Competing on Climate Change: An Interprovincial, Longitudinal Review of Emerging Environmental Risks to Canadian Homeowners

This option would work particularly well in the interior forests of British Columbia, Alberta, Saskatchewan, Ontario, and Quebec, where the financial loss (but not the incidence) of wildfire continues to grow exponentially. For example, insurers could lobby the federal government to institute a government insurance program to re-insure the growing costs of catastrophic wildfires within these provinces. Planning to insure catastrophic wildfires requires extensive re-insurance, which may be prohibitively expensive within the private market. In exchange for this government protection, insurers would be able to offer broader and more predictable protection to consumers. Storm surge protection is one additional coverage option that consumers in Canada’s interior forests would benefit from.

Cooperating with consumers to co-insure frequent events. Given substantial climatic shifts, it is inevitable that some financial losses will be absorbed by the consumer. There is the argument, however, that self-insurance for catastrophic events exposes even wealthy individuals to disadvantageous economic loss (Lee, 2010, p. 170). The inferior nature of self-insurance as a risk-management strategy for major losses is apparent.

That being said, homeowners in Atlantic Canada will require some level of self- insurance to cope with the growing incidence and severity of coastal storms. As the level of self-insurance rises, however, the remaining pool of applicants generally report uninsurable background risks (Crocker & Snow, 2008, p. 159). For example, hurricane damage is currently covered within most homeowner’s contracts but not resulting water damage from the storm. Adverse selection pressures are expected to grow within the Atlantic Canadian market place as less vulnerable homeowners seek greater amounts of self-insurance for hurricane risks. .

The Atlantic Canadian climate zone will most likely encounter adverse selection pressures following hydrological disasters. That is, homeowners living near low-lying coastal areas will inevitably desire comprehensive coverage for storm surges and floods. Those in high elevation areas, however, will likely reject the high cost of insurance for such coverage. In this instance, the cross-subsidization of risks can be avoided through the careful application of hurricane deductibles (Crocker & Snow, 2008, p. 138; Petrolia, Landry, & Coble, 2013, p. 242).

Conclusion

Significant variation in natural disaster incidence and severity exists across Canada with one consistent finding: natural disasters have become more common and more severe across all climatic zones since the early 1970s. Each climatic zone, however, yields vastly different disaster incidence patterns over time. While discussing the fiscal impact of emerging environmental risks, one industry report states: “This changing climate will profoundly alter insurers’ business landscape, affecting the industry’s ability to price physical perils, creating potentially vast new liabilities and threatening the performance of insurers’ vast investment portfolios” (Leurig, 2011, p. 9). This study has adopted a similar viewpoint. Canada’s insurance industry, as it exists today, will soon undoubtedly face profound pressures to custom-tailor currently standardized policies, based in large part on where an insured homeowner lives.

Change is perhaps the only constant for Canada’s property insurance market. In this study, the researcher has briefly examined four strategies to cope with climate-related changes in catastrophic events. This strategy was designed by the researcher to reflect a more consultative, participative approach to environment risk management. By focussing on local consumers and communities, the four-part strategy can help insurers to develop stronger community partnerships while addressing the problem of climate change. A “4-C” environmental risk management strategy is a sustainable solution that can help Canadian insurers weather the coming storm.

Acknowledgements

I would like to express thanks to Professor Teresa Costouros, Curriculum Coordinator for Insurance Programs at MacEwan University for her encouragement while exploring emerging insurance issues.

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Endnotes

1.) All reported financial data are normalized to Canadian 2010 dollars via Statistics Canada Consumer Price Index (CPI) tables.