Jolee Crosby, CEO of Reinsurance Canada at Swiss Re, highlights the urgent need for the insurance industry to respond to the increasing financial impact of secondary natural hazards in Canada.
In 2024, Canada experienced its most expensive year for natural catastrophe claims on record, with insurers and reinsurers paying out more than eight billion dollars within just a few summer weeks.
This unprecedented figure was driven primarily by a series of secondary perils—events such as floods in Ontario and the Greater Toronto Area, severe hailstorms in Calgary, wildfires in Alberta, and post-tropical storm impacts in Quebec.
Crosby points out that while these secondary perils have historically been considered less severe than primary catastrophes like earthquakes or hurricanes, their frequency and severity are rapidly increasing, demanding a shift in industry focus.
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Over the past decade, secondary perils have caused more than 60 percent of global natural catastrophe losses, and Canada’s recent experience reflects this growing trend. Crosby notes that nine billion-dollar secondary peril losses have occurred in Canada during the last ten years, suggesting that such losses should now be expected annually.
She emphasises that climate change plays a significant role, with Canada warming at twice the global average rate, and even faster in its northern regions. This warming trend is contributing to more frequent wildfires and extreme weather events, with communities facing risks in areas previously considered safe.
However, Crosby stresses that climate change is not the sole factor behind rising secondary peril losses. Urbanisation and inflation also increase vulnerability, as population growth concentrates more valuable assets in high-risk areas.
Canadian cities, including Calgary and Toronto, have seen rapid development, and with it, higher exposure to damaging storms. For example, Calgary’s recent hailstorm caused insured losses twice as high as a similar event just four years prior, largely due to increased property values and density.
Rising construction costs further inflate claim payouts. Since 2020, residential construction expenses in Canada have surged by over 65 percent, notably surpassing general inflation rates. This trend intensifies the financial burden on insurers when damage occurs.
Crosby advocates for enhanced risk management strategies that extend beyond conventional catastrophe modelling. She highlights the importance of real-time accumulation monitoring, allowing insurers to track risk concentrations with finer geographic detail and make informed underwriting decisions promptly.
Such precision helps prevent unintended overexposure in specific neighbourhoods or property types, particularly where loss patterns can be highly localised.
Moreover, Crosby underscores the critical role of mitigation and adaptation in reducing losses before events happen. Research by the Institute for Catastrophic Loss Reduction demonstrates that homes built following fire-resistant standards, such as FireSmart guidelines, survive wildfires at significantly higher rates.
Similarly, improved flood zoning and infrastructure investments can reduce flood-related damages substantially. Crosby urges the industry to leverage these insights, encouraging policyholders to adopt resilient building practices through incentives embedded in pricing and coverage options.
Data collection and analysis are key pillars in Crosby’s approach. Detailed information about property characteristics—such as roofing materials or the presence of fire-resistant features—enables insurers to segment portfolios more accurately and tailor underwriting accordingly. This segmentation not only improves risk assessment but also promotes fairness in premium pricing, aligning costs with actual risk and encouraging loss mitigation among policyholders.
Crosby also draws attention to the importance of adjusting deductibles and coverage limits based on specific peril exposures. Uniform deductibles across all properties can mask significant differences in risk, particularly for flood-prone basements with varying degrees of vulnerability. Differentiated deductibles and sublimits provide a more nuanced approach, maintaining affordability while managing portfolio volatility.
In conclusion, Crosby emphasises that Canada’s growing exposure to secondary peril losses requires a comprehensive response. The insurance industry must enhance real-time risk monitoring, adopt robust risk tolerance frameworks, and use detailed data to refine underwriting and pricing.
Equally important is promoting mitigation efforts and planning for evolving climate and urbanisation impacts. By embracing these strategies, insurers can better protect communities, maintain sustainable portfolios, and strengthen resilience against the increasing costs posed by secondary natural hazards.
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