Canadian home insurance is under pressure as costs for extreme weather events rise

Raising premiums above the inflation rate – sometimes even steeply above – is a common response, but experts say insurers are also increasingly excluding coverage for certain risks, raising deductibles and reducing their exposure to higher-risk areas.

As Morningstar DBRS said in a November report, “The Canadian market is showing early signs of coverage tightening.”

Insurers limit exposure to areas with severe weather

While insurers have not yet completely withdrawn from these areas, some have reduced their exposure.

“We have restored balance in some of the areas with more severe weather conditions,” TD Chief Executive Raymond Chun said on the bank’s most recent earnings call. “Where we had a higher concentration in some of the high-severe weather zones, we moderated.” The bank is instead targeting growth in regions with lower catastrophic risk, Chun said.

Definity Financial Corp., which says it is Canada’s fourth-largest property and casualty insurer after completing a $3.3 billion acquisition of Travelers last month, has also taken steps to retreat into higher-risk areas. Chief executive Rowan Saunders said on the company’s analyst call in November that they had been working to grow the portfolio, move new business to less catastrophe-exposed areas and reduce concentration in areas with higher risk scores.

He said the hard work of moving away from the higher risk has largely been done, but it will be an ongoing effort. “That just means continuing with good portfolio management.”

Pressure to rebalance portfolios increased after costs rose from already high levels in recent years, most notably record insured losses of $9.4 billion by 2024. But it is far from a one-off.

What rising insurance losses mean for homeowners

According to a report from TD, average personal property losses between 2020 and 2024 were almost double the previous period, while the number of catastrophic weather events averaged 15 per year, compared to around two per year in the 1980s.

“Increasing damage to insured personal property is putting significant pressure on Canada’s home insurance industry,” economist Likeleli Seitlheko said in the report.

In response to the costs, insurers are raising deductibles to more than $10,000 for perils like hail, reducing coverage or simply not offering it for some risks like flooding, he said. “In the worst case scenario, there is simply no insurance coverage available for certain perils,” Seitlheko said.

Despite the increasing flood risk, coverage gaps persist

Flood coverage, which was only introduced in Canada about a decade ago, has been patchy, with limited availability in higher-risk areas. According to Public Safety Canada, Quebec has the largest number of properties at risk of flooding, followed by Ontario and British Columbia.

The Insurance Bureau of Canada estimates that about 1.5 million households, or about 10%, cannot get flood insurance, while for those that can, it can add as much as $15,000 a year in premiums.

But even that overestimates how many people can get coverage, says David Nickerson, who studies real estate economics at Toronto Metropolitan University. “The industry says flood insurance is available to 90% of Canadians. That is a gross exaggeration. Perhaps as much as 50%, in fact, due to the idiosyncrasy and redefinition of high-risk areas.”

Part of the problem is patchy and outdated data to know which areas are at risk, Nickerson says. That’s why the federal government is spending hundreds of millions of dollars to upgrade flood maps.

The industry absorbs shocks while consumers pay more

While insurance companies have different sources of information, they can still face concentration risks, as TD did during the 2024 Calgary hailstorm, Nickerson said. “They were saddled with that huge, huge loss, and so they retreated to replenish their financial reserves.”

Alberta has been a flashpoint for losses, with events like the $3 billion hail storm and the $1.1 billion Jasper wildfire in 2024 leading to the industry’s operating costs exceeding premium revenues by nearly 20% that year, according to the TD report.