Climate Change and Your Insurance Premiums
Stories of windstorms in Lethbridge, hail losses in Calgary and severe rainstorms in Edmonton are becoming all too familiar in Alberta. In the last year alone, Alberta insurance companies paid out over $500 million in claims and the numbers are increasing. Catastrophic weather cost Canadian insurance companies $1.7 billion 2011 versus $1 billion in 2009 and 2010.
Not only have insurance payouts dramatically increased, but studies by the Insurance Bureau of Canada show Alberta will continue to experience more severe weather into the next century. All types of weather are being negatively impacted by climate change.
- Forest fire activity is increasing resulting in massive losses. The Slave Lake fire in 2011 resulted in $700 million in insured losses. Forest fires are projected to rise by 25% by 2030 and 75% by the end of the century.
- Precipitation has increased across the country by approximately 12% in just 50 years. Water has now surpassed fire as the primary source of home insurance claims.
- Hail Storms continue to cause widespread damage. One hail storm can cause over $400 million in insured damages which is more than half of the Slave Lake losses. Losses from hail continue to increase in cities like Calgary due to population growth.
How Will Extreme Weather Impact My Insurance Premiums?
The insurance industry has started responding to weather related losses in three ways. Not only can you expect higher premiums, but deductibles and coverages are changing to.
Higher Premiums:
The insurance industry is preparing Albertans for higher premiums when it’s time to renew their insurance. The primary reason for the increases is simple; premiums are based on claims experience from the past and rates will increase as losses increase.
Wawanesa Insurance has already publically announced plans for large rate increases this fall. Wawanesa has paid out over $100 million in claims within 3 years. President Ken McCrea stated that these events are “starting to look like a trend and not an aberration. We’re looking at significant, double-digit increases to property rates to cover those loses.
Although Wawanesa Insurance is one of the first to raise rates, other insurance companies will have no other choice than raising premiums in the near future. As a consumer, you might be tempted to shop around and find an insurance company that is trying to maintain market share by holding off on rate increases, but any savings will likely be erased as soon as you renew. It is advisable not to jeopardize your loyalty discounts when the entire industry is expected to follow suit.
Deductible Changes:
Deductibles are changing in two ways. Not only are deductible amounts increasing, but two different deductibles are being included on a single home owners policy. To better manage weather related risk, your policy might include one deductible for wind, hail and water and a second deductible for all other coverages. Hail and windstorm deductibles will vary depending on where you live.
To lower premiums, it has become commonplace for a homeowners policy to have higher deductibles. The average homeowner deductible is now sitting at approximately $1,000. Individuals with higher valued homes often elect to manage premiums with deductibles of $10,000, $25,000 and even higher. The good news is that you can work with your broker to find deductible options tailored to meet your individual needs.
What Can I Do To Help Maintain My Premium?
Consumers often ask us how they can manage their premiums and the best answer we can provide is to contact your insurance broker. A professional broker can discuss any changes to your policy and ensure you are getting the best rate possible. Your broker will also ensure that you are taking advantage of all available discounts and you have a deductible that is tailored to your individual needs. As the insurance industry adapts to climate change, your broker can help guide you through any changes and discuss the corresponding impact it might have on your premiums and coverages.
Cam Clay is the owner of Alpine Insurance & Financial Inc. which is one of the largest independent insurance brokerages in Alberta. With over 17 years in the industry, Cam well versed in all aspects of the Insurance industry.
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