Top Trends Affecting the Insurance Market for Natural Disasters

Over the past year alone, Canada was hit by two of the costliest natural disasters in the country's history – Hurricane Fiona (insured damage of $660 million) and the windstorm that swept through Ontario and Quebec in May (insured damage of $875 million).
Categories: Personal Insurance
Dec 8th, 2022 | By: CapriCMW

Over the past year alone, Canada was hit by two of the costliest natural disasters in the country's history – Hurricane Fiona (insured damage of $660 million) and the windstorm that swept through Ontario and Quebec in May (insured damage of $875 million).

As natural catastrophes (CATs) and other severe weather events become more frequent and devastating, $2 billion per year in CAT insurance losses is now the new norm, according to the Insurance Bureau of Canada.

WHAT IS A SEVERE WEATHER LOSS?

A severe weather loss is any damage to your business or personal property and assets caused by CATs, including 

  • Floods
  • Windstorms (hurricanes, derechos etc.)
  • Convective storms (leading to hail, water and wind damage)
  • Wildfires
  • Earthquakes

INSURANCE MARKET TRENDS AFFECTING YOU

Reinsurance

According to Dave Edgar, Chief Broking Officer of CapriCMW, reinsurers (companies that provide insurance to other insurance companies and help cover claims too large for  a single insurer to pay alone), are entering the most drastic contraction (otherwise known as a hard market) seen in the industry for two decades. Hard markets are typically characterized by stricter underwriting, less competition and reduced capacity which ultimately means higher premiums and deductibles for clients.

Reinsurers are grappling with rising interest rates, an approaching recession and increasing CAT losses. These conditions may trigger some to decline reinsuring CAT exposures, which can lead to coverage gaps in an already tight market, according to a recent MSA Research report. 

Earthquake insurance 

The coast of British Columbia, Ottawa and Montreal are all parts of Canada that are most vulnerable to earthquakes. A recently acquired BC-based insurance company has announced it is shuttering operations, leaving $191 million of home and commercial insurance policies without an insurer. As insurance companies tend to purchase only the amount of reinsurance they need, they are generally not in the position to suddenly take on this volume of premium. Additionally, the hardening reinsurance market will result in higher earthquake deductibles and premiums for property owners, with some unable to buy coverage at all. While the hope is that reinsurers can close this gap in the coming year, in the mean time, brokers are scrambling to help clients secure the insurance coverage they need.

WHAT CAN YOU DO?

It is anticipated that the availability of CAT insurance will be significantly reduced, and insurance companies will be much more cautious of what they take on and require evidence of robust risk management, Edgar advises.

1 - Get started early

Get in contact with your broker to begin your renewal process way in advance of your policy expiration to allow ample time for information gathering that can support their ability to negotiate on your behalf. 

2 - Enhance your risk profile

Prioritize risk management and due diligence. For example, if you are in a wildfire-prone area, it is important that you take measures to prepare and protect your property (i.e. installing resilient roofing). Make sure your broker is aware of the steps you have taken so they can use this information in getting you the best rates, terms and conditions possible from insurers. Your broker should also be able to guide you in the appropriate risk management steps to take and provide tools and resources to support you.

3 - Be prepared for compromise

Communicate your biggest priorities for coverage. You will likely have to make some concessions and weigh the pros and cons of higher deductibles versus higher premiums. 

 This content is powered by the Canadian Broker Network.

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CapriCMW is a proud member of the Canadian Broker Network (CBN), an alliance of Canada’s leading independent insurance brokerages representing over 100 offices, 2,000 professionals and over $2 billion in premiums. Learn more at canadianbrokernetwork.com.

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