KBD Insurance

Climate change and it’s effect on your insurance premium

Since you’ve clicked this far, it’s safe to assume that you already to believe in climate change and global warming and its disastrous ramifications on the environment. In case you need further convincing, in 2018, we’ve already felt the warmest five months on record (like, ever), an increasing velocity and ferocity of forest fires, and atypical cyclones and floods across the globe.

As we also know by now, climate change is responsible for the growing number of hurricanes. And to measure their impact, we can look no further than 2017 when Hurricanes Harvey and Irma ransacked the eastern United States, while Hurricane Maria tore through Puerto Rico. While many individuals in PR are still dealing with the devastating after-effects the damage bill continues to climb. The tally to date, according to National Geographic? $200B. More than the GDP of all but 54 countries!

A little closer to home, the wildfires that spread through Fort McMurray, which forced almost 100,000 people out of their homes resulted in damages of almost $10B! Think the last two years are anomalies? This study by the Mott MacDonald engineering company estimates that within 20 years, $200 billion will be needed annually to cover losses caused by natural disasters.

Now, since we can calculate and estimate the net devastation, it leads our insurance heads to a simple question: Who pays that bill???

The answer, like most answers, is: it depends.

Take the Fort McMurray fires. Fire damage is covered under almost every home insurance plan so the majority of the damages will be covered by insurance companies, but the company with whom you have your policy. Wait, what? Insurance companies take our insurance policies with an institution known as reinsurers; basically an insurance company for insurance companies. Meta, we know. Some agencies estimate that over 85% of the damages resulted from the fires will be covered by global reinsurers for local insurance companies. Homeowners are not completely out of the woods, however. Homeowners will lose their deductible, and the local insurance companies will undoubtedly raise their premiums (insurance rates) in coming years.

Now, let’s stay in Alberta and go back just a little to the year 2013. The so-called “Super Flood” ripped through the Province causing $7b in damages. Unlike fires, floods are not typically insured through homeowner plans. In fact, only roughly $2b (28%) of damages were covered by the insurance companies. The balance fell directly on the homeowners.

Unfortunately, the latter case is the more common occurrence; particularly as natural disasters caused by climate change typically hit tropical or gulf land masses, home to impoverished and under/uninsured individuals. In those cases, governments will hopefully kick in relief efforts to restore some comfort for the inhabitants; although often, as is the case in Puerto Rico, or with the Earthquake in Haiti, government relief is simply not enough.

Ok, so back to you. What should you do with all this information?

You need to be aware of what events are covered by your insurance policy, and what isn’t. By default, the typical policy will not cover any sort of water damage caused by floods, damage caused by freezing conditions (think Ice Storm), damage caused by snow or any kind of earth shift like earthquakes, landslides…etc. But, if you live in an area where you think you may be in danger, check with your insurance company and check with certainty what you are covered for. If you feel at risk, ask them to add a provision for one of these acts of gods, and if they won’t find someone who can. For many, piece-of-mind is priceless.

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