Severe thunderstorms and high winds with confirmed or suspected tornadoes have been a weekly part of local weather lately. The damage these storms have caused to property is expensive to repair, and that has consequences for property insurance.
Much of the extra burden on the insurance industry resulting from severe weather damage is blamed on climate change and more extreme weather patterns associated with it. According to the Insurance Institute of Canada, payouts for severe weather damage claims across Canada have doubled every five to 10 years since the 1980s.
Insurance broker Shawn Martel of Vankleek Hill said insurance claims have been increasing locally and it began with the destructive derecho wind storm that moved across Prescott and Russell counties on May 21, 2022.
Martel said in the last six months, the number of claims has increased in frequency, but not necessarily in value.
“The weather has just been getting worse and worse,” Martel said.
He said many insurance companies used to receive 4,000 to 5,000 claims a year for property damage, but when the May 2022 storm hit, they began receiving that same amount per day.
“It seems like every weather event is worse,” remarked Martel.
According to Martel, many claims are now $20,000, $30,000, or even $100,000 in value. He said increased costs of material and labour, and a shortage of both, have also driven up the cost of repairing damaged property. He said the average claim lately is about $30,000. Martel said the average claim five to 10 years ago was $15,000 to $20,000.
The Insurance Institute of Canada believes the average annual severe weather claims paid by insurers in Canada is expected to double over the next 10 years, increasing from $2.1 billion a year to $5 billion.
When costs increase for insurance companies, they purchase re-insurance from other companies. Re-insurance acts as insurance for insurers. Martel said re-insurance is generally used only on commercial and agricultural property claims. And of course, more claims, and more expensive claims also means insurance companies have to raise the yearly premiums policyholders pay. Those premiums are also adjusted to account for inflation. Martel said most premium increases currently range between seven and 10 per cent per year.
Martel said many insurance companies offer their policyholders so-called claims-free discounts where they offer a discount to clients who have not made any claims, usually for a minimum of three years. The rate of those discounts varies among companies. Martel said policy holders could also pay higher deductible rates on their insurance claims. However, he said most companies waive the deductible when a claim is worth $30,000 or more, which means the company is often left assuming 100 per cent of the cost of the claim, especially since the average property claim is currently worth about $30,000.
Vankleek Hill insurance broker Linda Vernier said she has not seen an increase in claims recently, but definitely noticed a spike in them following the May 2022 storm. She said clients with claim-free Discount eligibility lose their discount as soon as they have to make a claim, and then their premium increases can range from 10 to 20 or 30 per cent.
Vernier explained structural damage due to weather is covered in most property insurance policies, but extra coverage is required for floods and backed up sewers.
