You cannot control it. Indeed, you can monitor but cannot prevent the occurrence of floods, fires, and hailstorms. All such catastrophic events are now becoming quite common in Canada and are affecting the cost of your home insurance.
Impact of climate and natural calamity on Home Insurance
The World Meteorological Organization states an increase in the frequency of such natural disasters worldwide because of global climate change.
Frequent occurrences of such events increase the cost of home insurance policies, making the premium dearer. Let us see four different ways in which climate is affecting home insurance:
1. Premiums Going North
You should purchase a standard or general home insurance policy that protects your house and belongings from fire, wind, lightning, and hail. Most policies do not cover climate-based events, like earthquakes and floods.
Thus, if you live in an area or zone prone to such natural disasters, you might want coverage in your home insurance policy. But be ready to shell out some extra bucks, as the premium would be higher.
It simply happens because the insurance company accounts for the possibility of higher risk by insuring your house and belongings in a region that frequently faces such catastrophic events.
It increases the probability of obtaining an insurance claim, prompting the insurance companies to compensate for the risk by charging a higher premium.
2. No Policy Renewals
Like every other business, insurance companies exist to earn profit. If in a red zone or a geographically adverse region, it is hard to get a home insurance policy because of a lack of companies willing to assume much risk.
Even though you could buy a home insurance policy from a new insurance company, which is at its growing stage, it is tough to get your insurance policy renewed.
It will mostly happen because:
- The insurance company will shut doors and stop operations in your region as a high-risk zone. The company may go bankrupt because of the high number of claims registered.
- The company accommodated you in its initial years, as it was eyeing growth and wanted to expand its reach and customer network. When it accomplishes its goals, it stops renewing your high-risk insurance policy, as it is now focusing on profitability.
Thus, the residents of such regions are more prone to disasters and often find it tough to get an insurance policy in the first place, and even if they get one, they find it hard to renew.
3. Lack of Coverage
The region in which you live might face earthquakes so often–So you got yourself a general home insurance policy with additional cover for earthquakes. In another situation, your region might be prone to floods, and you got yourself covered for floods. But is it enough? –Not.
Climate change is changing things for real and changing everything the way it used to happen. In the present world, nobody can say that Toronto cannot face a flash flood or maybe tropical storms.
Since there is no possibility of a particular disaster in your region, you might expand your cover and be keen on adding a few more disasters likely.
For example, your region is least prone to earthquakes, but owing to climate change, you wished to get yourself covered for this event too.
Ultimately, this increases your premium and the overall cost of insurance. You will be required to pay more to cover more events. It can increase your total expenditure and push you away from achieving your financial goals.
4. The Flood Cover
The flood insurance coverage was first introduced in 2015 by a few insurers – Aviva, Intact, Pembridge, and Unica. As per a recent statistic, water is the top reason for property damage in Canada.
The flood insurance policy is available to about 90% of Canada’s population, and around 60% of them have bought it. The reason is simple. What if our region, which does not experience a flood, also gets affected by climate change?
These policies affect home insurance policies, as most people prefer to buy them as an add-on. The insurance companies usually charge an additional premium of between $10 and $30 per month to get compensated.
Solution – Increase Sum Assured
Climate change is a reality, and the world has witnessed a visible increase in the occurrence of natural disasters in the past few years. It affects the home insurance policy adversely, as many people will gain coverage for uncovered events such as earthquakes, floods, etc.
It has upward pressured the premiums, as the consumers are now paying more for additional coverage.
The severity of the disaster and the quantum of loss are also going north, which has further prompted the homeowners to boost their sum assured limits.