November 14, 2016

Canadian Wildfires – Final Report

Insured losses from the Alberta wildfires, which were first spotted on May 1st and which burned for nearly two months, have surpassed those from Canada's previous most expensive wildfires, Slave Lake in 2011, which caused more than C$700 million in insured losses. Claims have ranged from debris removal and clean-up costs, to contents repair or replacement, and business interruption. Businesses have already filed business interruption claims for lost profits and increased expenses. Many insurance policies pay for lost profits, until such time as profits rebound to levels they otherwise would have had but for the wildfires.

  • Insured property damage is estimated at C$3.58 billion (US$2.76 billion);
  • More than 27,000 personal property claims, 5,000 commercial insurance claims, including for business interruption, and 12,000 auto claims, have been filed. The extraordinarily high number of claims has put significant pressure on insurers, who have come under criticism for not addressing them quickly enough.
  • The economic impact of the wildfires has been projected to reach as high as C$6.51 billion (US$ 5 billion).
  • Approximately 23% of small and medium-sized Alberta businesses have experienced a "significant disruption," such as reduced income and a reduction in workforce. Nearly half do not have insurance to cover their losses.
  • Loss of oil production is estimated at 40 million barrels. The Alberta government expects GDP growth to resume in 2017, with oil production returning to normal as reconstruction gets under way in Fort McMurray.
  • To date, no one has been held accountable for the wildfires. As has been the case with other “natural disasters”, governments will be scrutinized for any inadequate response, poor monitoring, or other potential failures.

Help from the provincial government

Having paid out C$647 million in disaster relief, Alberta has seen its 2016 deficit rise to C$10.9 billion. The province’s total debt is expected to hit C$32 billion by the end of the year.

As of September, the Alberta government made financial assistance available for small businesses (50 employees or less) affected by the wildfires.

Water quality in Fort McMurray has been deemed safe, and the city's treatment plant is operating at normal levels. All boil-water advisories in Fort McMurray have been lifted, as is the case in rural communities south of the city.

Reinsurance

Given the magnitude of the disaster, the reinsurance market will have to address complex issues related to causation, aggregation and contingent business interruption, to name but a few. They will also need to consider the possible ramifications of any payments made by insurers without recognition of any losses or damages, – ex gratia payments.

Reports have suggested that another major area of concern arises from electricity network disruption, and in particular claims for business interruption related to outages.

In 2013, reinsurers were exposed to two-thirds of the C$1.8 billion (US$1.4 billion) losses caused by severe flooding.

Future Wildfires

[1]

According to a recent map drawn by researchers for the Canadian Forest Service, the number of Canadians currently living in areas exposed to the risk of wildfires is relatively low. Future climate changes may affect that as well as wildfire dynamics. By 2100, more than 2 million people will be living in a “red zone”, where 2.86% of the territory maybe impacted by wildfires each year; insurers may face over 50,000 claims annually. This will likely lead to an increase in costs and higher insurance rates.

The federal and Alberta governments and the Canadian Red Cross will invest C$3 million to study the health effects of the Alberta wildfires. The study will examine the impact of the massive fire and evacuation on the mental health of those affected by it. Also to be examined are the long-term physical health consequences on those who returned home to toxic ash and other environmental contaminants. This research should allow for a better understanding of the health consequences of wildfires, which are expected to become more frequent, severe, and intensive.

On October 31, the Alberta government proposed legislative changes, through the Bill 24, to combat the risk of wildfires. Bill 24 seeks to increase maximum fines from C$5,000 to C$100,000 for anyone engaging in behaviour that could lead to wildfires. For corporations, the fine could be up to C$1 million. Lack of proper firefighting equipment on a work site could result in fines up to C$10,000, while people failing to extinguish a campfire, or lighting fires during a fire ban without a permit, could be fined from C$150 to C$1,000.

For further information about any of the issues discussed in this note, please contact Robert Emblem or George Karayannides.

For more information about our coverage of the recent Alberta wildfires, please refer to our reports from last May and July.

[1] http://ici.radio-canada.ca/nouvelle/803302/carte-nationale-risque-feu-forets