“Canada is no stranger to extreme weather, but recent trends show that secondary perils – once considered more manageable – are now occurring with increasing frequency, intensity and unpredictability. Wildfires, floods and hailstorms are no longer just seasonal hazards; they are now a significant and persistent threat, causing billions in damages. This reshapes the risk landscape and may outpace the effectiveness of traditional models,” writes Jolee Crosby, CEO Reinsurance Canada and English Caribbean at ICMIF Supporting Member Swiss Re.
We are pleased to share this guest blog from Jolee, which is reproduced here for the benefit of ICMIF members with permission. The article was originally published on 25 September 2024.
Canada is no stranger to extreme weather, but recent trends show that secondary perils – once considered more manageable – are now occurring with increasing frequency, intensity and unpredictability.
Wildfires, floods and hailstorms are no longer just seasonal hazards; they are now a significant and persistent threat, causing billions in damages. This reshapes the risk landscape and may outpace the effectiveness of traditional models.
In the third quarter of this year alone, two major events pushed the year-to-date loss burden for Canadian re/insurers into unprecedented territory, at CAD $7.6 billion.
On 5 August 2024, northern Calgary experienced a severe thunderstorm that produced hailstones larger than golf balls, causing extensive damage to properties and vehicles. Calgary International Airport was hit hard, where damage to the roof of the domestic terminal led to flooding, evacuations and closure for several days.
The storm was notable for its record-breaking Canadian Hail Severity (CHS) ratings, with Queenstown reaching 12, Mossleigh 11, Calgary 10, Cochrane 10, and Strathmore 9. Wind gusts also surpassed 81 km/h in several areas, with Mossleigh recording 93 km/h and Tilley 100 km/h.
According to CatIQ, losses arising from the Calgary hailstorm resulted in almost CAD $2.8 billion from personal property, commercial property, and auto claims.
Just five days later, on 10 August, Quebec – and particularly Montreal – suffered severe flooding as the remnants of Hurricane Debby moved through the region. Total industry insured losses were greater than CAD $2.4 billion.
These events followed another significant flood in Toronto in July, which resulted in insured losses greater than CAD $900 million. Additionally, the wildfire in Jasper is projected to add just under CAD $900 million to the loss tally for 2024.
And this is all just the financial impact – not even considering the emotional toll on our communities.
Improving alignment between reinsurers and insurers
As billion-dollar secondary perils become a phenomenon in Canada, their increasing severity and unpredictability must be addressed during the 1/1 reinsurance renewals through more sustainable structures and pricing.
To navigate these challenges effectively, fostering a collaborative relationship between reinsurers and insurers is essential. This collaboration hinges on the comprehensive and timely sharing of risk and loss data, which enables better alignment and understanding of emerging risks.
By sharing accurate, current data, insurers can help reinsurers assess and price risk more effectively and develop tailored solutions that address the unique characteristics of secondary perils. Together, we can work towards a more resilient and sustainable market.
Accurate pricing is fundamental to any successful renewal, especially as we confront a future marked by increased volatility. Mispricing these risks – either underestimating or overestimating them – can lead to significant financial challenges. To sustain long-term market sustainability and resilience, we must reach a balanced equilibrium. Insurers need to account for the heightened uncertainties of these perils while reinsurers must structure contracts that reflect these risks accurately.
To achieve this balance, setting the right attachment point is also critical. This ensures that risk is appropriately distributed between insurers and reinsurers, creating a balanced approach to coverage that benefits both parties – and more importantly a strong, resilient insurance ecosystem which benefits society
Key actions ahead of 1/1
Given the increasing uncertainty surrounding secondary perils, setting these thresholds correctly is important for avoiding undue exposure and ensuring fair risk sharing. Therefore, as we prepare for the January 2025 renewals, the following three objectives should be considered:
- Share the data: Openly sharing detailed risk and loss data is beneficial for all parties. The more information we have, the better we can collectively underwrite and manage these risks.
- Risk-appropriate pricing: Pricing should reflect the increased severity and uncertainty of secondary perils. Properly priced policies are essential to meeting these challenges effectively.
- Set proper attachment points: Ensuring that treaties are structured with appropriate attachment points will help distribute risk fairly between reinsurers and insurers, fostering long-term stability for both parties.
Fundamentally, insurance companies are best suited to manage and absorb attritional losses from frequency events while the reinsurance industry acts as a balance sheet shock absorber for severe, unexpected events.
More than a shock absorber
Yet reinsurers really are more than “shock absorbers” – and it’s one reason why I love this industry! We offer a whole lot more including the support of partners in all aspects of risk, from awareness and management to risk transfer. We have a comprehensive product suite, global reach, deep (and longstanding, historically based) expertise and advanced tools.
Beyond traditional risk transfer solutions, we can provide insights and knowledge that enhance risk awareness and inform sound risk management strategies. While we are a safety net – we prefer to think of ourselves as a strategic partner, offering stability, sparking new ideas, and helping our clients decide the best path forward.
Building partnerships between reinsurers, insurers, governments, and non-profits is also essential to creating affordable and more accessible insurance solutions. These collaborations extend critical disaster recovery financing to communities around the world, helping them recover and rebuild when it matters most – like in these times.
By focusing on these priorities, we can collectively face the growing challenges posed by secondary perils in Canada, ensuring that our industry remains resilient and well-prepared for the uncertainties ahead.
