As Canada grapples with the escalating impact of extreme weather, the stability of its home insurance market is increasingly being tested. Insurers are adjusting their strategies amid rising costs, leading to steeper premiums and a tightening of coverage options. While the nation’s insurance sector has thus far managed to avoid the drastic coverage gaps seen in the United States, experts warn that fundamental changes are underway.
Insurers Adjust to Climate Realities
The financial strain on Canada’s home insurance sector is becoming apparent as the costs associated with natural disasters continue to climb. Recent trends indicate that insurers are not only raising premiums—often significantly above the inflation rate—but are also excluding certain risks from their policies. This shift has been highlighted in a report from Morningstar DBRS, which noted that the Canadian insurance market is beginning to exhibit early signs of coverage tightening.
In a recent earnings call, TD Bank’s chief executive, Raymond Chun, acknowledged the bank’s strategic shift away from areas prone to severe weather. “We’ve rebalanced in some of the higher severe weather regions,” Chun stated, indicating a deliberate move towards regions with lower catastrophic risk. This approach mirrors actions taken by other major insurers like Definity Financial Corp., which has been actively adjusting its portfolio to reduce exposure to high-risk areas after its acquisition of Travelers for $3.3 billion.
The Financial Toll of Extreme Weather
The financial landscape for insurers has become increasingly challenging, particularly following a record-breaking $9.4 billion in insured losses in 2024. According to a report by TD, the average personal property losses from 2020 to 2024 were nearly double those recorded in the previous five years. Moreover, the frequency of catastrophic weather events has surged, averaging 15 per year, a sharp increase from just two annually in the 1980s.
Economist Likeleli Seitlheko highlighted the significant pressure these losses have placed on the home insurance sector, stating, “Growing insured personal property losses are placing considerable strain on Canada’s home insurance sector.” To manage this financial pressure, insurers have begun to raise deductibles to levels as high as £10,000 for certain perils, such as hail, and some have opted to eliminate coverage for specific risks entirely, including flooding.
Challenges in Flood Insurance Availability
Despite the introduction of flood coverage in Canada just over a decade ago, access remains inconsistent and often limited in high-risk areas. Public Safety Canada reports that Quebec holds the highest number of properties susceptible to flooding, followed closely by Ontario and British Columbia. The Insurance Bureau of Canada estimates that approximately 1.5 million households—about 10 per cent of Canadian homes—are unable to secure flood insurance. For those that can obtain it, premiums can soar by as much as £15,000 annually.
David Nickerson, a property economics expert at Toronto Metropolitan University, argues that the industry’s claims of 90 per cent availability for flood insurance are misleading. “That’s a gross exaggeration. Maybe 50 per cent, effectively, because of the idiosyncratic nature and redlining of high-risk areas,” he asserted. This disparity is exacerbated by outdated and inconsistent data regarding flood risk, prompting the federal government to invest hundreds of millions in improving flood mapping.
Navigating Future Risks and Building Resilience
In light of the substantial losses experienced in 2024—triggered by events like the £3 billion hailstorm in Alberta—the insurance industry is facing a pivotal moment. Although significant losses have tested the resilience of insurers, Morningstar DBRS sector lead Nadja Dreff maintains that the industry remains stable. However, she cautions that the burden of these losses is inevitably passed onto consumers through increased premiums.
Between 2021 and 2025, home insurance costs—combined with mortgage insurance—rose by 31 per cent, significantly outpacing the overall inflation rate of 15 per cent. Regions with a high volume of claims witnessed even steeper price hikes, including a staggering 68 per cent increase in British Columbia and a 58 per cent increase in Alberta.
Dreff emphasised that the way forward requires a collective societal investment in climate resilience. “Everybody is kind of doing the best they can, and consumers are sort of on the receiving end,” she explained. The Insurance Bureau of Canada echoes this sentiment, advocating for a comprehensive approach to building homes that can withstand the challenges posed by extreme weather.
Why it Matters
The ongoing transformation of Canada’s home insurance market is not just an industry issue; it reflects the broader implications of climate change on society. As natural disasters become more frequent and severe, the financial burden on consumers will only grow. This situation calls for urgent action from all stakeholders, including government and industry, to invest in resilience measures that can safeguard communities and ensure that insurance remains accessible and affordable. The stakes are high, as the costs associated with climate change will ultimately be borne by policyholders, making it imperative for all to engage in proactive solutions.
