Over the past decade, insured catastrophic losses in Canada have been rising at an annual rate of nearly 9 per cent—"which is unsustainable," says professor Mary Kelly.
Kelly, who holds the Chair in Insurance at Wilfrid Laurier University, discusses the issue in the January 2025 edition of Solvency Matters, the quarterly bulletin published by the Property and Casualty Insurance Compensation Corporation (PACICC). Her column, titled Bridging the Gap in Catastrophe Insurance for Canada, highlights the increasing exposure of all regions to climate-driven disasters.
The catastrophic losses recorded in 2024 following disasters in Alberta, Ontario, and Quebec demonstrate that no part of the country is immune to extreme weather events, she writes.
A 2023 PACICC study on insurer insolvencies pointed to climate-related losses as a growing insolvency risk worldwide. The organization has limited capacity to manage bankruptcies, Kelly warns.
“For failures surpassing $3 billion in required funding, PACICC’s assessment mechanism would itself create systemic risks across its membership.”
This vulnerability underscores the need for systemic reforms to ensure market stability and resilience. Kelly outlines various options available to governments and insurers to develop catastrophe insurance programs.
“While insurance facilitates financial recovery after disasters, it cannot prevent them. Rising premiums in high-risk areas risk excluding vulnerable populations and may lead to insurer withdrawal from high-risk regions,” she writes, echoing the situation in California hit by wildfires in January 2025.
Traditional insurance models struggle to cover slow-onset events like sea-level rise. Kelly suggests that governments adopt various measures to mitigate risks and improve community resilience to extreme weather. Updating building codes and restricting construction in high-risk areas are among the solutions she recommends.
Risk transfer
Partnerships between governments and private companies “remain central to building effective catastrophe insurance frameworks,” she continues. Novel events, such as Hurricane Andrew in 1992 and the September 11, 2001 attacks in the United States, can destabilize private markets and expose weaknesses in catastrophe insurance. Risk-sharing agreements were revised in response.
“These recalibrations may lead to the establishment of residual market mechanisms to provide coverage for high-risk properties and restore market confidence,” Kelly notes.
Structured reinsurance agreements backed by government guarantees “provide insurers with the confidence needed to offer coverage in high-risk areas,” she adds, citing parametric insurance as an example. These programs, which trigger rapid payouts based on predefined criteria, contribute to a faster and more efficient disaster response.
“As climate change accelerates, the cost of inaction will only grow,” she warns. Establishing the National Flood Insurance Program is a crucial first step for Canada, but broader insurance frameworks to include wildfires and other perils could help close coverage gaps, Kelly argues.
Earthquake risk
According to Alister Campbell, private risk transfer mechanisms for catastrophic perils are always preferable to post-disaster bail-out funding, as taxpayer-funded relief places the financial burden on everyone, including those with little or no exposure themselves.
In his article published in the same bulletin, Campbell, CEO of PACICC, notes that climate change is now driving natural disasters beyond the historical projections used in actuarial models.
Insurers have established ways to remain profitable under these conditions: pricing adjustments, deductibles, exclusions, sub-limits, and more. Ultimately, if these measures are insufficient, the insurer refuses to renew coverage, he explains. This leads to a growing protection gap over time.
Earthquake insurance is a prime example of this widening gap. In British Columbia, high premiums discourage many homeowners from adding earthquake coverage to their policies. Those who do opt for coverage often face high deductibles and significant coverage exclusions.
“There is little doubt that when the big one eventually hits B.C., the proportion of loss left uninsured will expose a massive gap,” Campbell writes.
In Quebec, where the earthquake risk is also high, a combination of premium pricing and low perceived risk among consumers results in “single-digit take-up rates for quake cover.” While homeowners are covered for fires caused by earthquakes, a large portion of the overall risk remains uninsured. Once again, potential losses will be “socialized,” Campbell points out.
“For a G7 nation like Canada to have a protection gap as egregious as this is inexcusable,” he adds, criticizing the federal government’s failure to develop some form of earthquake backstop mechanism.
As a senior fellow at the C.D. Howe Institute, Campbell recently updated a study comparing insurance costs in Canada and other countries. Insurers already rely on pricing to absorb potential losses. However, this approach is inadequate because insurance premiums, which are already high, are rising faster in Canada than in other developed economies.
“My conclusion is that Canada's lack of public-private partnership mechanisms to share natural catastrophe risk means that Canadians customers (...) are left paying full freight for all peak-peril exposure. The result? Our protection gap is bigger—and almost certainly growing,” Campbell states.
Jasper wildfire
Regarding the catastrophic losses of summer 2024, the Insurance Bureau of Canada (IBC) has updated its estimate of insured damages from the wildfires that devastated Jasper, Alberta. The event ranks as the second most expensive wildfire disaster in Canadian history.
The estimate comes from Catastrophe Indices and Quantification (CatIQ), which released the revised figures on Jan. 27. Six months after the disaster, CatIQ’s fourth estimate now stands at $1.23 billion.
This figure includes both personal property insurance (home and auto) and commercial insurance. CatIQ notes that half of the insured damages stem from business and institutional policies.
The wildfire complex affected the Jasper area from July 22 to Aug. 17, 2024. Two fires in the national park—one to the south and another to the northeast—forced the evacuation of the town. The southern fire, driven by strong winds, reached the municipality on the evening of July 24.
Of Jasper’s 1,113 structures, 358 were partially or completely damaged by the fire. Approximately 1,700 insurance claims have been filed. While wildfires also struck more densely populated areas such as Kelowna, British Columbia, and Halifax, Nova Scotia, in 2023, the intensity of the Jasper fires resulted in greater losses.
CatIQ’s third estimate, issued three months after the disaster, was $1.05 billion. The initial insured loss estimate was $880 million, according to IBC. A fifth and final estimate will be released at the end of July 2025.
For comparison, CatIQ notes that the 33,000 insurance claims related to the 2016 Fort McMurray wildfires resulted in $3.64 billion in insured damages.
As a result, the average insurance claim cost in Jasper is four times higher than in Fort McMurray. “This highlights the reality that a wildfire does not need a massive footprint to cause significant losses,” says Laura Twidle, president of CatIQ.