In this week’s EconMinute, we’re talking about the cost of natural disasters.
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Northern and central Alberta are in the throes of another wildfire season. So far this year, over 1.1 million hectares have burned. This places 2023 in second place for the most amount of land consumed (nearly 1.4 million hectares in 1981)—and the wildfire season is just beginning.
Natural disasters like wildfires often inflict large financial costs on governments, taxpayers, businesses, and insurance companies. And those financial costs have dramatically increased over the last decade as natural disasters have become more frequent and more severe—a consequence of climate change.
Today’s EconMinute uses insured losses data to examine the financial cost of natural disasters.
- In more recent years, it is typical for yearly insured losses to exceed 2 billion dollars. In contrast, losses for natural disasters averaged $440,000 (2021 dollars) annually for the period between 1983 and 2008.
- The costliest year on record is 2016 when insured losses reached over 5 billion dollars—75% of which is due to the Fort McMurray wildfire that forced 90,000 people to evacuate and destroyed 2,400 homes.
- The Fort McMurray wildfires remain the most expensive natural disaster in Canadian history to date, resulting in twice the amount of insured damage than the previous costliest natural disaster on record (the 1998 ice storm in Quebec and eastern Ontario).
- The costliest natural disasters are concentrated in Alberta, Quebec, and Ontario. While Atlantic Canada also experiences severe weather events, the financial costs are not as high as those in other provinces because the built environment is smaller.
- Of the top 20 most expensive natural disasters to date, 12 of them were in Alberta: seven hailstorms; three floods; two wildfires.
The Insurance Bureau of Canada reports early signs that property insurance is starting to become less affordable or even unavailable as reinsurers (insurance companies that provide insurance to other insurance companies) move away from riskier markets. This will shift more of the financial risk of natural disasters to governments and the community.
With climate change projected to increase the frequency and severity of severe weather events, Canada must focus on adaptation to increase the resiliency of communities to these kinds of disasters. Because the costs—financially, emotionally, and economically—are too high.