Insurance
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Events like the May 2017 Kelowna flood increase everyone’s insurance premiums

Facing an insurance hike that could be north of 25 percent, Vancouver strata members are learning that they can’t escape the threat of catastrophic weather in a warming world

The climate has changed.

In some corners, those may still be fighting words, but even if you’re not among the British Columbians who have endured extraordinary floods or fires lately, when you get your next quote on home insurance, you’re likely to find that years of stormy weather have combined into what is becoming an extremely costly trend.

The immediate evidence comes in a note that Canada’s largest real estate insurance broker, Chicago-based HUB International, circulated recently to its Metro Vancouver strata corporation clients, warning that “you should budget for a 25%+ increase in insurance costs for 2019, possibly higher if your property has suffered losses.”

Part of that increase can be blamed on the same problem attached to every pricy real estate story: mostly, it’s Vancouver. And even if the government has been successful in taxing real estate prices into retreat, construction costs in the big, expensive city have still risen between 7 and 15 percent in the past year. So, HUB says, rates will go up 10 percent to cover that risk.

But the HUB memo blames the bigger increase on “catastrophic losses from weather related incidents.” As reported by the world’s largest reinsurance company, Munich Re, 2018 was the fourth-costliest year since 1980 for insured losses. And 2017, with hurricanes Harvey, Irma and Maria, was the costliest.

As a result, says Sarah Thompson, HUB’s B.C. vice-president, marketing and real estate practice, “Many insurers have been paying out more than they were taking in.” Of course, insurers expect that to happen once in a while; they’re in the business of spreading out risk, and they recognize there will be bad years.

But Thompson says, “When weather-related payouts are high three, four, five years in a row, it’s not just a shock loss, it’s a trend.” So, she adds, “Companies are incorporating that risk into pricing because this is now the new norm.”

Vancouver condo dwellers also have no protection from increased climate risk just because the storms, floods and fires have so far occurred somewhere else. Insurance companies bundle their policies together and sell them in blocks to reinsurers. (Munich Re and Swiss Re are No. 1 and 2 in the world; Lloyd’s of London is No. 6.)

This, too, is a way of spreading out risk, which is a good thing. It means that a disaster like the Camp fire of 2018, which destroyed Paradise, California, and inflicted US$16.5 billion in damages didn’t bankrupt the local carriers, even though US$12.5 billion of that loss was insured.

The good news, then, is that global reinsurers back up local companies in the event of concentrated disasters. The bad news is that a disaster anywhere in the world can therefore affect your insurance rates in already expensive Vancouver.

Staring further down the good news/bad news barrel, University of Calgary biologist Laura Coristine says, “You’re fortunate that you even get to carry insurance—some regions don’t even qualify now.” For example, the neighbourhoods in Ontario and Quebec that have endured so-called 100-year floods multiple times in the past few years won’t be able to purchase insurance coverage at any cost.

Even in Vancouver, some would-be clients are finding themselves priced out of the market—or buying insurance that actually doesn’t cover very much, says Tony Gioventu, executive director of the Condominium Home Owners Association of BC.

As the region’s plentiful stacked,  woodframe condo buildings grow older, Gioventu reports that many strata associations are having to file repeated insurance claims to repair flood damage from burst pipes; after which, those same stratas wind up facing deductibles of up to $100,000. Gioventu and Thompson also recommend that in this changed climate, every insurance purchaser should look particularly closely at the list of exemptions. “The carriers are really tightening up the terms,” Thompson says.

This being the current circumstance, Coristine says we all would be better off economically if we spent more money trying to mitigate climate risk, rather than waiting to manage increasingly catastrophic expenses. Her argument has some appeal when you consider what a 25-percent increase adds up to, even in a single market like Vancouver.

Gioventu says there are between 20,000 and 22,000 strata corporations in Metro Vancouver, ranging from duplexes to 800-unit complexes. That means there are roughly 600,000 units, for which insurance costs range from $550 to $950 each. Take an average premium price, $750, multiply it by 600,000, and you come up with $450 million. Tack on 25 percent and it’s a cool $112.5 million, or $187.50 for every strata unit in town. That’s the average likely increased premium—this year alone.

And even without dipping into the very scary prospect of an earthquake, Gioventu says, “The last time there was a hurricane in Vancouver was 1964. With climate change, we might be due.”