Flooded with new exposure

This article was first published in the Canadian Underwriter Dec 2019 Magazine where Canadian Underwriter interviewed Laura Twidle, Managing Director at CatIQ.

cu | Is it possible that over the long term, Canada’s P&C industry will be paying $2 billion annually to insure catastrophe damage? Yes, it’s certainly possible. There has been an upward trend of Cat losses and the industry has been increasing its exposure to flood and water. Of course, we have the large events like the Fort McMurray wildfire and the Alberta floods that could be considered to skew the timeline; but in 2018, there was no $1-billion event, and yet Cat losses were still greater than $2-billion. We are comfortably crossing the $1-billion mark every year, and have already done this in 2019. It wouldn’t surprise us to see an average $2 billion annually within the next few years.

cu | You mentioned the industry increased its exposure to water damage when it started offering overland flood coverage in 2015. How does this play out in the Cat loss numbers? Since 2015, the percentage of Cat losses related to water has increased. In some years, this has been nearly a quarter of the annual loss.

cu | To what extent is climate change a factor in all this? In addition to the industry becoming more exposed to flooding, we’ve seen a lot more water-related events come into the picture over the past few years. Cat season was always defined as the summer due to severe thunderstorms in the Prairies, with hail and strong wind gusts bearing through in Western Canada. But since 2017, Ontario and Quebec have dominated the Cat losses. This year, we had five catastrophes in the first quarter, and the decadal average is one. Four out of five of these first-quarter Cats were mainly water-related; Greater Toronto Area (GTA) bore the brunt of these events. Several intermittent warm-ups with rainfall in the cold season resulted in seepage, ice damming, sewer backups, ice jams and overland flooding. With Canada experiencing a significant rate of warming, particularly in the winter, an active first quarter could become the norm and not just impact the GTA.

cu | Which part of the year is typically the worst for catastrophes? That’s been changing. Historically, what we’ve called Cat season is the third quarter, since July is typically when we see the most Cats and the most loss, mainly a result of severe thunderstorms in the Prairies. In 2018, we had more Cats in the third quarter, but the second quarter was more impactful due to loss mainly because of the May windstorm in Ontario and Quebec. This year, the first quarter was unusual. It was more impactful than the third quarter; if we include the April flooding in eastern Canada, the losses were significantly higher. Because of the spring Cats in Ontario and Quebec, we are seeing a shift in the timing of the peak for losses and events. One concern would be that the third quarter returns to being the peak Cat season, while the first and second quarters continue to experience significant Cat loss.

cu | What are the most common types of Cat claims? Cat claims relating to physical damage are more common than non-physical claims such as business interruption and additional living expenses. Regarding specific types of damage reports, claims relating to sewer backups, seepage, and wind damage — downed trees, torn shingles and siding, for example — occur year-round.

cu | Where in Canada are you most likely to see the most damaging Cat losses? Insured catastrophes happen where people are, so it’s heavily biased towards densely populated areas like the GTA. Atlantic Canada gets walloped with intense weather-systems frequently in the winter, and hurricanes in the fall, but from a Cat loss perspective, the area is less densely populated, and generally equipped to handle such storms. However, this is not always the case, as we saw from the damage caused by Hurricane Dorian this past September. In the interior of Canada, just off the foothills of Alberta, severe thunderstorms will always develop there. All you need is some atmospheric instability and easterly winds at the surface, and you have yourself a thunderstorm. If there is enough upper-level support in the atmosphere and wind shear, the storm might become severe and sustained to reach the highway that runs between Calgary and Edmonton. A significant portion of Alberta’s population lives along that corridor, and so that area will always be susceptible to severe thunderstorms that produce large hail, and damaging wind gusts and therefore Cat loss.

cu | Tell us a bit about the CatIQ Connect conference coming up in Toronto on Feb. 3-5, 2020. I understand you are taking a bit of a different approach to this conference. How so? CatIQ Connect is the annual Canadian Cat conference that brings together experts from the industry, all levels of government and academia to discuss best practices and innovative solutions to mitigating loss to Cats. The theme next February will be a solutions-based approach to Cats. We have already talked a great deal about the challenges that come from Cats. What we really want to do at CatIQ Connect 2020 is to say: ‘We all know this problem exists, and here is a potential solution,’ or ‘Here is the next step to mitigating catastrophic loss.’ Our steering committee has put together a great agenda featuring outstanding speakers. The 2020 keynotes include Roy Wright, president and CEO from the Insurance Institute for Business & Home Safety. We’ll have a fireside chat with Maryam Golnaraghi, director of climate change and emerging environmental topics of the Geneva Association. And we’ll hear from Kathy Bardswick, president and CEO of the Canadian Institute for Climate Choices. On the first day, we will host a workshop in partnership with the Canadian Red Cross. The next two days include jam-packed information sessions around many topics — flooding, earthquake, wildfire, mental health in disasters, from the on the ground perspective, financial solutions to climate change, resiliency, communication, and risk assessments.


Improving Wildfire and Flood Risk Mitigation in Canada

Author: Alan Frith, CPCU, ARe, CEEM

Canadians have suffered an increasing number of natural and man-made disasters that have devastated communities and cost insurers more than CAD 5 billion in 2016 alone. With decentralized regulation and prevention efforts, the growing financial fallout is only likely to worsen. CatIQ’s Canadian Catastrophe Conference, January 31 – February 3, 2018, will bring together industry, academia, and government to discuss Canada’s natural and man-made catastrophes. I will be sitting on a panel discussing the viability of the Alberta property insurance market in light of recent catastrophic events.

For insurers, an accurate and objective view of risk, reinforced by an up-to-date insight into the exposure, is crucial to maintaining financial stability. Managing catastrophe risk through historical losses alone is unreliable and volatile. Organizations must seek out the most comprehensive information available to understand how rapidly changing environmental characteristics alter their risk profiles.

Let’s examine two of the perils that have recently caused significant losses in Canada to understand how risk assessment tools can be used to quantify the impact of these kinds of events.


High-resolution satellite imagery enables us to develop an in-depth understanding of land use/land cover and is a critical piece of the risk mitigation framework. Using this imagery, risk modelers can construct an accurate map of potential fuel sources, a fundamental requirement for effectively modeling wildfire spread. Dense or dry vegetation, for instance, allows a fire to spread easily, while roads, rivers, or even mountains serve as natural firebreaks. Depending on the local distribution of fuel sources, the interaction between different types of fuels, and the gradual evolution of the surrounding landscape, your portfolio’s exposure may very well outpace your organization’s risk appetite over time.

It’s also important to monitor the effect of population movement. Rapid residential and commercial/industrial growth deeper into areas of combustible fuel, the Wildland Urban Interface (WUI),  exposes properties to greater wildfire risk. For organizations underwriting property risk in Canada, one fire in recent memory certainly stands out from the rest, demonstrating well the dangers of increased development in the WUI.

In 2016, the Fort McMurray fire blazed through the surrounding areas of northeastern Alberta, causing unprecedented devastation and destroying up to 80% of homes in some neighborhoods. A hub of oil production in Canada, the town had experienced a 30% population boom between 2006 and 2011 as people moved to the area to take advantage of job opportunities at the many mines and oil sands refineries in the area. The increased presence of residential structures among dense forest helped the flames spread quickly and resulted in insured losses of nearly CAD 4 billion – making it the costliest natural disaster in Canadian history. Although the oil facilities and pipelines themselves avoided damage, oil companies suffered significant business interruption losses as firefighters struggled for months to contain and extinguish the fires.


Detailed satellite imagery, coupled with high-resolution elevation data in the form of digital terrain maps (DTMs), is also used to build floodplain maps, which play an important role in evaluating flood risk. Reliable model output for this peril is highly dependent on precise exposure locations, as small changes to a location’s elevation or proximity to floodplains can have a significant impact on potential losses. The development of risk mitigation strategies, such as strict building codes and zoning laws, can help prevent these losses, so long as these codes are followed and the laws are enforced. Government agencies must consider the effect that unchecked commercial development—and the associated infrastructure of roads, sidewalks, and parking lots—can have on the larger ecosystem, especially during a natural disaster. The consequences of unregulated urban sprawl were recently seen in Houston, Texas, during Hurricane Harvey: Severe flooding was caused in part by floodwater that had inadequate access to natural drainage, such as undeveloped prairie and marshland areas.

Although flood is by far the most frequent natural disaster in Canada, preventive efforts are largely decentralized. For residential structures, overland flood damage has only recently been included as a covered peril by private insurance. In many cases, it’s a common exclusion from homeowners’ policies, with catastrophic losses ultimately falling in taxpayers’ laps via government emergency funds. With multiple catastrophic flood events in the past seven years, each causing billions of dollars of losses, it’s imperative to mitigate risk through preventive measures. This includes building flood defense systems as well as encouraging homeowners in and around potential flood zones to purchase policies that protect them against flood loss.

What’s Next?

Governments, insurers, and homeowners need to work together to reduce losses caused by natural disasters. It’s encouraging to see mitigation efforts gaining momentum, but there is much more work to be done. While government can manage building codes and zoning laws, it’s also up to insurers to carefully evaluate their risk profiles and exposures to ensure that they continue to maintain adequate reserves in the event of a catastrophe.

A useful first step in risk assessment is a detailed hazard map. These maps indicate the associated risks for perils such as wildfire and inland flood for a range of return periods, such as 100, 250, and 500 years. The logical next step to advance your risk evaluation strategy is to use a probabilistic model.  These models use advanced simulation methods to provide valuable metrics such as Average Annual Loss (AAL), Tail Value at Risk (TVaR) and a full Exceedance Probability (EP) Curve, from portfolio level down to individual exposures.

The Geospatial Analytics Module in AIR’s Touchstone® platform lets you seamlessly integrate exposure information with location-specific hazard maps, including wildfire fuel layers and flood inundation footprints for Canada. In addition, AIR offers probabilistic models for earthquake, crop hail, severe thunderstorm, winter storm, and tropical cyclone in Canada; models for wildfire and flood are being developed. As the insurance industry in Canada continues to cope with recent losses, the development of risk maps and probabilistic models as well as a deeper understanding of underlying hazards can help provide more effective risk management.

AIR models give you the information you need to support your entire risk-decision chain. Learn about the AIR Model Advantage!

About AIR Worldwide

AIR Worldwide (AIR) provides risk modeling solutions that make individuals, businesses, and society more resilient to extreme events. In 1987, AIR Worldwide founded the catastrophe modeling industry and today models the risk from natural catastrophes, terrorism, pandemics, casualty catastrophes, and cyber attacks, globally. Insurance, reinsurance, financial, corporate, and government clients rely on AIR’s advanced science, software, and consulting services for catastrophe risk management, insurance-linked securities, site-specific engineering analyses, and agricultural risk management. AIR Worldwide, a Verisk (Nasdaq:VRSK) business, is headquartered in Boston with additional offices in North America, Europe, and Asia. For more information, please visit