Fort McMurray wildfire: Homeowners to face difficult choice of whether to rebuild

As many as 1,600 structures have been destroyed by the wildfire in Fort McMurray, according to recent estimates from the Alberta government. Nearly 90,000 residents have been evacuated from the community with no idea of when they’ll be able to return.

And when they come back, homeowners will have to make a tough decision: rebuild their home in a community where housing prices have declined substantially, or take the insurance cheque – possibly at a loss.

READ MORE: Fire grows to 85,000 hectares, no timeline on resident return

Marc Lefebvre, an underwriter from the Insurance Bureau of Canada, described the situation as serious.

“We’re probably looking at one of the biggest events in Canadian property casualty history,” said Lefebvre. “There’s no way of estimating exactly how big of an event it is, but it’s certainly a significant occurrence in Canadian history.”

Lefebvre also noted that until it’s safe for insurance adjusters to enter the area, it’s too early to tell how bad the property damage is.

Global News reached out to a number of sources for estimates on the amount of damages caused by the blaze, but all say it is far too early to speculate given that fires continue to ravage the Fort McMurray area with no end in sight. Other news outlets have, however, placed the amount of damages well into the billions – with the CBC citing one expert who believes the damages could reach as high as $9 billion.

To rebuild or not to rebuild

Fortunately, unlike other natural disasters like flooding and major storm damage, the vast majority of Canadian homeowners’ insurance policies protect against the total loss of a home due to wildfires.

“Almost all insurance policies will cover the replacement costs of building a new home,” said Janis Losie, a representative from the Insurance Brokers Association of Alberta.

“If the policy limit is $500,000 and it costs $600,000 to rebuild – that will be covered.”

READ MORE: Fort McMurray wildfire: residents face difficult road to recovery, expert says

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Where things get a bit tricky, however, is in determining whether it’s in the best interest of the homeowner to rebuild.

While home prices are in no way connected to the costs of rebuilding, said Losie, the fact remains that the market value of many homes in Fort McMurray has declined substantially over the past 12 to 18 months – with the average sale price falling 20.2 per cent in the last year alone, according to the Canadian Real Estate Association.

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But as Lefebvre explained, choosing not to rebuild could place homeowners in a seriously compromised position.

“I would think that any homeowner would be in a better position if they were to replace their home and resell it afterward,” said Lefebvre.

The reason for this, he said, is that when a homeowner opts for a cash payout, the value of any settlement received is assessed on the “depreciated value” of the property. That means that if your roof was old and decrepit before the fire, any amount you receive in cash will be based upon the actual value of your old roof, and not the cost of replacement.

That could mean homeowners opting not to rebuild could stand to lose thousands of dollars.

Assessing the damage

Gopal Bansal, spokesperson for the Royal Bank of Canada, said RBC has upwards of 500 policy holders in the Fort McMurray area, and that RBC is prepared to begin the assessment process as soon as possible.

“We’re ready to provide special accommodations and assistance to our clients,” said Bansal. “We have a team that’s mobilized and ready to go as soon as the evacuation order is lifted.”

READ MORE: Alberta warned of ‘catastrophic’ fire risk in 2012 report

Bansal said that while it’s still too early to assess the full extent of the damages, RBC has learned from past experience – such as the 2011 wildfires near Slave Lake, Alta., that destroyed nearly 400 properties – and will have insurance advisers on the ground immediately to begin working with clients.

“I just don’t think our response was quick enough,” said Bansal regarding the Slave Lake fires. “And now we’re making sure our response is much quicker.”

“The only way you’re going to get better is by learning from what you’ve done and making those changes.”

Affected persons are advised to contact their insurance provider. Those who cannot recall their insurance provider or who require assistance may contact the Insurance Bureau of Canada’s consumer information line at 1-844-227-5422 or by email at FortMacFire@ibc.ca.

READ MORE: Full Fort McMurray wildfire coverage

With files from the Canadian Press.