'A new weather reality': Rising cost of insurance hits pocketbooks

financialpost.com:

This summer proved to be the costliest season for natural disasters in Canadian history, with more than $7 billion in catastrophic losses resulting from four severe weather events.

It began in July when a once-in-a-century downpour left much of Toronto underwater and was followed in August by floods in Quebec, a wildfire in Jasper, Alta., and a hailstorm in Calgary that broke windshields, flooded streets and clobbered houses, and by itself ranks as the second-costliest disaster in the country’s history.

Insurance companies say that an uptick in the frequency and severity of extreme weather events — also known as climate change — is already making insurance more expensive for consumers, and this will only worsen with time.

Here are five ways to understand what’s happening.

Insurance is based on pooled risk. For example, if a house burns down, the insurance premium payments made by that one homeowner won’t cover the cost of replacing that house. But insurance companies can afford to replace homes because everyone buys insurance, and the collective value of their payments covers the cost of replacing an individual home.

Another way to put it is that insurance companies pool the risks and spread them around. The premiums that everyone pays are calculated based on the level of risks that insurance companies expect.

But as more extreme weather events occur — hurricanes, hailstorms, atmospheric rivers, wildfires, etc. — people are filing more claims with their insurance companies. In turn, the companies are paying out more, so everyone ends up paying higher premiums.

It’s a trend that is likely to persist in the coming years, according to Aaron Sutherland, vice-president of the Western and Pacific region for the Insurance