Some insurers stop covering California homes over costs linked to wildfires. Is Canada next?
There are concerning trends for Canadian homeowners who need insurance in high-risk disaster areas
In August 2020, Erica Fensom woke up in the middle of the night and smelled something off. She saw ash in the air and went outside her Santa Cruz County, Calif., home to see smoke.
"We knew it was close and we put as many of our belongings in the car as we could."
Fensom followed alerts on the CZU Lightning Complex fires and decided to pack up key belongings and supplies with her family and leave.
Major insurance companies State Farm and Allstate, have recently acknowledged they will no longer provide home insurance to customers in California because of costs linked to risks like wildfires.
"I have had a number of friends whose insurance companies have dropped them within the last year, so they had to either buy new insurance or pay a much higher premium with a new company in order to continue to be insured," said Fensom, noting her own insurance hasn't been impacted.
She's originally from British Columbia and her brother still lives in Calgary. He's a Canadian Armed Forces (CAF) reservist who has fought wildfires in the past and is currently on standby as fires continue to rage in parts of the province.
Wildfires are also continuing to burn out of control outside Halifax, and insurers have stopped issuing policies for homes in Nova Scotia evacuation zones while the province remains under an emergency declaration.
Issues for Canadians in high-risk areas
Craig Stewart, a vice-president with the Insurance Bureau of Canada, says escalating wildfire dangers aren't yet at the point where home insurers are balking.
"Wildfires are still considered to be accidental."
He says single events don't drive insurance premium rates, and models are based on long-term trends. However, those trends do present concerns for Canadian homeowners.
"California is now a predictable place of wildfire loss. You have very high populations … lots of homes in very dry, high-risk areas. And it's very analogous to living in flood plains in Canada."
Stewart says there's already about 1.5 million Canadian homes that are uninsurable because they're located in flood plains.
He says if your mortgage requires insurance and you can't get a policy "you may not be able to stay in your house."
Disasters are complicating not just the accessibility of home insurance but also the cost.
"Places like California, places like, you know, much of Canada, are seen globally as riskier and riskier places to do business," said Stewart.
Challenges with risk picture
Reinsurers — companies that protect insurance companies against loss — look at that risk profile and charge insurance companies more. That makes it costlier for insurance companies to issue policies and homeowners end up paying more.
"Prior to 2009, average losses in this country were about $400 million a year. In the last five years, it's been over $2 billion a year. Last year was a $3 billion a year loss event in Canada," Stewart says.
"So the numbers are trending in the wrong direction and they're accelerating rapidly."
Another factor driving up premiums at the moment is inflation's impact on construction costs. Stewart says, in some cases, a home might cost 150 per cent its market value to rebuild.
If premiums continue to go up in high-risk areas, that creates scenarios where some residents can't afford to stay in their homes.
Help from government
Stewart believes other insurers will likely step in to take the business that companies like State Farm and Allstate no longer wants. California does have a "syndicated fire insurance pool" called FAIR Plan to help people get home insurance if they were otherwise unable.
He also thinks the government funded insurance programs are crucial.
"California does it on earthquakes, Britain does it on flooding, France does it on a multi-peril basis."
The 2023 federal budget does promise funding for Canada's first national flood insurance program to the tune of $31.7 million over three years.
Stewart says the Insurance Board of Canada has had discussions about expanding the program to other types of natural disasters if needed. He argues public insurance programs make sense when most people living in flood zones remain unaware of the danger their homes might be in.
"They're basically relying on government bailouts, post-event, which is like free insurance to help them."
Stewart would also like to see improved risk reduction plans in Canada. While he praises firefighting efforts in Canada for working hard to limit the number of structures lost to wildfires, he notes that close to 80 per cent of firefighters in Canada remain volunteers.
"We need to probably rethink how we build a culture of preparedness in the country."
Radio segment produced by Mickie Edwards. With files from Cross Country Checkup