The January 2025 wildfires in California are expected to compound the state's ongoing insurance crisis, shedding light on the challenges insurers face in regions prone to natural disasters.
While the crisis in California is largely attributed to regulatory issues, it also serves as a warning to Canada, where the risk of wildfires is rising, the Insurance Bureau of Canada said.
According to the IBC, Canada's insurance market differs from California's in that it does not have the same regulatory restrictions on pricing, which have contributed to instability in the US state.
The Canadian insurance industry is competitive, with 1,721 insurers, 101 of which offer home insurance. This competitive environment allows consumers to access a broad range of coverage options. Unlike California, where pricing constraints have led to financial difficulties for insurers, Canada’s open market offers a degree of stability for policyholders, IBC said.
However, Canada faces its own challenges as wildfire risk continues to grow. The average annual insured catastrophic losses from wildfires in Canada have increased significantly in recent years.
Between 2003 and 2014, the country experienced an average of $84 million in insured wildfire losses per year. In the past decade, that figure has surged to $706 million annually.
Alberta, in particular, has seen considerable damage, with over $1 billion in insured wildfire losses in 2024 alone, largely due to a fire that destroyed more than one-third of the town of Jasper. This fire ranks as the second most expensive wildfire in Canadian history, following the 2016 Fort McMurray wildfire, which caused over $6 billion in damages.
While Canada’s competitive insurance market offers some protection from the regulatory challenges seen in California, the IBC said that the rising frequency of wildfires and other extreme weather events could put pressure on the market. If this trend continues, insurers may need to raise premiums or limit coverage, particularly in high-risk areas.
In addition to wildfires, Canada also faces other climate-related risks, such as flooding. Despite these growing challenges, government investments in climate resilience have been limited.
Over the past decade, the Canadian federal government allocated $41.8 billion to emission reduction efforts to address long-term risks. However, only $4.1 billion, or roughly one-tenth of the total, was invested in measures to mitigate immediate risks such as floods and wildfires.
As a result, Canadians living in high-risk areas may face higher premiums as insurers adjust their pricing to reflect the increased likelihood of severe weather events, the IBC said.
While Canada’s open insurance market and lack of restrictive pricing regulations provide some protection from a crisis like the one in California, the rising frequency of natural disasters suggests that Canadians may encounter difficulties securing affordable insurance in the future. Without greater investment in climate adaptation and risk mitigation, homeowners could see a lack of coverage availability and higher premiums.
The IBC said homeowners can take several steps to help reduce the risk of wildfire damage to their property.
Regularly cutting and watering grass within 10 metres of the home and other structures, using fire-retardant roofing and fire-resistant siding, and enclosing the undersides of wood balconies, decks, and crawlspaces with flame-resistant materials can help limit exposure to fire, the bureau said.
Firewood and propane tanks should be stored at least 100 metres away from structures, and eaves and vents should be enclosed and screened. Thinning trees to maintain 3 to 6 metres between crowns, at least 30 metres from the home, and installing spark arrestor screens on chimneys are also effective ways to reduce fire risk.