratio, excluding catastrophic losses, it would add 23 cents to the $7.20 in operating earnings per share that Mr. MacKinnon has forecast for 2015.

Story continues below advertisement

Report an error Licensing Options
About the Author
Financial Services Reporter

Jacqueline Nelson is a financial services reporter at the Report on Business. Prior to that she was a staff writer at Canadian Business magazine, covering news and writing features on a wide variety of subjects. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨