“The industry was not designed to deal with this kind of systemic risk,” says Bernard Deschamps, referring to climate change and extreme weather events, including flooding.
Deschamps, who holds a PhD in environmental science, made these remarks during a panel discussion entitled Climate resilience: Is the industry ready? The discussion took place at the recent Journée de l’assurance de dommages (P&C Insurance Day), held in Montreal and organized by Insurance Journal Publishing Group.
Currently a postdoctoral research fellow at Université Laval, Deschamps has more than 30 years of experience in insurance. He notably led the creation of a mutual that later became the Fonds d’assurance des municipalités du Québec.
Insurers can turn to reinsurance to cover losses related to cataFstrophic events, but “that system works until the reinsurer decides it is a systemic risk and no longer wants to assume it,” he says.
In his view, if insurers want to survive these major climate-related losses, “we need to change our model.” Current products cover smaller-scale damage, such as burst pipes or overflowing bathtubs.
But when millions of devices fail at the same time and cause damage, “we’re far less effective,” Deschamps notes. The limits of this system were evident in August 2024, when torrential rainfall from Hurricane Debby hit Montreal and insurers were overwhelmed by claims.
To mitigate losses, insurers are increasing deductibles, reducing limits, or refusing to cover the risk, telling homeowners: “If you can’t manage it, go to the state,” he says, noting that this is already happening in France.
However, the French system is also starting to show strain and must now increase contributions to the public insurance regime, Deschamps explains. As in Canada, France is seeing 10 to 15 per cent of properties become uninsurable. “If nothing is done, we’ll end up with 35 or 40 per cent of people who are no longer insurable. As an insurer, where will I collect my premium?” he continues.
Following the floods of 2017 and 2019, Quebec revised its General Financial Assistance Program, capping the compensation a homeowner can receive after a flood. “Once you’ve reached a certain number of claims, you’re no longer eligible.” In such cases, the value of the property drops significantly.
Insurers will not always be able to shift the burden of compensation to reinsurers or governments, Deschamps believes. “The industry is not ready, because its business model is not designed to insure this type of risk,” he underlines.
Shifting risk
Hélène Samson, Director of Prudential Oversight and Simulations at the Autorité des marchés financiers (AMF), notes that “we are not the ones going in with shovels and buckets to work on riverbanks during floods. But it is part of our mission to ensure the resilience, solvency and sustainability of financial institutions.”
She refers to the regulator’s mandate to protect the public, which includes raising awareness. “We have really put the spotlight on climate change for several years,” she says, noting that property and casualty insurers have been surveyed on the issue since 2010.
Climate change “is not a traditional risk; it is harder to quantify,” she continues. It is borderless and systemic in nature. As a result, the regulator has set expectations to ensure that financial products offered to consumers are adapted to this evolving reality of extreme weather events.
Pierre Dionne, Senior Vice-President, Chief Agent of Canada branch and Head of Underwriting Officer for Property and Casualty Insurance, North America and the Caribbean at Arundo Re, was the other panellist, alongside moderator Serge Therrien, President of the Insurance Journal Publishing Group.
Dionne pointed out that two of the worst hurricanes in Caribbean history occurred recently, in the Bahamas in 2019 and in Jamaica in 2025. These storms had unusual characteristics: they stalled, intensified rapidly and then unleashed torrential rainfall over several days.
“To the point where we have to ask ourselves: will the Caribbean still be insurable in 10 years?” he adds. In his view, no one can purchase a major asset, such as a home or a vehicle, without being able to insure its value.
Significant efforts will be required to convince homeowners to mitigate their risk, Dionne notes. The average homeowner will not “invest $10,000 to protect their basement only to receive a $100 annual premium discount from their insurer,” he says. Insurers will need to do more to help policyholders better protect their property, as will municipalities.
Dionne cites Calgary as an example, where subsidies are offered for installing more hail-resistant roofing materials, as hailstorms are becoming more frequent in Alberta. In Toronto, the city is working with insurers to install backwater valves.
The limits of actuarial science
Actuarial models are based on stationarity: using the past to predict the future, Deschamps explains. These models are highly precise and help insurers determine premiums based on loss ratios, allowing companies to generate surplus with a certain level of confidence. “When it comes to catastrophic risks, we are nowhere near that,” he says.
Insurers are managed by finance professionals, and if they cannot estimate the risk they are taking on, their natural reaction will be to refuse coverage, he adds.
Dionne offers a nuance. “We understand what we insure; what we don’t understand is the impact of climate change in five, 10 or 20 years,” he says. The industry sells policies annually and can revise products, including reinsurance costs. This model does not foster strong customer loyalty.
In his view, a perpetual insurance policy with a fixed premium that the insurer can adjust occasionally would be a good option to improve retention. However, he acknowledges that this idea generates little enthusiasm within the industry.
This short-term mindset is precisely the problem, Deschamps argues. “The fact that we operate on a very short-term basis means no one is incentivized to invest in improving their risk,” he says.
A premium discount granted by one insurer to a policyholder who has invested in mitigation can be matched by a competitor for another client who has invested nothing, he continues. This discourages insurers from offering such discounts in the future. In his view, everyone must do their part. “The person protecting their asset needs an incentive to do so.”
Samson mentioned a quote cited earlier by Serge Therrien. The quote was drawn from remarks made in November 2008 by John Strome, then CEO of La Capitale, who said: “When it comes to climate change, the status quo is not an option.”
That statement is no less true in 2026, she says. The industry must better prepare, but it must act in collaboration with all stakeholders: reinsurers, mortgage lenders, governments, municipalities, regulators and consumers.
She cites the fight against auto theft as an example of effective collaboration, which intensified following the National Summit held in Ottawa in February 2024. “It triggered a whole range of initiatives,” she says.
The tipping point
Dionne notes that, on average, the reinsurance industry pays between US$100 billion and US$130 billion annually to cover catastrophic losses. As such, the approximately $9.2 billion in insured losses paid in Canada in 2024 remains manageable for the industry.
Reinsurance operates on a global risk diversification model. “It hurts our Canadian operations,” he says, but the model still works—for now. If tropical storms continue to intensify, the situation could change.
What is the limit that even reinsurance cannot absorb? “The year a major earthquake hits Vancouver, we will have to have difficult conversations with insurers,” Dionne says. If reinsurers’ average annual bill reaches $200 billion, it will be time to worry.
Dionne also highlights the advocacy efforts of the Institute for Catastrophic Loss Reduction (ICLR) over the past 30 years to strengthen building codes and rethink land-use planning. “No one listens and nothing happens,” he laments.
Insurers will need to better inform consumers so they can pressure governments to move faster on building and infrastructure resilience. It will be necessary to “explain to people that the insurer’s favourite claim is the one that was never paid because it was prevented,” he adds.
Governments are making numerous announcements about building new housing, Deschamps notes. He considers it highly likely that some of these homes will be built in flood-prone areas, given the shortage of land in cities facing housing crises.
“These are difficult trade-offs. Instead of building 20 row houses, we should build upward to avoid occupying high-risk areas,” he says.
The price signal
The updated flood zone mapping in Quebec, expected shortly, will give municipalities an opportunity to have this conversation with taxpayers, Deschamps says. He notes that during the floods of 2017 and 2019, about 54 per cent of affected areas were not included in existing maps.
To address the issue, he emphasizes risk communication. Few municipal officials are eager to tell residents that their neighbourhood is no longer insurable and that their property has lost its value, he acknowledges. “A homeowner may prefer not to know they are in a flood zone, but a buyer wants to know,” he explains.
Everyone must have the courage to properly inform themselves about the risks tied to their investment; otherwise, they cannot expect insurers or governments to absorb the costs when damage occurs. “The map does not lie,” he says.
“As long as I don’t feel the price signal, there is a form of moral hazard, because I shift the burden onto society as a whole and take no action,” Deschamps says.
As part of his doctoral research in environmental science, he worked with an actuary among his co-supervisors. “The price signal is an actuary’s bread and butter,” he notes.
For a long time, governments, the community and, more recently, insurers have covered the cost of losses for homeowners living near waterways. “The day people understand the price signal, everyone—including the insurance industry—will have to address the problem, because people will demand it,” he concludes.
