How will the Los Angeles wildfires affect Canada?

Rising interest in cross-border insurance solutions could be on the horizon

How will the Los Angeles wildfires affect Canada?

Catastrophe & Flood

By Nicole Panteloucos

As the Los Angeles wildfires continue to rage, with strong winds intensifying across the Palisades, Canadian insurers and homeowners are closely examining the lessons emerging south of the border.

These fires serve as both a stark warning and a source of valuable insights, offering provinces like British Columbia and Alberta strategies to better prepare for and mitigate the growing threat of wildfires.

Rising reinsurance costs

Although Canadian insurers have minimal direct exposure to California wildfires, the broader consequences cannot be ignored. Reinsurance costs, which are influenced by global disaster trends, often rise following large-scale events like the ongoing wildfires in the US.

Nathan Tjandrawinata (pictured), managing director at Cansure, explained, “When reinsurance costs increase due to frequent large-scale disasters like wildfires in California, Canadian insurers may face higher premiums when renewing their treaties. This, in turn, can put upward pressure on Canadian rates, particularly for areas prone to wildfires such as British Columbia and Alberta.”

Supply chain disruptions

California plays a pivotal role in North American supply chains, especially in agriculture, technology, and consumer goods. When wildfires disrupt transportation routes, production facilities, or agricultural outputs, Canadian businesses can face delays, increased costs, and potential revenue loss.

To address these challenges, Tjandrawinata shared: “Insurers can support businesses by offering specialized supply chain insurance or contingent business interruption coverage, which compensates businesses for losses due to supply chain disruptions.”

Additionally, insurers can collaborate with businesses to identify supply chain vulnerabilities and suggest risk mitigation strategies, such as diversifying suppliers, or building inventory buffers to minimize disruptions.

Higher demand for cross-border insurance solutions

Tjandrawinata also noted that Canadian snowbirds are becoming more aware of the rising wildfire risks in California and are adjusting their insurance coverage accordingly. Many are opting for more comprehensive policies that include wildfire protection, even if it means higher premiums or stricter terms. Tjandrawinata said: “Many are working with brokers who specialize in cross-border insurance solutions to ensure they have adequate coverage for both their primary and secondary residences.”

“Some are also taking preventive measures, such as retrofitting their properties with fire-resistant materials and creating defensible spaces, which can help in reducing premiums and increasing insurability,” he continued.

More risk mitigation and data-driven technologies

According to Tjandrawinata, US insurers tend to embrace advanced technologies to assess wildfire risks at a more granular level than Canadian insurers do. He shared: “Canadian insurers can follow this lead by investing in similar technologies, such as satellite imagery, geospatial risk mapping, and real-time fire monitoring.”

Additionally, he reported that US insurers place a strong emphasis on community-based mitigation programs. Canadian insurers and homeowners can benefit from adopting similar approaches “by advocating for defensible space around properties, fire-resistant building materials, and community wildfire preparedness initiatives.”

As climate change intensifies wildfire risks, provinces like British Columbia and Alberta stand to benefit from continually adopting community-based risk mitigation programs. California’s experience has highlighted the urgent need for measures like early evacuation protocols, fire-resistant construction practices, and strong collaboration between governments, insurers, and communities to address growing wildfire threats effectively.

Tjandrawinata emphasized: “Insurers in Canada must be proactive in revisiting their underwriting guidelines, ensuring pricing reflects evolving risks, and promoting loss prevention measures among policyholders.”

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