Australia’s devastating fires have already destroyed nearly 1,900 homes, but they’re just one of the many types of hazards facing homeowners.
Climate change is raising the frequency and severity of a number of natural disasters, from flooding and cyclones to soil subsidence, which causes structural damage when clay soils start to contract during prolonged periods of drought.
The increased risk has implications for insurance and beyond, according to climate risk analyst Karl Mallon. A recent report from his firm, Climate Risk, projects that 720,000 homes, or five per cent of Australia’s housing stock, will be uninsurable by 2100 as coverage becomes unavailable or prohibitively expensive.
That kind of analysis has caught the attention of lenders. Two of Australia’s largest banks have recruited Mallon to help them assess how climate-related risks might affect their mortgage portfolios. One of them projected that increased insurance costs would increase its share of high-risk mortgages 10-fold in the span of around 40 years, from 0.01 per cent in 2018 to 0.1 per cent by 2060.
Data on exposure to flood risk is already driving decisions about whether to issue mortgages in some cases, Mallon said.
“The banks are running the address through, and if they find that that address is in a flood zone, then they’re turning the mortgage down.”
Over time, Mallon sees areas where getting a mortgage will become very difficult. The risk for those properties is that they’ll become hard to sell and eventually decline in value, he added.
The link between natural disasters, insurance and mortgages may be emerging in Canada as well. In both Australia and Canada, however, the issue seems to be centred around flooding for now.
What about fires?
Whether Australia’s extraordinary fire season will have an impact on insurance premiums remains uncertain.
For one, it’s only the beginning of the summer Down Under, and Australians are holding their breath for what the rest of the season might bring.
Until now, though, “bushfires traditionally have been no cause for concern on the insurance front,” Mallon said.
That’s because even though Australia is prone to fires, they haven’t caused damage on a scale that insurers would consider “an unacceptable probability,” he added.
It’s too soon to tell whether the current fires will change that.
Fire and water are significantly different beasts in the world of home insurance, said Rob de Pruis of the Insurance Bureau of Canada.
Overland flood insurance, which covers damage from water flowing above ground and seeping into buildings through doors, windows and cracks, only became available in 2015 in Canada. Its introduction was largely an industry response to the 2013 southern Alberta floods, which resulted in $6 billion in damages, of which just $1.7 billion was covered by insurance.
Damage from sewer backup is also a growing issue for insurers. They are facing both an increased likelihood of flooding caused by flash rain, which has been linked to climate change, and higher repair costs, partly because finished basements have become more common.
Home insurers are also struggling with a lack of up-to-date information about where flooding is likely to happen, although the government is working on updating Canada’s flood-risk maps, de Pruis said.
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Severe flooding is also happening with increasing regularity, a problem for insurance, which is meant to cover events that are “infrequent and unforeseeable,” de Pruis said.
Fire, by contrast, is a familiar hazard to the home insurance industry, which traces its origins to the Great Fire of London in 1666, which nearly destroyed the city. Coverage for fire damage, including from wildfire, is standard in any home insurance policy.
Extensive losses from fires, on the other hand, have remained relatively rare in both Canada and Australia so far.
In Australia, for example, it usually takes several years after a bushfire for vegetation to grow back to a point where there is fuel for another fire, Mallon said.
In Canada, even the Fort McMurray fire of 2016, the most expensive event for insurers in modern Canadian history, did not shake the industry.
Canada’s domestic insurance companies had their own insurance to fall back on, something known as re-insurance, according to de Pruis. And the $3.7 billion in insured damages claimed by the Alberta blaze remain a relatively small price tag for the trillion-dollar giants of the global reinsurance market, which have seen natural disasters billed at tens of billions of dollars in other parts of the world, de Pruis said.
And for now, de Pruis added, there is just not enough information to predict the future of wildfires in Canada.
But experts warn climate change is helping make wildfires worse.
“The signals are there. Very strong signals that we’re going to see things get a lot worse before they get better,” Ed Struzik, a fellow at the Institute for Energy and Environmental Policy at Queen’s University, told the Canadian Press.
In Australia, “we’re seeing properties in places that have never burned essentially being razed to the ground,” Mallon said.
Even areas where recent bushfires destroyed the undergrowth are now burning again as extremely hot fires take out the canopy as well, he added.
In California, wildfires have become so frequent and costly that the state recently had to step in to prevent insurers from cancelling policies in high-risk areas.
Canada is not immune.
“The warmer it is the longer the fire season,” University of Alberta wildland fire professor Mike Flannigan told the Canadian Press. “The warmer it is the more lightning you see.”
For every degree of warming, the number of lightning strikes goes up by about 12 per cent, he said. Lightning usually causes more than half of the wildfires in Canada.
“We’re going to see a lot more. Not every year, but on average we’re going to see a lot more fire, a lot more smoke,” Flannigan said.
“We have to learn to live with fire.”
What homeowners can do
For those living near forested areas or bushland, learning to live with fire means making homes more resilient to it.
For example, closing gaps in the exterior of a building — such as open eaves, wall cracks and holes around the edges of windows and doors — minimizes the chance that embers will accumulate around the house or penetrate inside. Multi-pane, tempered-glass windows and using fire-resistant materials for any outdoor decks and fences also help reduce the spread of wildfire.
Although there are ways to build homes that will stand up to direct contact with flames, most residential properties in Australia tend to catch fire because of embers, which can fly kilometres away from where the fire actually is, said Ian Weir, a Brisbane-based architect who specializes in design for bushfire risk mitigation.
Sometimes, however, extreme heat can cause buildings to catch fire on their own.
“The houses themselves have ignited the surrounding bush around them. I’ve seen this firsthand.”
Yet, until now, efforts to build fire-resistant homes and retrofit the existing housing stock have been limited in Australia, he said. The country’s building code has done little to spur innovation by encouraging industry to create new materials and techniques to keep homeowners safe from fire. Local governments have been encouraging homeowners to clear the ground around their properties instead of focusing on making buildings more fire-resistant, he said.
In Canada, homeowners can turn to FireSmart Canada, a national association that helps individuals and communities reduce wildfire risks with tools ranging from voluntary guidelines to property risk assessments.
A report by Canada’s Institute for Catastrophic Loss Reduction found that more than 80 per cent of all homes that survived the Fort McMurray fire were rated “low” or “moderate” hazard level according to the FireSmart guidelines.
The municipal government for the Fort McMurray region is implementing a number of FireSmart initiatives to help mitigate the risk of future wildfires, according to its website.
However, adoption of FireSmart guidelines is generally voluntary, said Jason Thistlethwaite of the School of Environment, Enterprise and Development at the University of Waterloo.
“The one thing we know through a lot of research is that information alone is insufficient to change someone’s behaviour,” Thistlethwaite said.
“You need either significant incentives or rules.”
That’s where Mallon sees a potential silver lining in the natural disasters that are ravaging his country. Homeowners are becoming more inclined to invest in retrofits that reduce their property’s vulnerability, he said. That should make insurers and banks more comfortable with the risk associated with the home, he added.
That’s already happening in Australia’s cyclone belt, where insurers are offering coverage and discounts in high-risk areas to homeowners who take certain precautionary measures, Mallon said.
“We’re coming back full circle.”
— With files from the Canadian Press
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