Industry stakeholders who gathered in Alberta to discuss the record-setting impact of this summer’s flooding acknowledged the elephant in the room – Canada’s property coverage is in need of an overhaul.
“Thirty-five years ago the three biggest costs were auto damage, fire damage, and property theft. These risks have declined,” Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction, told the Insurance Brokers Association of Alberta Property Insurance Forum delegates. “Sewer back up, wildfire, wind, hail, and other natural disasters have risen. In the last decade, we pay five times more for weather-related losses than for the other perils.”
This historic gathering that germinated from the IBAA convention in May of this year, with concerns about hail, wind, fire, flood, and sewer backup property risks, gained momentum when southern Alberta and Toronto were each struck by heavy rains and flooding. The forum featured 13 participants and 70 invited observers from every facet of the property and casualty insurance industry.
Most agreed that property insurance needs to be changed for it to be sustainable, as government coffers are increasingly stressed by disaster relief for property damage not covered by insurance. (continued.)
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While Alberta Superintendent of Insurance Mark Prefontaine admitted that the government is concerned about what it’s seeing and what it’s hearing, adding that he has no direction whatsoever, either explicit or implicit, that the government is interested in increasing its regulatory stance regarding property insurance.
The proposal from the Office of the Superintendent of Financial Institutions Canada, for a 5–20 per cent increase in capital charge on insurers’ personal and commercial property exposure will inflate required capital reserves or reinsurance and thus inflate product cost, said Bill Adams, the Vice President of IBC, Western and Pacific Region. He went on to say that actuaries are struggling to forecast cost accurately due to the gap between past, present, and probable future conditions.
“Canada is one of the three industrialized nations that does not include flood coverage,” said IBAA President Gord Enders, telling delegates that this global inequity is one reason Albertans were confused and upset about their exclusion from overland flood coverage, while U.S. homeowners are covered for flood – not to mention the further confusion that arises when clients learn commercial flood coverage can be purchased in Canada.
Concern was voiced that property insurance premiums and deductibles have been underpriced for years, while the product has incurred minimal change. Opinion at the forum on consumer response to price increases ranged from the need for consumer insurance education to mitigate sticker shock to fear that some consumers will find the product unaffordable or that revamping the product to maintain affordability would restrict availability, either in type of coverage or to high-risk property areas.
IBAA Past President Dean Bailey cautioned that a perils-based underwriting approach, using postal code territories and other forms of risk mapping, “is becoming more common and changing the original concept of insurance whereby the premiums of the many pay for the claims of the few.”
