Hurricane Fiona highlights gaps in insurance as climate change worsens, experts say

TORONTO — Many Atlantic Canadian homeowners may be on the hook for a significant portion of the damages to their homes caused by hurricane Fiona due to a lack of insurance covering flooding caused by storms. 

Residential home insurance policies usually cover wind damage, including falling trees, and certain kinds of water damage, according to Amanda Dean, vice-president, Atlantic, for the Insurance Bureau of Canada. 

However, they normally require an add-on policy in order to cover floods, she said. 

These overland flood endorsements didn’t exist in Canada before 2015, she said, when an increasing number of flooding events made it clear that additional coverage was needed.

But even those flood policies don’t normally cover damages from storm surges, which are difficult for insurers to model as sea levels rise and coastlines erode, said Dean. 

“Without accurate risk modeling, the risk is deemed too high to make the coverage affordable and/or available,” she said.

Some uninsurable damage to residential properties may be eligible for coverage under the federal Disaster Financial Assistance Arrangements program (DFAA).

There are gaps in the Canadian insurance industry when it comes to natural disasters, said Nadja Dreff, senior vice-president of global insurance at DBRS Morningstar. 

Because of these gaps, “a large proportion” of the people affected by hurricane Fiona in Atlantic Canada likely won’t be fully covered for the damage to their homes, said Dreff. 

The industry is trying to catch up even as these disasters become more frequent and unpredictable, she said.

The Co-operators Group Limited began offering storm surge insurance to homeowners in Atlantic Canada and British Columbia in 2018, according to news releases from the insurance co-operative.

The storm surge insurance includes rising water levels and waves caused by storms in its coverage. 

“To our knowledge, Co-operators is the only Canadian insurer that offers storm surge protection,” said the agency’s vice-president George Hardy in a statement. 

The insurance industry is “eager to continue working with government to create a national public-private insurance program for overland flooding that offers protection to all Canadians,” said Dean. 

Dean said climate change has drastically increased the amount that insurers pay annually in severe weather-related claims.

Insurers in Canada currently pay on average more than $2 billion in claims related to severe weather annually, said Dean.

That’s compared to an annual average of $632 millionbetween 2001 and 2010.

DBRS Morningstar estimated hurricane Fiona will cause between $300 million and $700 million in insured losses in Atlantic Canada for a record high in the region.

The credit rating agency said in a report that that amount is roughly in line with previous natural disasters in other provinces such as the flooding in B.C. last year that saw $515 million in insured losses.

Atlantic Canada represents a small portion of the Canadian property insurance market, according to the report. 

However, hurricane Fiona will likely go down as one of the region’s largest catastrophic events and more could be on the horizon. 

Climate change is worsening the region’s risk to major storms like hurricane Fiona.

DBRS Morningstar said insurers may be more cautious when assessing risk in the region, likely raising premiums to cover the rising costs of payouts. 

Dreff said as severe weather events become more common, insurers will raise premiums and work on more sophisticated risk modeling.

This report by The Canadian Press was first published Sept. 27, 2022.

Rosa Saba, The Canadian Press