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Climate Change Can Threaten the Insurability of Some Property Risks in Canada

Canadian property and casualty (P&C) insurers have demonstrated financial resilience in handling ever-increasing weather-related losses through effective risk management. However, as climate risk increases and severe weather events become more correlated around the world, insurance and reinsurance companies may opt to withdraw property insurance coverage in regions they deem too costly to insure, or they may avoid insuring certain risks altogether. As a result, the availability of insurance (i.e., insurability) can become a problem in the future.

Key highlights include:
-- Insured weather-related loss data for Canada show an increase in average annual weather-related losses that is higher than at the global level.
-- Canadian P&C insurers have demonstrated financial resilience in managing catastrophic weather-related losses through effective risk management.
-- Reinsurance is a key risk management tool that enables Canadian P&C companies to efficiently transfer climate-related risk to global reinsurers.
-- As impacts of climate change lead to more correlation in severe weather events across the world, reinsurance may be more costly and limited, thereby affecting the insurability of property risks.
-- Without risk reduction, some property risks can become uninsurable, putting more strain on government budgets for greater funding after a disaster.

“The warming of Canada's climate is about double the magnitude of global warming as per ‘Canada's Changing Climate Report,’ which was published by the federal government in 2019,” said Nadja Dreff, Senior Vice President, Insurance. “Under an extreme scenario, global reinsurance companies may reduce their appetite for insuring some property risks in Canada, creating additional challenges for primary insurance companies that rely on reinsurance as a risk management strategy. As such, we are closely monitoring the consequences of climate change and the P&C insurance industry's response as part of our credit rating analysis.”