Given the growing frequency and intensity of severe weather events around the world, like hurricanes, wildfires, floods and violent storms, households have had to make increasingly costly home insurance claims. Canada has not been spared; it even saw a record year for damages in 2024, caused particularly by flooding in Quebec and Ontario, and by wildfires and a hailstorm in Alberta.
Consequently, insurers in Canada and abroad have raised premiums, tightened underwriting standards or withdrawn from high-risk areas. This has led to rising costs for home insurance that has become less accessible – especially for households living in areas prone to such disasters – and rising uninsured losses.
Increasingly Serious Repercussions of Severe Weather Events for the Insurance Industry
Insured losses caused by catastrophic weather events, defined by the Canadian insurance industry as those causing $30 million or more in damage, have been trending upward for several years. Figure 1 shows this trend and highlights the three events that have caused the highest insured losses in Canada since 2008. These losses totalled a record $8.5 billion in 2024.
Several factors have contributed to driving up losses, like the growing frequency and intensity of severe weather events linked to a warmer climate, and population growth and development in high-risk areas, such as flood plains.
Figure 1 – Insured Losses Caused by Catastrophic Weather Events in Canada, from 2008 to 2024 (in billions of 2023 dollars)
Sources: Figure prepared by the Library of Parliament using data obtained from Insurance Bureau of Canada, 2023 Facts of the Property and Casualty Insurance Industry in Canada, 2023, pp. 15–26; and Insurance Bureau of Canada, 2024 shatters record for costliest year for severe weather-related losses in Canadian history at $8.5 billion, News release, 13 January 2025.
The increased losses for insurers have contributed to a rise in home insurance premiums in Canada. As Figure 2 shows, the rise in premiums has outpaced the consumer price index since 2000. Other factors have pushed up home insurance premiums, such as higher replacement costs for homeowners. This cost provides an indication of what an insurer would pay to a homeowner if they made a claim to replace their property. It is notably affected by the cost of building materials and labour. It is worth noting, however, that insurance premiums have risen faster than these costs.
Figure 2 – Changes in the Consumer Price Index, Homeowners’ Replacement Cost and Homeowners’ Home Insurance and Mortgage Cost, from January 2000 to January 2005 (January 2000 = 100)
Source: Figure prepared by the Library of Parliament using data obtained from Statistics Canada, “Table: 18-10-0004-01: Consumer Price Index, monthly, not seasonally adjusted,” Database, accessed 5 March 2025.
Furthermore, the cost of reinsurance has increased in recent years and this may have had an impact on the insurance premiums paid by households. Reinsurance is essentially insurance for insurers through which they assume only a portion of the risk and are compensated when they incur losses beyond a certain threshold. For example, in 2023, insurers saw their reinsurance premiums rise considerably, by 25% to 70%, depending on the situation, owing largely to 15 catastrophic weather events in 2022.
Flooding Causes the Most Damage in Canada
In Canada, flooding is the most frequently occurring and most damaging type of natural disaster. Catastrophic flooding caused an average of nearly $800 million in insured losses per year from 2014 to 2023.
Home insurance policies generally include coverage for water damage caused by sewer backups or broken pipes. Coverage for water damage caused by overland flooding, “where water flows overland and seeps into buildings through windows, doors and cracks,” has been available in Canada only since 2015. Prior to this time, the industry believed that this type of insurance was not economically viable [subscription required]. However, in the aftermath of major flooding in Alberta in 2013, the industry faced pressure from consumers who expected this type of damage to be covered by insurance policies and from the federal government which hoped to reduce the growing cost of federal disaster relief funding. Consequently, insurers began offering this type of coverage.
In 2019, 80% of Canadians had access to overland flooding insurance coverage. However, only 40% of home insurance policies purchased included this type of protection. This proportion rose to 54% in 2021. This low market penetration rate is mainly due to:
- limited understanding of the risk of flooding that is partly attributable to a lack of publicly available flood plain maps;
- limited knowledge about this type of coverage;
- a low willingness to pay for this coverage, given the perceived benefits; and
- an expectation that governments will cover a large part of the damages caused by a catastrophic flooding event.
Furthermore, this coverage remains unaffordable or unavailable in areas at high risk of flooding. In 2019, 7.7% of residential properties in Canada were located in high-risk areas. Figure 3 shows that this percentage was highest in New Brunswick, British Columbia and Nova Scotia.
Figure 3 – Percentage of Residential Properties in Areas at High Risk of Flooding (0–20 year flood zones) in 2019
Note: A 0–20 year flood zone is one which has a one-in-20 chance (5%) of flooding every year.
Source: Figure prepared by the Library of Parliament using data obtained from The Geneva Association, Flood Risk Management in Canada: Building flood resilience in a changing climate, December 2020, p. 19.
Risks Associated with Severe Weather Events Are Higher for Indigenous Communities
Indigenous communities are disproportionately affected by severe weather events and their consequences, such as flooding, wildfires and landslides. Indigenous communities are often located in remote areas, and a number of these communities have been relocated from their traditional lands to places that are more prone to severe weather.
With regard to flooding, recent studies have found that the exposure of Indigenous communities is similar to that of non-Indigenous communities, but that the risk is higher for Indigenous communities because they are more socio-economically vulnerable. These communities also face other aggravating factors, such as:
- the lasting effects of colonial history that has led to the loss of lands, languages and cultures;
- the complexity of working with many levels of government to receive support for managing flood risks; and
- limited access to resources and higher flood risk for certain remote northern communities.
In addition, Indigenous communities face a number of barriers to obtaining home insurance. These barriers may be linked to the effect of certain legislation, such as the Indian Act, the high cost of insurance in northern or remote areas, and challenges related to risk management planning and building inspections.
The Federal Government Announced a Low-Cost Flood Insurance Program
Given that flood insurance coverage is currently available only in low- or medium-risk areas, a large part of the cost of the damages caused to residential properties is the responsibility of either homeowners or governments. This market failure can, therefore, justify government intervention to make this coverage available and affordable in high-risk areas.
The Task Force on Flood Insurance and Relocation, created by the federal government in 2020, examined several risk-sharing models with the goal of improving flood insurance coverage for high-risk properties. In its 2022 report, Adapting to Rising Flood Risk, the Task Force discussed its review of four insurance models, but it did not recommend any specific model. It indicated, however, that each model aims to transfer part of the cost of flood damage to homeowners through predictable annual premiums. These premiums would encourage homeowners to actively reduce their risk, and they would make spending on financial assistance after a disaster more predictable for governments.
The Task Force also noted that any insurance solution will have to be paired with other measures aimed at reducing flood risk, such as improved flood mapping, awareness of flood risks, improved land-use planning and infrastructure that is resilient to severe weather events. In some cases, relocating the households at highest risk can help reduce the risk of flood-related losses.
In terms of an insurance solution, the federal government announced, in Budget 2023, its intent to address gaps in natural disaster insurance coverage in partnership with the provinces and territories. As a first step, it charged Public Safety Canada and the Canada Mortgage and Housing Corporation (CMHC) with the task of developing a flood reinsurance program, as well as a subsidy for households at high risk of flooding.
In Budget 2024, the federal government announced $15 million for the CMHC in 2025–2026 to establish a subsidiary to deliver the flood reinsurance program. It also stated that it was “advancing work with provinces and territories, in partnership with the insurance industry, to stand-up a low-cost flood insurance program for high-risk properties within the next twelve months.”
By Michaël Lambert-Racine, Library of Parliament
Categories: Agriculture, environment, fisheries and natural resources, Economics and finance