Will home insurance hikes from freak weather end up as ‘all profit’?
WATCH ABOVE: Famous U.S. investor Warren Buffett talks about the effect of climate change on U.S. insurance premiums in recent years.
Canadian homeowners who caught an interview early Monday with Warren Buffett could be forgiven for spitting out their morning coffee when hearing the billionaire investor’s remarks on the impact weather is having on home insurance premiums.
“It’s made no difference,” the Oracle of Omaha told U.S. network CNBC.
Buffett was asked if climate change was forcing the insurance companies owned by his Berkshire Hathaway to alter the math that determines their customers’ monthly premiums.
“The effects of climate change, if any, have not affected the insurance market,” Buffett said. “I calculate the probabilities of catastrophes no differently than a few years ago.”
Canadian rates headed up
The remarks are the exact opposite of what Canadian property and casualty insurers have been doing in recent months, with premiums climbing between 15 and 20 per cent for some policy holders.
Intact Financial Corp., the country’s largest home and property insurer, has fingered the financial carnage inflicted by the near biblical flooding and ice storms of 2013 for the hikes.
“Extreme weather events from the summer have made it clear that the sustainability of home insurance in its current form is being challenged,” Charles Brindamour, the head of Intact, said on a conference call late last year.
The Insurance Bureau of Canada said in January widespread flooding in southern Alberta and Ontario last summer combined with brutal ice storms across much of the country in December resulted in a record $3.2 billion in claims.
Last year easily outdistanced the second-most expensive year on record for weather-related insured losses, which was 1998.
Then, it was ice storms again that caused $2.1 billion in damages to homes and property across Ontario, Quebec and Atlantic Canada. Four of the five most costly years for catastrophe claims have occurred since 2005, according to the IBC.
Climate change scientists warn that extreme events could occur with more frequency as a result of rising global temperatures.
But Buffett, long known for his no-nonsense and frank commentary, noted in Monday’s interview that a year or two of damaging tornadoes and hurricanes in the previous decade amounted to a general rise in U.S. premiums, as well.
Since then, there’s been a broad — and profit-producing — decline in catastrophe payouts.
With the exception of Hurricane Sandy which devastated parts of the New Jersey and New York coastlines, hurricane damage has been limited in recent years, experts say, while policies in the United States have been scaled back to exclude some additional claims.
“We’ve been remarkably free of hurricanes in the United States for the past five years,” Buffett said. “So if you were writing hurricane insurance, it’s been all profit.”
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