As wildfires prompted evacuations just outside of Halifax this spring, brokers at Royal LePage Atlantic encountered an unexpected challenge.

Many insurers were unable to issue new home insurance policies within a 50-kilometre radius of the evacuation zone – an area that covered most of the greater Halifax area during the year’s busiest real estate season.

“For lack of a better description, our markets were shut down for three weeks while we waited for that evacuation order to lift because nobody could get insurance,” Matthew Honsberger, broker, president and owner of Royal LePage Atlantic, told BNNBloomberg.ca in a telephone interview.

Insurance companies have been quick to address the backlog since the evacuation order lifted in early June, and Honsberger said he’s not overly worried about fire-related disruptions to his business – yet.

“If we start to see this become more regular, it's something that we will have to concern ourselves with,” he said.

It’s the first time Honsberger has dealt with a major wildfire-related insurance quandary in his 20 years in business in Atlantic Canada, but flooding and hurricane season are regular concerns in the region. Homebuyers and brokers in more wildfire-prone areas of Canada have butted up against temporary insurance challenges for years.

Climate change has rattled the global insurance market as fires and other natural disasters become increasingly frequent, intense and destructive, leading to bigger annual losses. Against that backdrop, governments and industry players in Canada are racing to find solutions to ensure home insurance does not become a luxury for the rich.

CALIFORNIANS LOSE INSURANCE OPTIONS

In one startling global example,  insurance giants State Farm and Allstate said in the past year that they the would stop issuing new home insurance policies across the entire U.S. state of California, citing increasing wildfire risk.

Could such a situation happen in Canada?

Marcos Alvarez, global head of insurance at DBRS Morningstar, said he doesn’t see that playing out any time soon, as most fires in Canada tend to be in less-populated areas that result in manageable losses to companies – though that could change if fires move closer to urban centres.

California is also known for its uniquely strong consumer protections that have kept premiums low and frustrated insurance companies as fires result in major damages.

What Alvarez sees as a more likely scenario in Canada is that insurance could become essentially unaffordable over time as more frequent severe weather events and higher inflation push premiums upwards.

Alvarez published a report for DBRS Morningstar last month on wildfires in Canada, predicting insurers will “come under pressure” from an “above-average wildfire season” in 2023 but most will be able to handle the losses. Damages will likely be lower than the record $4.3 billion from the 2016 wildfires that hit the Alberta oil town of Fort McMurray, the report said.

While this year’s fire damages will likely be manageable, the report warned there may be cumulative effects on insurance costs.

“As Canada experiences more intense and frequent extreme-weather events, the challenge is that certain zones of the country might become too expensive to insure against natural catastrophes, or become uninsurable altogether,” his report said.

Matt Hands, vice-president of insurance at Ratehub.ca, said Canada’s insurance industry is in the early stages of responding to climate change and weather impacts, but overall the situation isn’t as “dire” as in the U.S. because wildfires are still considered unpredictable in Canada, even as they occur more frequently.

“Canadians at this time don't need to be concerned that insurance companies are going to stop insuring fire,” he said. “But we are seeing the impact of the rising cost of claims, and the rising occurrence of climate-related claims.”

Insurance is becoming more expensive for all Canadians as a result of more extreme weather, inflation and other factors, Hands said, with people in more disaster-prone zones feeling the pinch most acutely.

He recommended that people shop around to assess all their options when looking for home insurance, and talk to a broker to ensure their bases are covered. He also advised people make sure replacement costs for their home are up-to-date in their insurance plans, as building materials have become more expensive over time and could mean a costly rebuild in the event of extreme weather damage.

EXISTING GAPS

Weather-related damages caused $3.1 billion in insured losses in Canada in 2022, the third-costliest year on record.

That total would be higher, said Rob de Pruis, Insurance Bureau of Canada’s national director of consumer and industry relations, if it included more damages from flooding – a major gap in the Canadian insurance market that the federal government is now trying to fill.

De Pruis explained that about 10 per cent of Canadians can’t purchase overland flood insurance because it is unavailable or too expensive in high-risk areas.

For example, many Atlantic Canadians whose homes were battered by post-tropical storm Fiona last year were not able to claim insurance for their losses, and some affected by 2021 floods in British Columbia similarly found themselves without coverage.

In its spring budget, the federal Liberal government moved to address that gap, earmarking $31.7 million over three years to develop a national flood insurance program – a move applauded by the Insurance Bureau of Canada.

In his June report, Alvarez suggested a “similar framework is needed” to address wildfire impacts in Canada. Hands said he could see the merit of a national fire insurance program as well, if wildfires become more frequent and predictable as they have in some parts of the U.S.

ADAPTATION

With some people currently unable to insure their homes against floods due to excessive cost, could Canada already be heading towards a situation where insurance isn’t accessible to everyone?

“We certainly hope not,” said de Pruis. “Ultimately, our goal in the industry is to be able to provide available and affordable insurance coverage for all Canadians. But having said that, we have to work together to improve our overall climate defences.”

He argued climate resilience planning should go into new infrastructure and land use planning, and also called for incentives to develop homes and businesses further way from high-risk areas. Canada is working towards some of these goals with its early-stages national climate adaptation strategy, announced last month.

“It requires collaboration from governments and stakeholders and even the individual property and business owners to create a more climate-resilient community,” de Pruis said.

With files from The Associated Press and The Canadian Press.