The industry can expect insured losses to surpass $1 billion after more than a months’ worth of rain (100mm) dropped atop Toronto in the span of a few hours on Tuesday.
The storm resembled one that walloped the city with over $1 billion in losses nearly 11 years ago to the date — though there are a few key differences between the two storms, experts tell Canadian Underwriter.
“The flooding from this week will undoubtedly be a large event for the Canadian industry,” says Laura Twidle, CEO of Catastrophe Indices and Quantification Inc.
But summer — the insurance industry’s costliest season for Cats — has just started, says Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction. “And so, it remains to be seen how the year unfolds.”
What to expect from Tuesday’s storm
Tuesday precipitation alone beat the monthly average for July, according to Environment Canada. The rainstorm submerged stretches of highway, halted subway services, and flooded commercial and residential buildings across Toronto and beyond.
“It’s going to be tons of water flood related losses, both on the commercial and the homeowner side,” McGillivray says.
Kitchener-Waterloo, Burlington, Brampton, Mississauga, and other major Ontario cities also saw considerable flooding yesterday, he adds.
“I saw a lot of pictures of major commercial facilities that were flooded…so I think the numbers are going to be pretty substantial on that side as well,” McGillivray says. “Sometimes business interruption can outstrip the actual property damage. It depends.”
Insurers have been receiving claims for water damage to vehicles that were on the streets when they flooded, says Rob de Pruis, Insurance Bureau of Canada’s national director of consumer and industry relations.
He says tenants might also see damage to any property that’s been stored in storage lockers at basement levels.
And with power out to more than 127,000 Toronto hydro customers at its peak, insurers can expect outage-related losses to filter through.
“Yes, there were some lengthy power outages in the GTA yesterday but with most of the policyholders utilizing cell phones we didn’t really see any delays on reporting,” says Cortney Young, vice president of platforms solution and Contractor Connection Canada, at Crawford. “At this point we are seeing mostly the water damage claims, the food spoilage and power outage claims tend to stay with the insurers.”
Rob Ginn, Sedgwick’s senior vice president of Ontario operations, adds: “It is common to receive claims for spoiled food because of power outages and we can also expect additional living expense claims for severely affected homes, and business interruption for commercial claims.”
Adjusters tell Canadian Underwriter they’ve begun responding to an influx of claims.
“We did see high volumes yesterday that lasted into the early morning hours. Volume started up again this morning as businesses opened up,” Young says.
Traffic backs up on the Don Valley Parkway due to flooding following heavy rain in Toronto, on Tuesday, July 16 2024. THE CANADIAN PRESS/Arlyn McAdorey
“We are receiving a significant number of losses from a major insurer and have been placed on standby with other key clients,” CRU Group’s CEO David Repinski says.
Anita Paulic, ClaimsPro’s director of operations and catastrophe response, says their firm is handling a “high volume of claims as well as a number of bulk assignments from our clients.”
Preliminary estimates, both in terms of claims numbers and total damage, will take approximately 30 to 45 days to come in, IBC and CatIQ say.
A time machine to 2013
Though the industry awaits a true loss estimate, experts say the flood resembles one that happened almost 11 years ago to the day.
The July 2013 flood in Toronto contributed to the second costliest insured loss year in Canada’s history, according to IBC. Alone, it cost the industry $1 billion in damages (adjusted for inflation in 2021).
However, the storm yesterday spanned a much larger geographic area, experts say.
Precipitation spanned across southwestern and eastern Ontario, “where 2013 was mostly confined to the GTA,” says Twidle.
“And on top of it all, we have 11 years of added inflation,” McGillivray says. “So, wouldn’t be surprised if we’re up over $1 billion on this one.”
But the major difference between the two storms? Overland flood coverage wasn’t available for homeowners in 2013. It is now.
“In fact, the flood event in 2013 in Ontario, combined with the flood event in southern Alberta in 2013, was really the catalyst for the insurance industry to develop the residential overland flood product that we see today,” de Pruis says.
Though the overland flood coverage is optional, 50% of all home insurance quotes in June 2024 added water endorsements, an increase of 68% from the previous year, according to quote data from RatesDotCa.
But because overland flood coverage is optional, policyholders in high-risk areas don’t have access to coverage, De Pruis says.
Lessons…learned?
The recent deluge in Toronto serves as a reminder of the growing impact of climate change on urban areas.
“I’ve seen yesterday’s flooding described as shocking, and I’m not shocked,” McGillivray says. “We’ve got to stop pretending that we’re shocked and start taking action.
“We will see more of these [flood events] in the future as our climate warms, and as we continue to rip up green space in exchange for buildings, hard surfaces and pavement, [and] big box stores,” he says.
Overall, Toronto does well at storm water management, especially for its size, he says.
And some insurers have flood mitigation programs in place for homeowners who install backwater valves or sump pumps.
As for whether this flood could impact premiums, de Pruis says it’s not typical for one storm alone to weigh heavily on rates.
“These types of events ultimately impact the overall claims costs which can impact future premiums. Now, one particular flood event does not automatically increase everyone’s premiums. The insurance industry is well capitalized for these types of events,” he says. “Where we see some challenges is, inflation and replacement costs on people’s homes have been increasing significantly.”
Drivers are stranded due to flood waters blocking the Don Valley Parkway following heavy rain in Toronto, on Tuesday, July 16 2024. THE CANADIAN PRESS/Arlyn McAdorey
