BCBusiness

14 W e r n e r A n t w e il e r : U B C S a u d e r S c h o o l o f B u s i n e s s ; A a r o n S u t h e r l a n d : I n s u r a n c e B u r e a u o f C a n a d a ; Illu s t r a t i o n : S a k o r n S u k k a s e m s a k o r n / i S t o c k B C B U S I N E S S . C A J U N E 2 0 2 5 restricting what they insure or exiting high-risk areas altogether. "Some of these things can be priced into the product, but increasingly we're going to see areas that don't get any coverage—and then we have a problem as a society," says Antweiler. When people are underinsured, governments often step in to help, he adds, but, especially in the era of climate change, that can be a slippery slope. "If you live in a high-risk area like a floodplain, you have certain higher risks, and we shouldn't let people socialize that risk by having the taxpayer as a backstop," says Antweiler. "That private risk suddenly becomes a public risk and a public cost, and that is the point where we need to rethink how insurance oper- ates in those domains." High-risk areas like Califor- nia have tried to address simi- lar challenges in part through regulatory measures including caps on insurance rates and the government-led FAIR Plan— which provides basic coverage for properties when traditional insurance companies refuse. But Sutherland says their ap- proach has become a caution- ary tale, because it has forced some insurance companies to scale back their offerings or exit the market altogether, and left under-insured homeown- ers vulnerable. At the same time, he argues, governments haven't done enough to mitigate the impacts of climate change. Climate initiatives can be a hard sell, but many of them come at a relatively small cost, including amending building codes, incentivizing risk reduction through things like sprinkler systems and fire-proof roofing and halting development in high-risk areas—even though waterfront homes and forest getaways are often some of the most in-demand locales. In some areas, he adds, the only viable option is to get residents out. "Land use planners have to have frank conversations about strategic withdrawal from areas where we've built and never should have," says Sutherland, who points to the 2018 floods in Grand Forks, which led to better flood pro- tection as well as the buyout of dozens of homes. "Those are difficult conversations, but we can't keep putting ourselves in harm's way and expect not to bear the financial and human cost of doing so." Sutherland strongly en- courages homeowners to read the fine print on their policies and to shop around so they get the best coverage for the best price. ("We spend so much time thinking about the next TV or iPhone purchase," he quips, "and far less thinking about our insurance policies.") They should also do their part in keeping their properties fire- and flood-proof. For now the insurance industry in B.C. is robust, he says, but its future will depend tally topping $8.5 billion. Over $7 billion occurred in July and August alone. The losses were nearly triple those recorded in 2023, and 12 times the annual aver- age of $701 million from 2001 to 2010. The previous record was in 2016, when forest fires ravaged Fort McMurray, Alberta, and led to $6 billion in insured damage. Because of those unprece- dented losses, says Sutherland, rates are on the rise. "Pressure on insurance premiums is a symptom," he says. "The disease is the increased threat that we face from our changing climate." Werner Antweiler, associate professor at the UBC Sauder School of Business, agrees. The insurance business functions by looking at what has hap- pened in the past, assessing probabilities and pooling risk. The problem is, with rapidly worsening climate change, insurers can no longer use the past to reliably predict the future. "When we look at fire risk or flood risk, now we have a trajectory that is off from the baseline, and that means it becomes harder to actually assess whether a property that you insure is risky or not," he says. "So we need better data." As the risk of events like flooding and fire increases, rates will necessarily follow, says Antweiler. That, in turn, could lead to consumers underinsuring themselves, and insurance companies either " When we look at fire risk or f lood risk, now we have a trajectory that is off from the baseline, and that means it becomes harder to actually assess whether a property that you insure is risky or not. So we need better data." —Werner Antweiler, associate professor, UBC Sauder School of Business

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