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Canadian insurers warned to adapt to floods, fires and flood of damage claims

Evan Lehmann, E&E reporter
Published: Wednesday, June 6, 2012

Canadian insurance companies were warned this week that damage from heavier rainfall, more forest fires and other catastrophes will likely keep climbing as the northern climate continues to warm.

The Insurance Bureau of Canada, an industry trade group, commissioned a report designed to help insurers and public officials foresee risks through 2050. They face uneven changes in a nation that stretches from the rapidly warming Arctic to the populated southern prairies and coasts, where risks span a spectrum from heavier downpours to more frequent droughts.

Insurers are already seeing damage climb from severe weather, the  report says, noting that catastrophe claims reached $1.6 billion in 2011. That wasn't an outlier. For the past three years, claims have reached at least $1 billion annually, a string of damage that's not happened in the past.

Risky business: A satellite image taken in May 2011 shows the smoke from 116 wildfires burning in Alberta. One of them burned 40 percent of a town near Lesser Slave Lake. Photo courtesy of NASA.

"It's really affecting our industry," Gregor Robinson, the insurance bureau's senior vice president for policy and chief economist, said of climate-related damage. "We're a business that's affected by it now."

The three most expensive catastrophes in the nation's history have happened in the past 14 years, including a large wildfire last year that the report suggests may signal an exacerbation of burn risk in the future from drier and hotter conditions locally.

Climate change isn't the driver of these potential events, but it could be a contributor. The recent fire, which set the forest ablaze in Slave Lake, Alberta, is a suspected case of arson. The report says hot conditions in spring 2011 might have helped to spread the flames, ultimately causing about $700 million in insured losses. It was the second most expensive event in the nation's history.

In dollars lost, the fire follows only an ice storm that struck Montreal in 1998. It caused $1.6 billion in insured loss and drove wider economic damage of up to $7 billion by causing road accidents, power outages and other societal impacts.

Northern temperatures rise faster

The storm could be a sign of things to come, the report says. By 2050, wintertime precipitation will "increase considerably" in the province of Quebec, where the amount of cold-weather rain and snow is expected to rise by 50 percent in the north, along Hudson Bay, and by 10 to 15 percent in the south.

Across Canada, temperatures have risen on average by more than 2.3 degrees Fahrenheit since 1948. That rate of warming is about twice the global average and is driven largely by faster temperature rise in the Arctic.

As a result, the nation now experiences 20 more days of rain on average in a year compared with the 1950s.

"These changes to the climate are likely responsible, at least in part, for the rising frequency and severity of extreme weather events in Canada, such as floods, storms and droughts, because warmer temperatures tend to produce more violent weather patterns," the report says.

Some insurers in the United States and many in Europe are also trying to identify the impacts of climate change on their lines of business, from properties underwritten along coastlines to lost revenue from business interruptions.

State regulators are asking for more. Insurance commissioners in California, New York and Washington are requiring large companies doing business in their states to disclose their efforts to understand the effects on climate change and their responses.

'There's going to be more'

The U.S. government, meanwhile, is studying the climatic impacts on a sprawling public flood insurance program with more than 5 million policyholders, many of them living along risk-prone coasts and shorelines. Preliminary results indicate that the size of areas designated as floodplains could grow by up to 45 percent.

The risks associated with climate change are often driven by increased development, which adds new targets for floods and hurricanes while changing the way water flows over the landscape.

That ground-level effect is also having repercussions in Canada. Insurers there are seeing flood damage rise as homeowners undertake expensive basement upgrades and as the nation's aging sewer systems struggle to handle more runoff.

"As a result, water claims have now surpassed [household] fire as the number one cause of home insurance losses in many parts of the country," the report says.

Gordon McBean, a Canadian climatologist who oversaw the development of this week's report, said Canada should begin grappling with adaptation efforts like stronger building codes and land use standards to diminish climate impacts that are already happening.

There isn't enough evidence to attribute other events to rising temperatures, but that doesn't mean that insurers and Canadian officials should neglect preparing for them, McBean said.

"We can't say with confidence what's going to happen with hail and tornadoes, but from the risk management point of view, you should assume there's going to be more," he said.


Reprinted from ClimateWire with permission from Environment & Energy Publishing, LLC. www.eenews.net. 202-628-6500

 

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