The enormity of the Fort McMurray wildfire has cast a permanent shadow on the insurance and reinsurance industries. Even as natural disasters have been causing more financial setbacks in recent years, insurance and reinsurance companies manage to stay in business, and even earn healthy profits through adept risk management.
Reinsurance is insurance purchased by the primary insurance company from one or more other insurance companies (reinsurers) to mitigate loss by spreading its risks among these institutions, therefore, limiting overall total loss the primary or original insurer would encounter in the event of a disaster.
Reinsurance companies like Munich Re are among the world’s largest reinsurers, earning €3.2 billion in 2012 (Reguly, 2013). However, they have also had their fair share to deal with natural disasters, having wrote off €52 billion in insurance and reinsurance in 2012 alone (Reguly, 2013).
Canada’s oilsands productions have also been affected due to forced temporary shutdowns of nearby oilsands facilities, resulting in a negative outlook regarding Canada’s economy and GDP projections.
A grim economic outlook is expected for Canada’s economy as banks and other financial institutions cut projections for the country, including TD, which knocked GDP growth projections from 1.9 per cent down to 1.6 per cent with 0.2 percentage points being attributed solely to the wildfire; and with BMO and CIBC also lowering their GDP projections from 1.8 to 1.6 per cent and 1.6 to 1.5 per cent, respectively (The Canadian Press, 2016)
With many industries still undecided about the effects of climate change and global warming, insurance companies were the first to recognize scientists’ warnings about mankind’s disastrous consequences on the environment.
Insurance companies are masterful futurists. They analyze and predict statistics related to natural disasters, and adapt to the inevitable changes related to climate, not just in Canada, but also globally (Pittis, 2016).
The best thing insurance companies are doing is planning for disasters such as this, increasing premiums to offset costs, buying reinsurance to spread their own risks, and doing further research about climate change.
And as the insurance industry continues to adapt, ‘de-risking’ strategies will help homeowners as well; such as informing homeowners of benefits related to de-risking like installing backwater valves to prevent sewage flooding, fireproofing your home, and safer building methods (Pittis, 2016). These tips can also be promoted as ways of reducing insurance premiums for homeowners.
At the end of the day, the act of god that is the Fort McMurray disaster doesn’t just affect local Fort McMurray residents, but in fact, all Canadians (and even some Americans), maybe not directly but certainly one way or another whether you’re an average Ontario resident or a large insurance agency.
Adopting Adept Adapting (what a tongue twister) strategies are not only good for insurance companies to stay in business for the long haul, but will benefit homeowners as well.