Climate Change and Insurance Claims

Every day we hear reports of weather anomalies and effects that may be caused by climate change. Storms are wilder, fires are more prevalent, and temperatures are extreme. Several Canadian insurance companies have begun studying how climate change is affecting insurance claims, and projecting how it may affect them in future. Based on how climate change is increasing the effects of extreme weather events and natural disasters, it seems certain that insurance claims of all kinds will increase.

One recent event that underlines the severity of climate change and the changing landscape of insurance claims is the Fort McMurray wildfire. For many years, insurers considered homes in the city to be at a very low risk for loss or damage through forest fire. Yet in May of 2016, a forest fire reached the outskirts of town, forcing 100,000 people to evacuate and causing damages of more than three billion dollars. Scientists looking at the fire concluded that warming temperatures caused by climate change are changing the behaviour of natural disasters. Although it’s difficult to quantify exactly how much climate change contributed to the Fort Mac fires, it’s generally believed that it was a significant factor.

And the fire wasn’t Canada’s only extreme weather event in 2016. Along with the Fort Mac “Fire Beast”, Canada experienced a record mild winter from coast to coast, the prairies suffered an August long weekend storm that caused tornados and delivered record amounts of rain, Toronto’s summer featured 39 days of temperatures over 30°C, and the Atlantic provinces experienced a Thanksgiving Day “weather bomb” that dumped massive amounts of rain(Sydney, NS received 225 mm of rain in one day.)

In Toronto, the effects of climate change were felt in July of 2013 when a massive rainstorm caused flash flooding across the GTA. This natural disaster was the costliest in Ontario’s history, costing more than $850 million.  

Unfortunately, predicting the effects of climate change can be tricky. Current insurance rates are based on models of weather-related data that have been developed over many decades. However, climate change is altering these established patterns, making extreme weather and natural disasters more complicated than ever to foresee. Numerous factors play into these events. A hurricane, for example, may be fuelled by climate change’s warmer temperatures, but the strength of it may also depend on wind shear. What can be predicted is that hurricanes will generally become stronger and more dangerous. Warming trends mean that more water will be absorbed by storms of all kinds. The probability of a Texas storm dropping about 20 inches of rain was about 1% a year between 1981 and 2000, but will likely increase to 18% a year by 2100, according to a 2017 study. And Hurricane Harvey, which hit Texas in August of 2017, dumped more than 60 inches of rain.

Human Costs

While it’s obvious that property damage will be much more severe in a world where climate change is altering the landscape, it’s also evident that personal injury claims will rise. The videos posted on social media of people fleeing from Fort McMurray, for example, showed that many were driving through extremely hazardous conditions.

If weather conditions are growing more and more extreme, that means that people will be subject to more ice and snow, leading to more slip-and-fall accidents. It may mean there are more accidents caused by building collapses; buildings are susceptible to storm damage, particularly during heavy rainfalls that overwhelm storm-water systems. The Toronto and Region Conservation Authority says that milder winters within the GTA are already proving troublesome by causing more freeze-thaw cycles that accelerate wear-and-tear on roads. Warmer summers lead to more disease as the northern limits for certain insects’ shrinks.

Warmer and wetter climates mean that mosquito-borne disease will increase in Canada, as will the incidence of tick-borne disease. Heat waves can place a great deal of physical stress on people who have existing illnesses, children, and the elderly, and can even lead to death. In addition, it’s becoming obvious that climate change takes a toll on mental health, too. Lower income Canadians will feel the impact of climate change more keenly than those in higher income brackets, but even those at the top may not be protected from the most severe effects.

Claims on the Rise

Experts are not sure what the impacts of climate change may mean for insurance claims in Canada, but it seems likely that these sorts of claims will rise sharply as the effects are felt. A 2013 study projected average flood losses for the world’s 136 biggest coastal cities could rise from $6 billion a year in 2005 to more than $1 trillion a year by 2050, unless the cities invest about $50 billion annually in adapting to the effects of climate change. Climate change and insurance claims seem to go hand in hand. With both property damage and personal injuries sure to occur, the human costs of climate change are all too real.