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The “new normal” of recurrent and severe weather events represents an unpleasant reality for insurance companies and their policyholders. Climate change-driven catastrophes will continue to plague Canada in 2024 and beyond and will have an outsized effect on insurance rates and availability. While there are signs of some relief for insureds, those acknowledging a new reality will have an edge on controlling risk and obtaining rate relief.
The numbers are concerning: Worldwide losses from natural catastrophes amounted to CAD$382 billion during 2023. That figure doesn’t help Canadian business owners and managers trying to get their insurance costs under control.
2023 than there are in an average year. In total, an unprecedented 24 catastrophes hit Canada in 2023.
Climate change has been identified as the culprit for more frequent and destructive storms and wildfires. Severe convective storms accounted for CAD$87 billion in losses in 2023. In fact, insured losses from severe convective storms have risen an average of 8% each year since 2008.
These disasters have contributed to the challenges of the commercial insurance market, which continued to see quarter-over-quarter commercial rate increases through the first half of 2024, albeit at a slower pace than in prior years. However, higher investment returns have increased insurers’ profitability, softening premium rates in commercial property.
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Keep insurance costs in check through risk management
While finding adequate insurance for commercial properties will remain difficult, we expect market instability will level off throughout the rest of 2024.
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1. Swiss Re Institute, “Natural disasters in 2023,“ March 26, 2024.
How the changing nature of catastrophic weather events affects businesses
In the past few decades, in addition to hurricanes, Canada has faced baseball-sized hail, unprecedented flooding and devastating wildfires. While these events are not uncommon, climate change has increased their frequency and severity.
While the U.S. boasted a mild hurricane season in 2023, Canada did not have such luck — more hurricanes hit
To improve insurability and reduce risk in the short-term, business owners and managers should consider the following:
Build resiliency against disasters.
Short of moving a business out of a catastrophe-prone area, it’s impossible to remove all exposure to disasters. However, upgrading roofs, plumbing, electrical systems and other at-risk elements will reduce the risk of a claim. In areas prone to wildfires, buildings should be in “defensible” positions with non-combustible landscaping; in geographies with severe convective storms and hurricanes, property must be secure and stored when possible.
Implement emergency response plans for catastrophes.
With catastrophes more common than ever, underwriters will look favourably on insureds that have an emergency response plan for a catastrophic event. Plans for evacuation, protecting property and business continuation in the event of a ruinous weather event will help secure appropriate coverage at an affordable rate.
Seek insurance coverage from nontraditional sources.
Consider coverage from excess and surplus (E&S) insurers, captive insurance options and shouldering additional risk. With climate change leading to less insurance availability, remember that a single insurer will be unlikely to fulfill all your needs.
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Eastern Canada than Florida during that period. A combination of hurricanes and wildfires proved devastating for some businesses and their insurers.
In addition to these enormous challenges, the costs of rebuilding have risen. Non-residential construction costs increased more than 7% in 2023, after a record increase of 12.5% in 2022. Although increases may not be as high in 2024, they are likely to rise somewhat.
2. Swiss Re, “New record of 142 natural catastrophes accumulates to USD 108 billion insured losses in 2023,” March 26, 2024.
In perilous times, insurance and risk management offer the opportunity for better results
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Will catastrophic weather be the new normal?
Insurers were on the hook for CAD$147 billion in damages from catastrophes in 2023, down from CAD$170 billion in 2022 but above the 10-year average of
CAD$121 billion.
However, there is hope on the horizon. Reinsurers, often seen as a predictive measure for primary insurance carriers, reported strong profits in 2023 due to higher rate hikes and tight terms. Those margins are expected to peak in 2024, leading to an influx of capital and a more competitive market in 2025.
Simply put, rate increases in 2023 reflected a terrible 2022. Today, new carriers are entering the market, which is expected to tamp down rate increases and increase availability in 2024. But a nasty storm season this year could mean goodbye to rate stabilization.
Strong risk management continues to be an essential component for organizations to keep rates in check and keep themselves adequately insured.
An April 2024 downpour dropped as much as 254 millimetres of rain in the desert climate of the United Arab Emirates and Oman, causing widespread flooding. Experts identified climate change as the reason for the intensity of the storm.
Catastrophic Floods in the Desert
The light after the storm
As noted above, new carriers entering the insurance market will result in insureds across most of Canada seeing minimal rate increases and greater availability of coverage options — which could change with a worse-than-average hurricane season.
Insurance for properties with exposure to catastrophic perils, however, is likely to remain elevated. Rates will
depend on factors including a property’s placement in a catastrophe zone, the type of construction, the year in which it was built and the type of business involved.
Underwriters will continue to pay close attention to insureds’ loss experience, valuation methodology, risk control and geographic footprint in determining premiums. Organizations with strong risk management programs that make the effort to mitigate their exposures will be the most likely to reap rate rewards.
Work with your broker early on renewals.
Start the planning for insurance renewal as much as 150 days before the deadline. While that’s a lot of time compared with the 60 to 90 days before renewals that companies have allotted in the past, the realities of today’s evolving insurance landscape mandate extra time to obtain adequate coverage.
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3. CatIQ, "Canadian Insured Losses from Catastrophic Events Exceed CAN $3 Billion in 2023,” January 8, 2024.
4. Insurance Institute, “How winter storms tally this year compared to last,” accessed May 15, 2024.
6. Canadian Underwriter, “Where we’re at with commercial rates with Canada,” August 14, 2023.
8. Reuters, “What caused Dubai floods? Experts cite climate change, not cloud seeding,” April 18, 2024.
7. Canadian Underwriter, “How P&C investment returns will impact carriers in 2024,” December 5, 2023.
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9. Fitch Ratings, “Reinsurers’ Underwriting Margins to Peak in 2024,” January 23, 2024.
10. Statistics Canada, “Building construction price indexes, fourth quarter 2023,” February 1, 2024.
11. Insurance Institute, “How winter storms tally this year compared to last,” accessed May 15, 2024.
Insurers were on the hook for
in damages from catastrophes in 2023
CAD$147 billion
143
Globally, there were
$108 billion
Insurers were on the hook for
in 2023
Fortunately, there may be some relief for catastrophe-prone regions in terms of insurance pricing and availability. Despite the record number of catastrophic events in 2023, the first half of 2024 represented one of the mildest winters in recent memory, with only two catastrophes.
insured natural disasters in 2023, the highest number ever recorded.
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5. Swiss Re Institute, “Natural disasters in 2023,“ March 26, 2024.
Globally, there were 143 insured natural disasters in 2023, the highest number ever recorded. That included 30 disasters with losses between CAD$1.3 billion and CAD$6.8 billion, compared to an average of 17 such catastrophes of similar proportions in the 10 previous years.
In Canada, the insured loss total surpassed CAD$3 billion for the second year running, one of the largest loss years in history. Even more shocking, there were more catastrophes in Canada during the summer of
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