Funny coincidence.
Buying home and car insurance is becoming impossible, headlined the Wall Street Journal. Property and casualty insurers experienced one of their worst years in the United States in 2023, the financial newspaper reports. The claims are enormous; the damage to insurers amounts to tens of billions.
The wildfires that ravaged the island of Maui, Hawaii, cost a fortune. In California, the flames that are leveling entire neighborhoods don't even move us anymore. Not to mention the hurricanes that regularly hit the East Coast, the tornadoes in the Midwest, and the flooding almost everywhere…
The WSJ reports on the case of a couple who had all the trouble in the world buying their dream home in a wooded area in California. Since no company could be found that was willing to insure the coveted property, the couple were denied the mortgage loan necessary for the purchase. It was thanks in part to a government insurer of last resort that provided annual premiums of $4,000 that they were able to complete the transaction.
The couple's wife says she is considering giving up earthquake coverage to reduce her insurance costs and maintain fire protection. In such an active seismic region, trouble is brewing. But as is common in the United States, his strategy also includes an element of prayer.
Also in the Golden State, insurer Allstate received permission from regulators to increase its auto insurance premiums by 30% within a year. It is awaiting approval to increase the cost of home insurance by 40%. California's situation is unique, but everywhere in the country premium growth far exceeds inflation. The media reports increases of 15 to 17% in the New York and New Jersey region. If state governments resist these increases, insurers will threaten to leave.
Insurance costs are skyrocketing while at the same time insurance coverage is decreasing. In some places, Americans cannot insure their property. All of this can be explained by a combination of factors, ranging from the higher frequency of natural disasters due to climate change and population density in vulnerable areas.
The explosion in costs for rebuilding houses is weighing heavily on the balance sheet. The fact that Americans are driving increasingly expensive vehicles that are becoming increasingly expensive to repair clouds the picture. The smallest traffic accident often ends in a total loss. Not to mention the theft epidemic plaguing the continent.
And here, what does it look like?
We know the Americans, they always do great things. Could what they are experiencing be a harbinger of what is to come? I'm wondering because I also recognize us in the previous paragraph.
Because we too can be hit by some grandiose disasters. Damage caused by the 2016 Fort McMurray fires caused nearly $6 billion in damages. The freezing rain episode last spring was not comparable to the crisis of 1998 (2.83 billion claims), but it still caused 330 million claims from insurers (Quebec and Ontario).
The Insurance Bureau of Canada (IBC) said Monday that severe weather caused $3.1 billion in insurable losses. The Okanagan wildfires at the end of last summer won the prize at $720 million, followed by the Ontario summer storms ($340 million) and our April 2023 ice event.
Good for us, we're still in the little league. “The situation in Canada is not comparable to what is happening in the United States,” says Pierre Babinsky of the BAC.
According to the IBC spokesperson, it is rare for people to be unable to find insurance in Canada, and when it does happen, the reasons for denial are based less on environmental risks and market conditions and more on the risks posed by the insured themselves. Some customers may have an off-putting complaint history.
The IBC provides a mechanism to enable these people to receive protection. In 2022, 180 people will have insured their homes. However, when risks are high, premiums are also high and insurance coverage is often minimal.
Here, according to BAC, premiums rose by 18% between 2018 and 2022, while average claim amounts rose by 33%. We are missing the numbers for 2023 and we won't know those for 2024 for a while. I'm not an actuary, but I find it hard to believe that such a gap (15%) between claims costs and premiums can persist forever.
Pierre Babinsky assumes that the companies covered part of the additional costs, while another part was compensated for by the income from the financial reserves that insurers have to maintain. As bond interest rates have recently risen, it is to be hoped that the additional profits from these reserves will slow the rise in premiums and save us from an American scenario.
What also helps is the low population density. Every natural disaster, no matter how small, causes great damage to our neighbors. Quebec experienced the worst wildfires in its history last summer, but very few material losses were reported.
However, do not think that we are given gifts. Climate events cause more extensive and costly damage every year. It will always ultimately be reflected in your insurance bill.
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