Plan for natural disaster

If the increasing rate of natural catastrophes has you on edge, you’re not alone. And no, it’s not just hype from event-hungry media. It’s a real change and a dramatic reminder to make sure you prepare by updating insurance policies to ensure they’re thorough.

The global cost of natural catastrophes is rising into the billions. According to insurance giant Swiss Re, 2011 will go down in industry history as one of the most expensive years on record, second only to 2005 when Hurricane Katrina ravaged the southern U.S.

It’s also the third year in a row that natural catastrophes caused at least $1 billion in damages. This is a 20-fold increase since the 1950s, says Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction.

“We’re actually closer to a billion and a half” in 2011, McGillivray says.

How did this happen? McGillivray says three factors have coalesced into a perfect storm of insured and uninsured losses.

Building highly concentrated urban centres, coupled with the poor condition of existing infrastructure, has driven up costs when disaster strikes, he says.

For example, according to a 2008 International Energy Agency estimate, Canada needs $240 billion to upgrade its electricity system by 2030. The Conference Board of Canada put that estimate at $294 billion in 2010. McGillivray counts the changing climate as another factor, though an exact causal relation is difficult to measure.

“We’re engaging in dialogue with clients, governments and other stakeholders to further define how we and the insurance industry can play a productive role in delivering solutions to the challenges of climate change,” says David Bresch, Swiss Re’s head of sustainability and political risk management.

McGillivray says the insurance companies have started paying attention “because they are the ones picking up the tab for extreme weather.”

Fires have traditionally resulted in the biggest share of the insurance claims in Canada, but within the last decade they were usurped by water-related damages, a costlier upswing.

“Just about every city in Canada is being hit with water problems,” McGillivray says.

Some insurance companies are helping mitigate further damage by offering you incentives to take preventive measures against basement flooding.

“If you disconnect your foundation drains and put in a backwater valve, then maybe you can get a reduction in the sewer backup portion of your premium,” McGillivray says. “Many companies are already increasing the sewer backup portion of the premium; putting caps on claims; and in extreme cases going as far as saying fix this issue or we can’t cover you at all.”

It’s also important to remember that even with good insurance in place and preventive measures taken at home, Canadian property insurance for flooding only kicks in when water comes up from your basement. So-called “overland” flooding when water comes in on higher ground through windows or doors isn’t covered.