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The Globe and Mail

High water, high costs: Insurers hit hard by claims for commercial properties

Commercial losses, not residential claims, may account for the majority of the damage that Canadian insurers will have to pay for severe flooding in Calgary and Toronto, where major storms put office buildings, equipment and machinery in harm's way.

Preliminary estimates point to more than $2.25-billion in insured losses for Calgary alone, according to Tom MacKinnon, insurance analyst with BMO Nesbitt Burns. Much of those commercial recovery costs are borne by Canada's more than 200 personal and commercial (P&C) insurers, which have now begun to roll out their guesses of how much the recovery effort will cost.

"The severity of these commercial claims is significant," Wayne Ross, property claims vice-president at insurer Aviva Canada Inc., said in an interview.

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He noted that mechanical equipment, electrical systems and vehicles are usually on the ground floor and susceptible to water damage. "That's where the major payouts of a number of the bigger players will be."

While disputes over residential claims attracted public attention following these two recent disasters, the value of capital equipment and lost business associated with commercial claims may exceed payouts for residential damage.

Unlike homeowners, commercial property owners can opt for overland flooding insurance coverage, as well as sewage water backup. Commercial damage claims also tend to be slower and more complicated because many of them will involve multiple insurers.

The Scotiabank Saddledome, a massive venue that hosts the annual Calgary stampede , flooded up to the stadium's tenth row. In addition to that damage, insurers must often cover interrupted business revenue. Pop singer Selena Gomez was unable to perform a concert at the venue, for example.

Intact Financial Corp. said Monday that its customers' flooding in Alberta will cost the company more than $300-million, or $105-million net of the reinsurance coverage the company has. A spokesperson for the company could not confirm how much of those damages were related to commercial locations.

The storms that pounded the Greater Toronto Area will cost the company another $170-million in insurable damages, Intact said.

Flooding is Canada's most commonly occurring natural hazard, and the combination of more severe and frequent weather events with rapid building and development are creating more devastating catastrophes for governments and insurers.

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"It's very clear that this is one of the costliest years, particularly for insurance companies, for severe weather claims," said Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction, an independent body established by the insurance industry and affiliated with the University of Western Ontario.

Many companies in High River, Alta., were hit hard during last month's flooding, with cement-maker Lafarge Canada Inc. and a meat processing plant owned by Cargill Ltd. both experiencing production interruptions as a result.

Even some of the insurers' own buildings were damaged in Calgary. Intact's downtown office of 600 people was briefly closed in the flooding aftermath.

"If your business was impacted by the flood and you were unable to conduct your work, reach your premises, ship your products, or maybe you're part of a supply chain and you need to send products off to be finished elsewhere, then that business interruption insurance can be quite complicated and expensive," said Sharon Ludlow, Canadian chief executive of Swiss Re.

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