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Climate Change for Insurance in Canada

Back in the day, a wise but somewhat gritty insurance manager liked to hear it when new junior professionals asked: “What do we do in the insurance office?”

“It’s quite simple,” the manager responded. “One: money comes in to you. Two: money goes out from you.  If One is larger than Two, you’re in.  If One is smaller than Two, however, you’re out. Any other questions?”

Old & New Plans

A lot of that changed – primarily due to pressures on new, carefully predicted risks.  However, the new approach is not far from the original premise.

For example: in the early days (think ships from England in the 17th century), the primary risk was loss of ships’ contents en route to and from countries around the world.  The sailors learned from each success and failure in navigating the ship.

The modern approach is to continue to improve the previous content for defining and moderating sales, business plan placement, policy changes, and content payment.

The latter is similar to ‘spreading risk,’ encouraging more opportunities and bringing in new specialists, carrying the history of the last 300-plus years supporting the current application. Throughout every century, insurance practitioners developed increasingly important, interesting, and expensive insurance plans.

And the current approach, increasingly spreading through every area of business, is artificial intelligence (AI), which has already reached the point where a ‘thinking’ bot can handle routine customer service interactions without human support.  This relies heavily on correct predictions.

Opportunity knocks?

New opportunities are defining new risk management as well as improving response to standard damages & losses, cyber losses, etc. That being said, we will be facing new challenges that will require new approaches to understand the impacts and responses.

Lisa Coxon, a personal finance writer for LowestRates.ca, recently wrote that “Climate change is upending the home insurance industry – And it’s going to cost you.” Coxon quotes Blair Feltmate, who is the head of the Intact Centre on Climate Adaptation at the University of Waterloo, who discusses climate change and how we can – and have to – adapt. She cites a recent Globe and Mail article, which stated that Canada’s rate of warming is twice the global average – and higher than any other country.

In a number of areas across Canada, homes used to rest easily on their foundations, unworried by water issues. However, things are changing. Coxon notes that extreme weather events are measured by dollars:

Between 1983 and 2008, catastrophic loss claims (meaning any claim resulting in over $25 million worth of damage) averaged $405 million per year. From 2009 to 2018 (inclusive), catastrophic losses cost insurers an average of $1.8 billion per year, according to the Insurance Bureau of Canada.

Daniel Mirkovic, President and CEO of Square One Insurance, said “A lot of things that are happening now we never would have expected.” This is not encouraging.

Is there hope?

While there are no guarantees, the actuaries are turning to a positive platform.

Paola Rosa-Aquino, justice fellow at American non-profit environmental news online magazine Grist.org, revealed that insurance experts rank climate change as the top risk for 2019. One approach is to focus on planning in resilient infrastructure and locations outside high-risk locations.

Rosa-Aquino references survey results from future projections of climate change’s impact on the global economy, and quotes actuary Steve Kolk, who says he feels encouraged that actuaries are “tackling this risk frontier.”

As Kolk sums up: “It thrills me to see actuaries join the effort and help us all build a sustainable planet more quickly.”

What are your thoughts?  Drop a note below.

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