Canadian property and casualty insurance outlook 2014

Unpredictable weather and catastrophes

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The Canadian insurance industry was turned upside down by catastrophes in 2013. The floods that swept through Alberta in June destroyed homes, stalled business operations and impeded insurance adjusters’ efforts to assess the damage. This was soon followed by the flooding in Toronto and a deadly train derailment and explosion in Lac-Mégantic, Quebec. The year ended with an ice storm in parts of Southern Ontario and Eastern Canada that brought severe weather losses in Canada to an all-time high. Estimates of the catastrophic claims in 2013 are somewhere between C$3 billion and C$4 billion.

For affected policyholders, the Alberta flooding brought to light the difference between overland flooding and sewage backup. Although this has been an issue in the past, it was magnified by the extent of the disaster and the number of affected customers. Claims were being denied because they were for damage caused by overland flooding, which is not a default coverage but can only be added at extra cost.

As a result, the reputations of insurers denying claims came into question. Many insurers ended up paying out these claims even though they were not covered just to avoid reputation damage.

Insurers need to prevent these issues by better educating policyholders on the differences in policy coverage. With advances in satellite mapping, insurers could better use predictive modeling and maps to inform policyholders and to underwrite areas that have higher risks of flooding.

Similarly, there has been talk of the risks of an earthquake in Canada for a number of years,

but it seems insurance customers have not taken this risk seriously, as evidenced by the low percentage of people and companies that are currently covered in the event of a significant earthquake. The new Office of the Superintendent of Financial Institutions (OSFI) guideline and the Insurance Bureau of Canada continue to warn of the importance of being prepared for earthquakes, so insurers need to pay close attention to this normally sidelined risk. A devastating earthquake in one of Canada’s susceptible areas would cripple the insurance industry. Since most Canadians don’t have earthquake insurance, how would the industry and government react if one actually happened?

Canadians are seeing more severe weather, from increased rainfall to the polar vortex. Weather-related events have burdened current infrastructure by destroying roads, power lines and trees and creating a variety of problems for homes and businesses. Insurers that can adapt to these new realities and understand the vulnerabilities in infrastructure while underwriting appropriately and servicing claims will come out on top in years to come.