Breaking the link between extreme weather and extreme profits

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The spring floods in Quebec came as a surprise. Record-level rainfall plus warm temperatures caused a crisis and people are only now starting to identify what they've lost, and what they've saved.

These floods represent an extreme weather trend that Canadians need to get used to. Despite our collective acceptance that the climate is changing, there is no consensus on how we will have to change to survive or confront it.

Storms that were supposed to be once-in-a-lifetime events are happening with more frequency. And, as most major insurance companies exclude coverage from flooding that is caused by extreme weather, the catastrophe is compounded: what many people think they're protected from, they aren't. Instead, they may be on the hook for the tens, even hundreds of thousands of dollars in damages.

There's a perfect storm of catastrophe brewing here: homeowners who are barely scraping by and who can't afford a surprise expense caused by floods, public infrastructure that was never built or can't handle such levels of water run-off, governments who have hacked public services to the bone and who dip into other services to come up with emergency funding, and insurance companies who are hip to climate change in a way that only one can be when you stand to lose billions as a result of it.

These four factors spell total disaster for the commons: for us as individuals who may one day be touched by a catastrophic flood, and for us as members of society to collectively pay to keep us all dry and safe.

In 2013, Canadian insurers paid $2.3 billion in home insurance claims, mostly related to the Calgary and Toronto floods. Compare this to the yearly average, from 1983 to 2007 totaling $500 million on the high end. It's a sign that things are certainly getting worse.

But insurance companies are profit-driven enterprises that seek to limit their own risk while looking for ways to maximize returns. And they're not at all struggling, In 2015, the Canadian property and casualty insurance market reported net profits of 4.3 billion in 2014.

In 2017, RSA Canada reported that its parent company had record global underwriting profit in 2016, and no dip in Canadian profits despite disasters like the Fort McMurray fires.

The banks aren't losing anything either. Whether through emergency loans, mortgage defaults or their own insurance programs, the pain of emergency repair costs hasn't impacted the banks' record profits. TD Insurance reported a rise in their Q1 profits of 7.7 per cent at the start of 2016.

This leaves individuals on the hook to cover these costs, whether through personal funding mechanisms (savings accounts, loans, family help or crowdfunding), or through communal mechanisms paid for by taxes.  

In 2013, TD Insurance announced a rate increase of between 10 to 15 per cent. And they weren't alone: other insurers also hiked their rates. So, as catastrophic weather events trigger insurance companies to increase their rates, individuals foot the bill while shareholders stroke their dividends.

And then there are the public payouts. This month, the Quebec government increased its subsidy for lost homes from $160,000 to $200,000, plus an additional $50,000 to pay for land for people who move rather than rebuild at the same site. Businesses can claim $265,000, up from $212,000.

In the aftermath of the Alberta floods in 2013, where 14,000 homes were damaged, it was estimated that the Alberta government paid $6 billion in damages. This excludes what individuals paid out of pocket. For the Toronto flooding of that same year, the City of Toronto paid about $60 million.

In 2016, a Parliamentary Budget Officer report found that the Disaster Financial Assistance Arrangements program's expenditures have "increased substantially" since 2009-10, the majority of that money being paid out to compensate for flood losses.

And the public expenditures don't stop there. From increased mental health supports to other services that citizens rely on for help, natural disasters are going to continue to cost us billions.

Infrastructure that is ageing or in disrepair also exacerbates this problem. The Federation of Canadian Municipalities estimates that the costs to repair Canada's aging infrastructure would cost nearly $123 billion to fix. In the meantime, water main breaks, overflows or backflows will continue to flood Canadians out of their homes or businesses.

Toronto is perhaps ground zero in this struggle. With parts of Toronto Island currently under water, a housing crisis and public infrastructure in disrepair, it's the ideal location for a city's administration to take seriously these pressures. But Mayor John Tory has consistently resisted tax increases, despite having some of the lowest tax rates in Ontario, and has voted against climate change plans in the past.

The Toronto Environmental Alliance released a letter, signed by unions, community organizations and businesses that urges Tory to adopt a climate change plan. Many of Tory's adversaries at City Hall are predicting that he wont agree to the major spending changes that are needed to address climate change-impacted weather.

Politicians need to get smart about planning for more severe weather. Sure, homes are increasingly built on flood plains and sure, the proliferation of the scourge of man caves has meant that basements are furnished with more and more expensive equipment, and there is no shortage of pundits who will try to blame individuals for their own losses.

But unless we confront profits in the financial industry, especially at a time where individuals and governments are picking up more and more of the tab, extreme weather will continue to get worse, continue to ruin lives and continue gut our collective capacity to pay for our collective losses.