Could climate change raise your property insurance?

Climate change could erode the availability and affordability of property insurance in many areas across Canada, according to a new report.

Canada’s Coming Property Insurance Crisis, published by the Centre for International Governance Innovation, says that Canadian government have yet to establish a framework for managing the impact of extreme weather and climate change on property insurance systems.

“Research has confirmed that the availability and affordability of insurance is likely to decrease under climate change with statistical models predicting a significant increase in costs,” according to the report.

It pointed out that gaps in insurance coverage have already emerged in several U.S. markets in the aftermath of significant coastal flooding generated by hurricanes, including New Orleans, Miami and New York.

In Canadian markets, like Toronto and Vancouver, exclusions and high prices have also emerged after significant flooding events in 2013.

But the report states that insurers and property owners, such as investors and homeowners, do not have the necessary information to make informed decisions about risk mitigation strategies, and that insurance pricing is based on historical data rather than up-to-date statistics.

“This approach is akin to ‘driving down the road by looking at the rearview mirror’, given the potential impacts of climate change,” continues the report.

“In Canada, most flood plain maps that identify locations where flooding is more likely to occur are outdated or unavailable to property owners.”

With all this in mind, the Centre for International Governance Innovation recommends that all levels of government should:
  • Increase investments in hazard and climate change risk mitigation;
  • Assess and identify areas where socio-economic implications of insurance shortages will be disproportionate; and
  • Improve awareness about the division of responsibility for hazard risk mitigation between insurers, property owners and governments.
“Uncertainties over the impacts of climate change on insurance and inadequate investment in hazard risk reduction policy increase the costs of providing coverage in Canada,” concludes the report.

“This is unfortunate as insurance is a critical economic resource for Canadians: it is necessary to qualify for a mortgage or start a business, helps individuals and businesses to recover in the aftermath of property damage, and helps to educate about exposure to risk.

“To sustain these benefits, it is critical that governments and insurers coordinate to increase investment in risk mitigation policy, identify areas where insurance shortages could increase socio-economic vulnerability, and discuss how climate change and hazard risks should be governed.”

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