‘It’s a problem for society’: Climate change is making some homes uninsurable

It’s easy to see the flood risk of homes perched along the shores of the Ottawa River or the Red River. Everyone remembers the flooded-out Stampede Grounds in Calgary or the devastating images out of Quebec in 1996.

It’s harder to imagine an urban, north Toronto neighbourhood 27 kilometres from Lake Ontario being deemed high-risk.

Mike Mattos’s house is about a block from a small, cement culvert that usually runs a couple of feet deep. When he moved there in the 1970s, there was no flood risk. But things have changed.

“You’ve got climate change, with the sudden storms, urbanization with the runoff issues, and you’ve got bad infrastructure that wasn’t right when they built it,” he says. “And it all ends up with water in people’s basements and hundreds and hundreds of homes getting flooded.”

It happened to Mattos’s house in 2013. The culvert overflowed and water rushed toward his house. At the same time, the water and sewer systems on his street were overwhelmed, and pushed water back up through the drains. Water broke down his basement door and filled the area up to his shoulders.

Once the water was pumped out, Mattos took the $50,000 insurance payout and spent an additional $40,000 of his own money. Instead of restoring the basement, he used the money to fortify his house. He removed windows and built a 2.5-foot-high concrete barrier, which he calls a “sea wall,” around his back steps.

The basement itself is now just concrete floors and furnished with things Mattos wouldn’t mind losing if his defences are breached.

Mattos has $50,000 worth of flood coverage on the house with a $10,000 deductible. But he’s not sure what options he’ll have if the water gets in again. He said his insurance will be cancelled if he experiences another flood.

It’s an increasingly common refrain. Thousands of Canadians live in vulnerable areas that, before long, may be deemed too risky to insure.

‘Existential’ threat

It’s one thing to hear the concerns of those who have suffered catastrophic losses, or even environmental researchers who have been warning this is where we’re headed. It’s another thing entirely to hear the CEO of one of Canada’s biggest insurance companies call climate change an “existential” threat.

“Climate change is massive, because we protect Canadians from coast to coast to coast,” said Charles Brindamour, CEO of Intact Insurance. He said his company protects “one in five Canadians.” After seeing a “five- to six-fold increase” in natural disasters worldwide over the last three decades, Brindamour knew the industry had to adapt.

“We had to totally reshape our business model to make sure we had a sustainable business in the context of massive changes in weather patterns.”

Brindamour has made climate change a company priority. Since he took the company public just over ten years ago, the nature of the risk he insures against has fundamentally changed. And Brindamour said more change is coming.

“In the next 20 to 30 years, the east of the country will become close to 20 per cent wetter and the west of the country will become 20 per cent to 25 per cent drier,” said Brindamour. His company now funds one of the biggest academic facilities on this issue in Canada, the Intact Centre on Climate Adaptation, a research centre at the University of Waterloo.

‘There is no silver bullet’

Between 1983 and 2008, Canadian insurance companies paid out an average of $400 million in claims per year. Now, with so many climate-related disasters, the average is $1.8 billion a year. The fires around Fort McMurray in 2016 became the most expensive natural disaster in Canadian history. The cost of fire prevention has soared from around $600 million in the 1990s to more than $1.4 billion in the last two years.

“This is a problem not just for the insurance industry,” said Brindamour. “It’s a problem for society. For every dollar of protection we provide, there’s three to four dollars of cost on society.” We all pay attention to the amounts paid out in insurance claims, but insured losses pale in comparison to uninsured losses. In other words, consumers and businesses are on the hook for way more than the billions paid out to cover losses.

And that’s just the losses that are covered by insurance. For every dollar paid out there are multiples more that go uncovered. Tens of billions of dollars every year world wide that are covered by individual families and businesses.

Experts in managing these catastrophes say the very nature of the risk means the cost is spread everywhere. Everyone ends up paying, which in turn means no one agency or level of government is solely responsible.

Rehana Rajabali, a senior manager with the Toronto and Region Conservation Authority, said that poses serious policy problems. To get anything done, you need everyone on board, because floods and fires don’t stay within regional boundaries.

“The risk is not localized to one place,” Rajabali said. “There is no silver bullet.”

New risks

Rajabali said municipalities control key infrastructure, while the federal and provincial governments can set the pace with policy. But she said homeowners have to do their part as well, and insurance companies need to make sure the public knows the shifting financial risks.

The federal government is planning to release new flood maps next year, which will help. Many Canadians who live far from major rivers and lakes will wake up to a whole new understanding of risk.

As an insurer, Intact obviously has its own data and maps. Based on that, the company assumes as many as five per cent of those newly at-risk properties will be simply uninsurable.

Brindamour warns that “if you’re in a zone that gets flooded repeatedly, or where the odds of being flooded has increased meaningfully, it’ll be hard to find insurance from private capital.”