Wildfires are highlighting insurance-to-value issues

Recent wildfire losses are highlighting issues with underinsurance, brokers heard at the Insurance Brokers Association of B.C. Leaders’ Conference Wednesday.

The topic came up during the conference’s Executive Insurer Panel, when one broker asked insurer executives if Guaranteed Replacement Cost (GRC) home insurance policies, which promise to insure to the full value of a property loss, are in jeopardy because of the rise of natural catastrophes in Canada.

Executives on the panel reassured brokers the GRC offering is not in danger, but recent wildfires have shone the spotlight on properties that are not properly insured to value.

“The challenge…we’ve seen still too many times [is] gross underinsurance,” replied Darren Godfrey, senior vice president of Western Canada at Intact Insurance.

“I know we’re not talking about Alberta here, but in Jasper right now, the level of underinsurance that we’re seeing — and you tack onto that, understandably, a slow recovery process, a slow build process — there’s not much [policy] limit left,” he said. “So I think for me, the focus is not so much on, ‘Well, let’s strip back GRC to protect an issue.’ Let’s get the values right. Let’s bring more time and energy to getting building values accurate.

“Now, you’re always going to see post-event superimposed inflation, and so forth. That’s tough to eliminate. But I think as an industry, collectively, there’s more we can do from a valuation standpoint.”

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About one-third of the town of Jasper, Alta., burned down in a wildfire last year, and claims tallies suggest insurers have paid out $1.23 billion in losses for that event alone, Insurance Bureau of Canada reports, citing the latest estimates from Catastrophe Indices and Quantification Inc. (CatIQ).

But the issue isn’t just reflected in the Jasper response, said Graham Doerr, vice president at Definity Financial Corporation and chief operating officer of Family Insurance. He said a recent B.C. example shows how changes to municipal bylaws can increase the amount required to cover the cost of insured property losses.  

“If we look at the 2023 fires in Kelowna, I think there was a real problem with bylaws coverage,” Doerr said at the conference. “And I think a lot of the losses were consuming all that they had, and some were underinsured. So I think it’s a challenge to everybody in this room that they understand exactly what that exposure is, and what people have, and make sure they’re adequately covered.”

During an audience question-and-answer portion, one broker attendee disputed the idea that brokers were the only ones responsible for ensuring their clients carried the right amount of coverage.

“We’re the experts in insurance; we’re not the experts in rebuilding costs,” said the broker attendee. “You [insurers] have the time and the resources to help us with that, and we’re the ones who are expecting to make sure that we know what the correct rebuilding cost is…

“I just find [that] if we all know everybody’s underinsured, then give us some products that we can use, or send out some appraisers, and don’t tell me that a $1.8-million home is too ‘high value’ for any of your products.”

Randy Dhillon, senior vice president and chief distribution and regional operations officer at Wawanesa, said insurers on the stage are simply pointing out underinsurance is an issue. And he agreed insurers and brokers need to work together to find ways to resolve the issue.

“I think, from my perspective, and from Wawanesa, the ask [of brokers] really is: ‘How intimately do you know your customer? How closely are you aligned? How can you check in at various points of that journey to ensure that the values are accurate?’

“And we’ve seen an increase in the inaccuracy, which presents challenges.”

Dhillon added that he can see a future in which the introduction of new tools, technology, and information will result in a new solution that accurately provides those values.

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.