Fort McMurray fire could cost insurers $9B, BMO predicts

The damage costs from the fire ripping through Fort McMurray, Alta., could reach $9 billion for insurers if it gets to the point that the entire town has to be rebuilt, an analyst at Bank of Montreal said Thursday.

Emergency personnel are still battling the wildfire that has essentiallywiped out several sections of the city while leaving others virtually intact, so the full economic cost of the disaster is hard to calculate.

• WATCH: What to do if your house is in the area of Fort McMurray
• DON PITTIS: The unstoppable power of a raging forest fire

But with 80,000 people displaced and hundreds of homes and businesses destroyed already, it's clear the financial toll will be heavy.

Economic loss

8 years ago

Duration 4:14

Todd Hirsch, chief economist at ATB Financial, on the vital role of Fort McMurray

A similar fire in Slave Lake, Alta.,that destroyedmuch of the town in 2011 came with an insurance price tag of almost $750 million, making it the most expensive fire-related disaster in Canadian history.

Considering the size of the two communities, it's clear the Fort McMurrayfire could cost much more than that. Fort McMurray's official population is almost three times the size now as Slave Lake's was then, and the city is often swollen by as many as 40,000 temporary residents during boom times.

About 400 structures were lost in Slave Lake. Already, firefighters estimate more than 1,600 have been destroyed in Fort McMurray.

• LIVE BLOG: Breaking updates on the fire in Fort McMurray

Standard home and business insurance typically provides coverage for the property, the possessions inside and living expenses elsewherewhile the insured are unable to stay in their residence,Celyste Power of the Insurance Bureau of Canada said in an interview.

"Thepoliciesdiffer a little in terms of the length and amount, but generallydamage and destruction coverage is standard."

While homeowners shouldhave little to fear in terms of having coverage, if the Slave Lake fire can be used as a guide, the cost forinsurers could be enormous.

Price tag could be as high as $9B

BMO analystTom MacKinnon said that if one assumesthe ultimate damage is limited tosomewhere between aquarter and ahalf of all buildings being destroyed, the price tag to rebuild would range from $2.6 billion to $4.7 billion, based on the lessons of 2011.

"But since Fort McMurray is nearly 10times the size of Slave Lake, a disaster of the same magnitude impacting nearly all of Fort McMurray[similar in the way that nearly all of Slave Lake was significantly impacted]could potentially lead to $9 billion in insured industry losses," he said.

• Fort McMurray fire latest in Alberta's string of expensive disasters

That would make the disaster far and away the costliest disaster in Canadian history. Currently, the 1998 ice storms in Quebec that cost insurers almost $1.9 billion in today's dollars are the most expensive insurance event ever in Canada in inflation-adjusted terms, according to IDC's 2015 annual report.

Next comethe floods in southern Alberta in 2013at $1.8 billion.

Economic fallout

8 years ago

Duration 2:29

Renee Filippone reports on the economic harm from the massive fire that hit Fort McMurray

The cost of Fort MacMurray's firecould potentially be much higher, but it's too early to tell.

"We are looking at a considerable cost, but it is early days," economist Todd Hirsch at ATB Financial said. "[It's] far too early to even start contemplating what those costs are going to be at this point, [but ] the economic costs are going to be significant," Hirsch said. "Probably into the billions of dollars."

The insurance price tag doesn't include other economic damage, such as reduced output from nearby oilsands operations. The Slave Lake fire disrupted oil activity enough toknock GDP in the oil and gas sector off by five per cent during the month, which pulled Canada's entire economy down in May 2011, Bank of Montreal economist Robert Kavcic noted Thursday.

Given Fort McMurray'scentral role in Alberta's energy industry, the toll on the oilpatch this timecould be even worse. "As much as 500,000 barrels per dayis now offline," Kavcicnoted, referring to precautionary shutdowns at Suncor and Shell operations north of the city.

At a news conference Thursday, Alberta Premier Rachel Notley praised firefighters for their efforts to protect critical infrastructure things like airports, water plants and cellular towers from the flames.

"That, ultimately, has a major impact on the recovery cost down the road," she said.

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