Insurance for All: Managing Risk in an Age of Disasters

It is estimated that total insured losses from the wildfires that ravaged Los Angeles earlier this year will be between $30-40B, possibly the costliest disaster in U.S. history. It follows on the heels of other recent catastrophic losses in both the U.S. and Canada. The Insurance Bureau of Canada reports that 2024 was the costliest year in Canadian history, with a record $8.5B in insured losses related to severe weather events.

Many experts point to the increasing frequency and severity of extreme weather events as the inevitable result of climate change. The Insurance Bureau of Canada states:

“Climate change is a threat to our shared future. But it’s also having a serious and growing impact on our safety and our communities today. More and bigger floods, wildfires, hailstorms, and windstorms – influenced by our changing climate – are costing billions and putting people and property at risk.”

With climate change accelerating, so too is the likelihood of extreme weather and loss increasing.

These losses are greatly impacting the insurance landscape. Prior to 2016, average annual losses for home insurance due to natural catastrophes were $990 million. Those figures were shattered between 2017-23, as annual average losses rose to $1.55B.

To account for growing risk, insurers have raised home insurance premiums. Based on data from Statistics Canada that captures home and mortgage insurance costs, the average monthly increase in Alberta was 0.6% between Jan 2022 and Dec 2024, for a total of 23.5% over that timeframe.

While these increases are a burden to many households during a period of heightened financial insecurity, they’re particularly problematic for lower-income households. According to Statistics Canada, while the average annual cost of insurance rose by 30% for all Alberta homeowners between 2017-21, it rose by 49% for the lowest income Albertans.

Lower-income households most affected by these increasing insurance costs also face the greatest challenges and risks. They often live in older homes in poorer condition, or in areas more prone to severe weather impacts such as flooding. They’re also least likely to afford home upgrades that would increase the resilience of their houses.

When damage occurs, it’s also more difficult for them to cover the deductible as many do not have significant emergency savings. This may result in damage being unrepaired, leaving people in unsafe or unhealthy conditions, while increasing the financial and personal risk of future events.  

These pressures are also being felt by affordable housing providers that must absorb these rising costs without being able to raise rents. In the United States, steep increases in insurance have put some providers in jeopardy. A recent (Aug. 25, 2024) article in the New York Times reported that such increases risk putting some affordable housing providers out of business.

Many stakeholders are now calling on governments to undertake immediate action to mitigate the impacts of severe weather. This includes mandating disaster-resilient infrastructure, restricting development in zones of high wildfire risk, and investing in improved emergency response and training. This would help create more sustainable home insurance market conditions, and ease home insurance premium pressures.

As climate change progresses and the risks associated with it grow, ensuring all Albertans have access to appropriate and affordable insurance coverage will be a pressing public policy issue. Addressing these challenges requires bold, proactive policy. Governments can collaborate with insurers to create accessible, affordable programs, such as public-private partnerships or targeted subsidies for resilience upgrades.

Working collaboratively with insurers, we can develop solutions that maintain the viability of the industry while ensuring the protection of everyone’s assets. Without action, the rising cost of climate disasters will jeopardize not just the health and security of individual households but also the stability of entire communities, especially those who can least afford it.

For more information, visit the Fair Access to Insurance Roundtable.