Canada’s Natural Disaster Insurance Crisis: Why High Premiums Aren’t the Solution
As climate change accelerates, Canada is facing an unprecedented rise in natural disasters. From devastating wildfires to catastrophic flooding, extreme weather events are becoming more frequent and severe. As a result, property insurance premiums have skyrocketed, making coverage increasingly unaffordable for many homeowners. But is simply raising premiums the right approach?
The reality is that Canada lacks a comprehensive strategy to manage the financial risks associated with natural catastrophes (NatCat). Unlike other developed nations, we do not have robust public-private partnerships to help distribute the financial burden. This leaves consumers shouldering the full cost of these growing risks, widening the protection gap and threatening financial stability.
The Costly Consequences of Inaction
Alister Campbell, President and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC), highlights this issue, stating that Canadian consumers are "left paying full freight for all peak-peril exposure." In other words, rather than spreading the risk across insurers, governments, and policyholders, Canadians are forced to bear the full weight of rising insurance costs.
Despite the industry’s attempts to offset exposure through higher premiums, this approach has proven inadequate. According to Campbell’s benchmarking study, Canadians pay a higher percentage of GDP on property and auto insurance compared to other OECD countries, yet the industry’s return on equity remains merely average. The result? A market where premiums keep rising while affordability and accessibility diminish.
Canada’s Biggest Blind Spot: No Government Backstop for Flooding
One of the most glaring vulnerabilities in Canada’s insurance landscape is our lack of a government-backed flood insurance program. Among G7 nations, Canada is the only country without a public mechanism to protect high-risk properties from flood damage. The federal government had initially planned to establish a national flood insurance backstop in 2024, but recent political uncertainty has thrown this initiative into question. With a federal election looming, the future of such a program remains unclear.
Without government intervention, homeowners in flood-prone areas face a bleak future: either pay unaffordable premiums, accept subpar coverage, or go without insurance altogether.
Learning from Global Best Practices
Canada is not the first country to grapple with the increasing financial strain of natural disasters. Other jurisdictions have implemented successful public-private partnerships to manage NatCat risks, providing valuable models for Canada to consider:
New Zealand & Japan: These countries have established earthquake insurance programs where government and private insurers share the financial risk.
France & California: Structured catastrophe funds help manage the cost of earthquake coverage.
Spain, UK & Germany: Public flood insurance frameworks reduce the financial burden on individual homeowners and insurers.
A Blueprint for Change: Leveraging Canada’s Auto Insurance Model
Canada does have a history of successful public-private collaboration in insurance—just not for natural catastrophes. The auto insurance industry has implemented solutions such as the Facility Association and provincial risk-sharing pools to address affordability and accessibility issues. These mechanisms ensure that even high-risk drivers have access to coverage, while also distributing financial exposure across multiple stakeholders.
A similar framework could be developed for property insurance, particularly for perils like flooding, wildfires, and severe storms. By fostering collaboration between government agencies, insurers, and consumers, Canada could create a more sustainable, equitable insurance system.
The Path Forward: A Call for Action
The time for Canada to act is now. Relying on higher premiums as a catch-all solution is neither sustainable nor fair. Instead, we must prioritize the development of public-private partnerships that share the financial burden of natural catastrophes. This requires:
Government Leadership: The federal and provincial governments must commit to implementing a national flood insurance program and exploring additional risk-sharing solutions.
Industry Collaboration: Insurers, brokers, and policymakers must work together to design and implement frameworks that distribute NatCat risks more effectively.
Consumer Advocacy: Homeowners and businesses need to demand fairer, more sustainable insurance solutions from their representatives and insurers.
Canada has the knowledge and resources to build a better insurance system that protects both its people and its economy. The question is: will we take action before the next disaster strikes?