Flooded with claims: A severe weather summer recap

From the Toronto flood to the Jasper wildfire, severe weather events have been making headlines all summer long – but how does this impact the insurance industry? Let’s take a closer look.

Summer natural disasters: Insured losses in Canada

The P&C insurance industry (including auto, home, and business insurance) is dealing with the most challenging summer on record due to severe weather disasters – there have been more claims across Canada this summer than any other summer in the past 20 years. This is mainly a result of four major events: the Toronto and Southern Ontario flood, the Jasper wildfire, the Calgary hailstorm, and the Southern Quebec flood (as an aftermath of Hurricane Debby).

According to the Insurance Bureau of Canada, this has resulted in an estimated 228,000 insurance claims. This is about a 102% increase from the previous year – where insurers saw 113,000 claims in July and August. And comparatively, 160,000 claims were made throughout the entirety of last year.

What Canadians need to know about their insurance

You may be wondering whether your insurance has you protected against severe weather – and the short answer is it depends. Coverages can differ from policy to policy, so make sure to double-check yours for specifics and add on any necessary endorsements.

In terms of home insurance, standard policies do protect your dwelling and provide contents coverage against wildfire. Coverage for additional living expenses is also standard, so if you need to evacuate temporarily because of a fire, your policy can help pay for accommodation. 

And while most home insurance policies will also cover expenses associated with wind and hail damage, there may be exclusions. A common one would be for cosmetic damage – meaning that if your roof or siding is damaged appearance-wise but the damage doesn't affect its functionality, you may be on your own to pay for the repair.

Flood insurance is a bit more complicated. Standard home insurance policies don’t typically have flood coverage built in. Instead, you’ll need to add this for an extra cost in the form of overland water insurance and sewer backup insurance.

For auto insurance, most claims scenarios related to severe weather incidents will require you to have comprehensive coverage on your policy to be covered. Essentially, this type of insurance pays for the repair or replacement of your vehicle for events that aren’t collision-related – which can include fire, hail, and flood damage. In most provinces, it’s optional but highly recommended. 

It is important to call out that some insurance companies could interpret flood damage as a collision if you happen to be operating the vehicle and are suddenly impacted by water – this is ultimately up to your insurer's interpretation as a claim could be classified under collision insurance. It’s generally recommended to have both collision and comprehensive coverage added to your policy to ensure your vehicle is fully protected.

In addition to reviewing your coverage, it’s also important to review all the limits on your home and auto policies – you wouldn’t want to be underinsured during a severe weather claim. 

For home insurance, this means reviewing your dwelling coverage to ensure your replacement value is up to date. Consider adding a guaranteed replacement cost provision to your policy if you don’t have one already – this ensures the full cost of rebuilding your home will be covered even if it’s higher than expected. Also, review your personal belongings coverage limits and amount to ensure that you can replace all your items with ease in the event of a claim.

Also read: How much home insurance do I need?

For auto insurance, make sure you’re comfortable with how your policy pays out in the event of a claim. Most standard plans only cover the actual cost value of your vehicle in the event of a total loss – this means that your insurer will account for depreciation which can make it more difficult to purchase a brand new car. Consider asking about a removal of depreciation waiver, allowing your vehicle to be insured for its full replacement value, instead.

Also, review all of your coverage deductibles on all your policies to make sure you're comfortable with the out-of-pocket costs required to successfully process a claim. While higher deductibles lead to lower insurance premiums, you'll still need to pay that amount upfront before your insurer covers the rest of the claim.

How does this impact the insurance industry?

Severe weather continues to pose a threat to insurance through two main issues: rising premiums and coverage limitations. Here’s what these challenges mean for both the insurance industry and yourself.

The rising cost of insurance premiums

As insurers are forced to pay out more claims due to severe weather, these costs inevitably trickle down to policyholders. Insurance is all about balancing risk, and as homes, vehicles, and businesses become more risky to protect, coverage will become more expensive for all. While Canadians are already used to seeing inflated insurance premiums, this trend is only expected to continue.

According to the Applied Rating Index, personal auto insurance premiums have increased by 25.2% in Q2 of 2024 compared to Q1 of 2021. Year over year, rates have risen by a significant 13.3% in Q2 of 2024. In contrast, personal property insurance premiums have surged by 25% when comparing Q2 of 2024 with Q1 of 2021, with a year-over-year increase of 9.9% in Q2 of 2024.

The limitation of coverage options

As severe weather continues to pressure the industry, insurers may eliminate certain coverage options altogether based on your risk profile. This is already the case with flood coverage in Canada, as providers have either denied protection for high-risk homes or made it extremely expensive to obtain.

The President and CEO of the Insurance Bureau of Canada, Celeste Powers, has urged the federal government to step in during this time of catastrophe – citing that necessary resources must be committed to establishing the National Flood Insurance Program as a way to protect Canadians against the financial repercussions of climate change. 

And while Canadian insurers have yet to deny fire insurance for homes (which again, is a standard coverage currently provided), it remains a possibility for the future. California serves as a cautionary example as major insurers here have stopped issuing coverage due to the extreme impacts of climate change.

The bottom line

Only time will tell as to how insurers will adapt to the ongoing impacts of severe weather events. In the meantime, stay vigilant in making sure your policy provides all the coverage you need. And to address rising premiums, take matters into your own hands by shopping around for a more competitive rate today.

Also read:

• Climate change and its impact on insurance
• What is reinsurance? Why should I care?
• Home insurance tips for severe weather