Did you know that Canada is the only G7 nation that has no federal plan or involvement in helping the insurance industry with massive losses incurred in the event of a large disaster? 

With the growing concerns of increased natural disasters such as earthquakes, wildfires, and extreme winter weather conditions, public risks will eventually lead to significant, impactful financial consequences on the Canadian insurance market. 

Day to Day Impacts

With more people confined at home on a day-to-day basis, the impacts of environmental hazards have had a more prominent effect. Flooding, fires, and extreme hail are among the most recognized ecological risks causing re-occurring claims. In addition, property damages that have impacted housing or caused serious accidents are regular occurrences. 

Following an increase in climate-related claims and pay-outs, many insurers are withdrawing coverage provided and costs altogether. Some statistics have even suggested that these have been retracted as much as up to 300%. 

If day-to-day environmental hazards become progressively worse or a large natural disaster were to occur, we may be seeing devastating impacts on the Canadian insurance market as a whole. 

Impacts on the Market

Climate risks don't just impact the population directly; they also provide internal threats to insurance providers themselves. For example, climate risks create issues and pressure on expected loss coverage, investment portfolios, management of assets, and product design and delivery. 

As the chance of climate disasters leading to claims increases, many insurance providers may find that their policy wordings and inclusions have become out of date. In the event of a climate disaster, many clients will expect the insurer to pay out for a claim. If the policies in question have not been updated to fit the current high-risk trends associated with natural environmental disasters, the insurer could struggle to pay out for high-figure claims that they initially did not anticipate to happen. 

Policy wordings and exclusions must be updated to protect the insurer and the client against more severe claims; otherwise, the number of claims received will exceed expectations. As a result, this could lead to serious financial pressure for smaller insurers as they'll need financial support from larger providers.

With many environmental risks increasing, this is something Canadian brokers and insurance providers will need to consider when re-evaluating their insurance products and policy wordings. 

Climate risks on the rise

There has been a noticeable increase in the following disasters:

  • Wildfires
  • Flooding
  • Windstorms
  • Coastal storm surges
  • Earthquakes
  • Extreme weather
  • Rising Sea Levels 

These sorts of disasters are having a significant impact on non-life general insurance sectors such as:

  • Property and Casualty
  • Errors & Omissions
  • Liability Insurance
  • And Directors and Officers 

Smaller insurance companies may struggle to maintain output for non-life general insurance policies if an environmental disaster strikes. To reduce the financial impact on a provider/broker/company, the risk received can be adjusted annually, or the client's policy can be adjusted to provide support should a claim occur. 

It is impossible to predict how climate patterns will have financial implications for insurers; however, it is essential to ensure more is done to make policies more efficient at protecting against natural hazards and ensuring insurance companies are more capable of maintaining risk pay-outs should they drastically increase. 

The risks of a natural disaster

To protect the insurance sector from a vulnerable collapse, Canada's federal government needs to take more steps towards protecting the insurance industry against these risks. 

As Canada has no feral involvement plan to help the insurance industry should massive losses occur, private insurers in Canada are often backed by an industry-funded compensation body called "The Property and Casualty Insurance Compensation Corporation."

If we look at the threat of natural disasters today, many scientists have identified the danger of potential earthquakes in hot zones around Vancouver and Montreal. This could lead to an almost domino-like financial impact on Canada's insurance industry, affecting it as a whole. 

It is predicted that in the event of a mega-disaster occurring, total insured losses of policyholders could exceed $35 Billion. 

In an event as such, small regional property and casualty insurers may fail to meet policy pay-out demands, putting intense pressure and obligations onto larger insurers to meet these pay-outs as the industry-funded compensation body requires this of them. 

However, there are ideal solutions that the Canadian insurance industry could adopt, such as the public-private model. In this model, the government provides reinsurance to private insurance liabilities stemming from a massive earthquake or other significant natural disasters. However, the amount paid out by the government is determined by present triggers and limitations agreed upon. 

In the event of a mega natural disaster, this sort of model could severely help support the insurance market in Canada and prevent devastating consequences. 

Servca CA – Your Lloyd’s Broker

While the private-public model is ideal it cannot be an immediate solution until the Canadian government changes it’s handling of their insurance industry as a whole, putting in the legal changes needed to make the market more sustainable in the long run. There are other ways to gain the support you need.

Servca CA is your best point of contact to gain access to the largest insurance market in the world: The Lloyd’s of London Insurance market(s). Therefore, giving you access to providers outside of Canada, which in the event of a claim pay-out can give you that financial support that will ensure all ends are met without putting the Canadian broker, joint Insurer and/or assured client at risk.

Are specialist risk management services are also designed to be flexible for clients, brokers and insurers. We can help your Canadian clients understand better the risks they face from their policies and how to reduce risk exposure. Likewise, we can assist any Canadian Brokers and Insurers who need additionally risk management support to help update policy wordings and products you have as the risk and exposures of the Canadian market continue to change.

For more information on how we can help assist you, please get in touch with us through our website, email or over the phone.

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