As climate change claims heat up, insurance industry says we need to adapt: Don Pittis

"They lose sleep every time it rains really hard because they know they're going to get flooded basements," says Jason Thistlethwaite, a University of Waterloo professor who studies the insurance industry, about people in the business.

Thistlethwaitesays thesame thing happened when the news of the damage in FortMcMurray, Alta.,came through, "as soon as they heard that 1,600 structures number."

With all those buildings burned, what the insurance industry expects to be Canada's most costly naturaldisaster is going to affect Canadians, andnot just in higher rates.

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As the director of Waterloo'sClimate Change Adaptation Project,Thistlethwaite'sresearch is on the leading edge of the Canadian insurance industry's attempt to cope with climate risk.

Some industries seem tohave had trouble believing the scientists who warn that humanactivity is warming the planet by releasing long-sequestered carbon.

The insurance business is an exception, as EricRegulypointed outin a 2013article titledNo climate-change deniers to be found in the reinsurance business.

Early warning

"What is remarkable is that Munich Re first warned about global warming way back in 1973, when it noticed that flood damage was increasing," Reguly wrotein the Report on Business Magazine.

Munich Re is one of the giant groups, including Swiss Re and Lloyds,that act as an insurance company for insurance companies, giving them an overview of changing global risk.

Twenty years before theRio Earth Summit,where the world's countries first focused on a global strategy to fightclimate change, the insurance industry had recognized that claims were rising more quickly than their risk tables had told them theyshould. Their researchpointed straightat climate change.

Here in Canada, the industry also recognizes it has a problem, hence theIntact Centre on Climate Adaptation (ICCA). The insurance company that sponsors the centre,Intact, formerly known as the ING Group, is the largest home and property insurer in FortMcMurray,according toICCAhead BlairFeltmate.

Cause and effect

As withall climate change arguments, it is hard to prove an absolutecause-and-effect relationship between climate andthe recent Canadian increaseindamage claimsfrom fires, floods, wind and ice storms.

But for literally hundreds of years, the insurance industry has been the master of statistics. It goes back to the days whenunderwriters sat in Lloyd's Coffee House in London in the1700sandcalculatedthe odds that acargo ship would sink before returning from the Far East. And they don't like to get it wrong.

"What we have is evidence that property-related insurance losses from extreme weatherare increasing not only in Canada, but also internationally," Thistlethwaite says. "And this aligns with climate change research that suggests that the warmer the atmosphere is, the more extremeweather you're likely to get."

Unfortunately for those looking for a climate change champion, the fact is we cannot count on the insurance industry to save us. As businesses, they must look at the bottom line.

'De-risking'

"There is no insurance company I know that's not an advocate for working to minimizegreenhouse gases," says theICCA'sFeltmate.

But he says from a business point of view, the industry decided in the past two or three years thatit must focus more onwhat he calls "de-risking" insured properties spending toadaptto climate change as the effects worsen.

As the insurance industry learns more about how to adapt, those new strategies will be passed on to homeowners, who will be encouraged to do things like directrunoff away from their houses, install devices to prevent sewer backup,cover window wells, or make their homes more fireproof.

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Even if not all homeowners play along, encouraging safe practices cuts statisticalrisk and benefits the bottom line of insurers as well as homeowners.

"The benefits of adapting are local if you de-risk a system. Whatever dollarsyou spend in that attempt to de-risk, you realize those benefits locally," Feltmate says.

Thistlethwaitesays one strategy would be to reward homeowners in specific risk zones for adding climate adaptations, oreven make it a requirement,but insurance companies need to do more research first.

"They really don't have a good idea of how much it saves an individual home when you install a backwater valve or put up fireproof shingles," he says.

But for now, people in the insurance industry are hard-nosed realists. They expect weather disasters caused by climate change to get worse before they get better. So we better get used to it.

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