In the aftermath of last year’s flood in Southern Alberta, insurance companies had a public relations nightmare on their hands. Residents were facing massive rebuilding costs and banks were suddenly holding mortgages for useless properties. Yet much of the damage was uninsurable because it was caused by “overland flooding,” a hazard that insurance companies in Canada have never covered. Calculations for applying existing insurance on sewer back-up damages led to erratic settlements, leaving residents of communities like High River frustrated and angry.
Speaking at the Livable Cities Forum last week in Vancouver, Barbara Turley-McIntyre, head of sustainability and citizenship for The Co-operators insurance company, painted a picture of lives ground to a halt by a disaster that some forethought might have prevented.
She believes that it’s time for collaboration on analysis and mitigation of risks associated with climate change. “We need to be able to understand what the risks are so we can do a cost-benefit analysis and as a society put our dollars where they’re going to protect your homes and communities,” she said.
That means developing up-to-date flood maps for rural and urban areas and weather hardening infrastructure and homes against coming disasters, but it also means finding ways to prevent the growing dangers associated with climate change.
Since their advent in 17th century Europe, insurance agencies have worked by taking the cost of destruction from a few and dispersing it amongst the many. They remain solvent by analyzing risks and pricing their products in a way that will cover eventualities without being so high as to scare away customers.
Although insurers have traditionally been wary of stating unequivocally that climate change arises from human activity, the industry has had a long history of observing and warning of its effects. The German reinsurance giant Munich Re, one of a few companies that provide insurance to smaller insurers, started warning of a rise in climate change related flood incidences all the way back in 1973. The company now curates the world’s most extensive database of natural disasters.
To agencies such as the Co-operators, the evidence of growing risk is irrefutable. Turley-McIntyre points out that up until 2009, the yearly cost of insurable disasters in Canada was $400 million. From 2009 to 2012, that number jumped to $1 billion. In 2013, with catastrophic flood damage in Southern Alberta and Toronto, as well as huge storms on the east coast, that number skyrocketed to $3.2 billion.
In June of 2013 more than 1500 Canadian soldiers were deployed to southern Alberta to help with flood relief. Photo: MCpl Patrick Blanchard for the Canadian Army via Flickr.
The Alberta flood caused the third most costly insured catastrophic losses in 2013. Recent disasters have already begun pushing up premiums, and without immediate action, that trend will continue.
Members of the Canadian Army set up modular tents as part of operation LENTUS, a response to the Alberta floods. Photo: MCpl Patrick Blanchard for the Canadian Army via Flickr.
In order to move forward, The Co-operators commissioned a study through the University of Waterloo to assess the viability of providing overland flood insurance, a product that has never been available in this country despite flooding being the “most frequent type of natural hazard in Canada.”
Researchers Jason Thistlethwaite and Blair Feltmate found that all Canadian insurance agencies were harbouring the same fears about climate change. “Without effective mitigation, flood risk was predicted to increase with climate change, which will add burden on taxpayers and potentially lead to reputational and regulatory risk for insurers,” they wrote. “This increase in flooding could reduce the availability of existing property insurance coverage in some areas.”
Unchecked increases in flooding will lead to increased vulnerability, which will in turn transfer more of the financial burden of clean-up to the government. Turley-McIntyre doesn’t believe that it’s enough to predict these coming disasters; we must also plan ahead to mitigate their effects by building communities that are resilient to climate change.
Mark Way, senior vice president of sustainability in the Americas for European reinsurance agency Swiss Re, agrees. “Higher levels of resilience means lower levels of loss,” he said, speaking at the same event as Turley-McIntyre. “Climate change is best tackled with a portfolio of adaptation measures.”
But insurance agencies can’t do it alone. The most recent report from the Intergovernmental Panel on Climate Change (IPCC) warns, “Risk financing mechanisms in the public and private sector, such as insurance and risk pools, can contribute to increasing resilience, but without attention to major design challenges, they can also provide disincentives, cause market failure, and decrease equity. Governments often play key roles as regulators, providers, or insurers of last resort.”
Turley-McIntyre hopes that the floods in Alberta may have been a catalyst for the necessary cooperation between the provincial, municipal and federal government, because it happened in the Prime Minister’s “back yard” and because “it caused the government to come close to not meeting its budget targets for last year.”
Flooded city streets in Calgary, Alberta. Photo: Wayne Stadler via Flickr.
Ian Bruce from the David Suzuki Foundation has seen positive work from municipal and provincial governments, but sees efforts sorely lacking at the federal level. He believes that changes within the insurance industry will make it ever harder for the federal government to ignore the pressing issue of climate change.
In order to prevent worsening disasters, governments must prioritize clean energy, invest in green infrastructure and modernize and expand public transportation systems to get more cars off the road.
“I can see a trickle-down effect happening where the changes within the insurance sector changes investor and banking decisions, which then influences government policy,” he says. “Certainly without the immediate support from the federal government this transition will be more chaotic and a bit slower, but I see it happening. It’s only a matter of time.”