Canadians could be paying more for home insurance as the toll of severe weather on personal property continues to climb, one of the country’s largest insurance companies said Monday.
Intact Financial Corp. (TSX:IFC) said it expects to book about $257 million in expenses stemming from the flooding in Alberta and Toronto and the deadly Lac-Megantic train derailment in Quebec.
“The devastation brought on by recent flooding and torrential rain is unprecedented,” Intact chief executive Charles Brindamour said in a statement.
“The scope of the damage and destruction that we have witnessed in recent weeks is a stark reminder that we must adapt the protection offered to Canadians to ensure it remains sustainable in light of the greater prevalence and severity of weather events.”
Intact spokesman Gilles Gratton said the price of home insurance has increased over the past few years to reflect the impact of climate change. “The costs of the weather-related damages are increasing steadfastly in Canada,” Gratton said.
“The home insurance product was designed, historically, to protect people against fire and theft, and essentially over the last 10 to 15 years what you’ve seen is the main use of the product is for water-related damages.”
Gratton said Intact is considering further price increases, higher deductibles or adding sublimits as possible ways to maintain the profitability of home insurance products.
“We’ll have to look at how we can keep offering the protection and make it affordable for consumers,” he said.
“So it may mean some continued pricing increase, like we’ve seen over the last few years.”
Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction, said increasingly dense cities, crumbling infrastructure and the changing climate are likely to increase weather-related losses over the coming years.
“We’re building more and more and putting more and more into our cities, so when you get something like a heavy rainstorm — it’s going to hurt a little bit more,” he said.
Anayst Jeff Fenwick at Cormark Securities Inc. said Intact has been focused recently on repricing home insurance products and providing more specifics around what’s covered and what isn’t.
“About 20 years ago, there weren’t nearly as many people who had finished their basement and put expensive audio visual equipment, and that type of thing, down there,” Fenwick said.
“So now the magnitude of the losses when your basement floods tends to be quite a bit larger.”
That means insurance costs are likely to go up for Canadians, as severe weather events become increasingly prevalent, said Fenwick.
“We’ll probably start to see some rising costs as well if these things continue to become more common over time,” he said.
Toronto-based Intact estimates it will record about $123 million or 92 cents per share in after-tax catastrophe losses in its second quarter.
That will be mainly due to about $300 million of costs for Intact customers in Alberta following storms and flooding that swept through several communities.
The blow to Intact will be softened by reinsurance — essentially insurance for insurance companies.
The Alberta disaster will result in $105 million or 79 cents per share net of reinsurance in the second quarter ended June 30.
In the third quarter, which began July 1, Intact estimates it will record an additional $134 million, or $1.01 per share, in after-tax catastrophe losses.
That will include a $25 million cost associated with the Lac-Megantic train derailment that killed an estimated 47 people and devastated the small Quebec town.
The severe rain storm that impacted thousands of Intact customers in the Toronto area earlier this month resulted in an estimated $170 million of insurable damages, the company said.