Autumn 2018: Hurricane Michel hits southern United States, causing economic losses of more than $ 2.3 billion, in the lumber industry alone; as for flood and crop insurance programs, they reportedly paid out over $ 8 billion to their Insureds. During the same period, horror images reach us from California as forest fires devastate not only nature reserves, but entire cities as well. For Insurers, this once again means significant compensation for individuals and businesses. Since 1990, the American Government has, on 9 different occasions, has suffered the wrath of Mother Nature so intensely that the Insurers’ bill has exceeded a billion dollars.
Closer to home, tornadoes hit Outaouais and eastern Ontario severely, causing more than $ 295 million in insurable damage.
The quick succession and violence of the natural disasters observed in recent years are forcing Insurers to rethink their presence with their clients, in order to effectively protect them against these phenomena. However, this repositioning has its share of challenges.
Between reconstruction and reinsurance
It is no longer enough to have the strength to be able to cover the losses related to the claims that are piling, it is also necessary to maintain an interest in underwriting these risks in the future ! We can no longer limit ourselves to increase the price for the consumer; for example, in the United States, certain rules regulate the pricing, particularly regarding the premiums that the Insurer may require for climatic upheavals. The lack of similar regulations in Quebec causes several headaches to Damage Insurance Brokers due to the increase of the reinsurance cost growing each year, as the number of catastrophes also escalates.
This situation therefore leads to 2 major challenges:
- First, the Insurer must maintain an interest in providing this type of coverage; the business model must be advantageous, both for them and the Insured.
- Next, pricing must remain accessible to entrepreneurs so that the cay benefit from full risk coverage, without experiencing frustration at each renewal.
Insurers must stay at the forefront
Some big players, like Intact Financial Corporation (Intact Corporation Financière), are coming together to formally assess and better understand the impact of climate change on the Insurance market. For example, a pilot project is carried out on the sidelines of the UNEP FI (Initiative financière du Programme des Nations unies pour l’environnement). Another project focuses on the management of severe weather events (Alberta Severe Weather Management Society), including damage caused by hail.
It is imperative that industry leaders pursue such initiatives and continue to be proactive. The outcome of these discussions will be useful for our sector of activity to manage these risks effectively and resiliently.
Differentiating Mother Nature from the human factor
Some natural disasters have unfortunate consequences, partly because of human factors. Take, for example, the increase in flood-level infrastructure: as a society, we make this choice to allow construction despite uncertainty about the safety of the site. However, such an approach entails several physical and financial risks.
Insurers will need to work jointly with municipalities and other authorities to adapt human choices to the new climate reality, and thus adequately protect their customers.
Verrier & Associés remains at the front
Our team of professionals has the « expert’s eye » to recognize the individuality of your company’s risks. We also are proactive and stay on the lookout for the latest trends in order to offer you complete and tailor-made insurance products for the management of your risks.