Insurance leaders are meeting this week with experts from Natural Resources Canada to revisit Ottawa’s promise – two years ago – to develop a national home rating system to help home buyers and sellers assess the climate risk associated with their property.
That vow was part of Jonathan Wilkinson’s mandate letter when Prime Minister Justin Trudeau named him Natural Resources Minister in December 2021.
From the extreme wildfires this past summer to floods that devastated southwestern B.C. in the fall of 2021, it’s becoming increasingly clear that climate-induced disasters pose a growing risk to homes and businesses across the country.
The cost of extreme weather, in other words, is starting to hit Canadians at home – and could, experts warn, put downward pressure on real estate as buyers and sellers realize the true cost to protect a home has been underestimated due to its climate risk factor.
Craig Stewart, Vice-President of Climate Change and Federal Issues for the Insurance Bureau of Canada, says governments have not made climate risk a priority.
“There’s been a real focus on energy efficiency and meeting our net zero targets, and there hasn’t been enough capacity or focus on [..] climate resilience,” Stewart tells Global News.
Consumers, therefore, don’t have the information they need at their fingerprints to make informed climate decisions.
Other experts agree.
“We don’t have a process yet for assessing climate risk and putting a number on it,” says Werner Antweiler, a professor in environmental economics at the Sauder School of Business at the University of British Columbia.
“And without easy access to this information, the research effort for individuals is just too large, and therefore they tend to ignore it.”
But that need is urgent – given the growing number of climate-induced floods, wildfires and storms – and the rise of insurance claims as a result. In 2005, insurance claims totalled around $1 billion nationwide. In 2021, they amounted to almost $2.5 billion.
It used to be that major weather events, costing billions of dollars in insurance claims, happened once every few years, with periods of relative quiet in between.
Now, extreme weather happens more regularly and insurance losses are getting compounded, Stewart says.
“Climate risk is going to be a growing driver of costs in the housing market,” says Benjamin Keys, an expert in real estate at the Wharton School of the University of Pennsylvania.
“And that means that buyers are going to pay more for insurance, they’re going to pay more in property taxes, and the cost of living in harm’s way is going to go up – and it’s going to go up in a way that we haven’t seen previously.”
One way to mitigate that threat is through access to more information – or in industry parlance, “mandatory disclosure.”
The idea would be to create an online platform or app providing your property with a ‘climate risk’ score card for everything from flood risk, to fire, to hail and other kinds of severe weather.
The idea is: you load the app, plug in an address, and the model would say, on a score of 1 to 10, how at risk a home is for various weather-related risks.
It’s something that the insurance industry – the canary in the coalmine for climate-related risk – has been pressing for. But so too are buyers.
In the U.S., climate risk disclosure is happening on listing sites such as redfin.com and realtor.com – and that disclosure is being driven by consumer demand.
“They list things in order of importance to consumers, and you can see the environmental risk information is very high up in the ranking,” says Matthew Eby, a Canadian whose Brooklyn-based non-profit, First Street Foundation, has stepped into providing detailed climate risk information to U.S. consumers where the government has not.
“It’s a key piece that’s been missing,” says IBC’s Craig Stewart. “Minister Wilkinson is supposed to be leading the development of it, but there hasn’t been progress so far.”
Global News reached out to officials in Natural Resource Minister Jonathan Wilkinson’s office; but they did not respond in time for this piece’s deadline.
Outdated Information
So why is it taking so long to develop a similar system here in Canada? Incomplete or outdated information is a big part of the problem, experts say.
In Canada, says climate resilience expert Kathryn Bakos, flood maps are still some 20 years out of date in most places.
Canadians, in other words, largely have incomplete or old data at their disposal. With flood mapping being the responsibility of the provinces and territories, the national picture is a patchwork, or in Bakos’ words, a “mixed bag.”
Bakos’ team at the University of Waterloo’s Intact Centre on Climate Adaptation found a 20-25 per cent increase in insurance premiums between 2015 and 2019. Even more troubling, the research team found an 8.2 per cent decrease, on average, in the selling price of a home that was located in a known flood-prone area as compared to a comparable home in a dry area.
Buyers, in other words, are taking note, even in the absence of easily obtainable information.
“When you’re purchasing a home – buying or selling a home – there is nowhere on the MLS, the multiple listing service, does it indicates that the home has experienced, say, a major flood event,” Bakos says. “Or, at least, the homeowner and the real estate agent, they don’t need to disclose that information.”
Bakos was one of those ‘smart’ buyers. She does have experience in the field, after all.
When buying her home in Burlington, a bedroom community near Toronto that went through a major flood event in 2014, she asked questions such as:
- Did the driveway slope away from the home so as not to allow water to seep into the basement?
(Basement flooding is the most costly weather-related impact facing Canadians; the average cost of remediation was $43,000).
- Were there window well coverings over window wells? Could the eavesdrops be easily checked?
“As a prospective […] buyer, I wanted as much information as possible,” Bakos says.
But not everyone has the same experience, or information, at their disposal – hence the need, experts say, for mandatory disclosure.
But if the government doesn’t provide climate risk information, who will?
Risk Factor
Homeowners and prospective buyers anywhere in the United States can visit a site called riskfactor.com, plug in an address, and get detailed information about the climate risk associated with that property.
The service is provided by First Street Foundation.
Its recent climate risk assessment report found that across the U.S., 39 million properties are overvalued – meaning that insurance premiums are not priced high enough to account for the threat of floods, wildfires, hurricanes and other extreme weather events.
“What we are seeing right now in places like California, specifically, are the devaluation of homes because of insurance pricing adjustments,” says First Street’s Matthew Eby. “And those insurance pricing adjustments are being driven by climate change calculations.”
Another report, published in the prestigious journal Nature Climate Change, found that homes at the greatest risk of flooding in the U.S. were overvalued by approximately $187 billion USD, on average.
This means that billions of dollars are at risk of ‘going under’ should climate catastrophes in these vulnerable areas make these homes uninsurable.
In Canada, Re/Max estimates that around six per cent of homes are uninsurable due to flood risk. But, says IBC’s Craig Stewart, the situation is not like parts of the U.S. where insurance companies have pulled out entirely from certain regions or states, such as California.
“We’re not seeing any regions becoming uninsurable in the near future,” Stewart says.
Moving Forward
To ensure that never happens, experts from the insurance industry, real estate, and Natural Resources Canada are meeting in Ottawa on October 4 to workshop ideas for a home rating system in Canada.
The program that is being developed by the federal government is called CAHRP (‘carp’) – the Climate Adaptation Home Rating Program. It would be something akin to the EnerGuide home energy audits familiar to many Canadians.
Money was allocated in the 2021 budget for the system. But even with the insurance- and real estate industries clamouring for more information and mandatory disclosure, work to develop it has been slow.
Without information about how resilient a particular property is, the escalating costs of climate disasters will be borne by homeowners, insurance agencies – and by governments that often have to act as insurers of last resort.
This has a ripple effect across the entire economy.
In other words, says Benjamin Keys, climate risk is going to start to become ‘noticeable’ and even unmistakeable in some places.
“We’re going to start to see this really hitting the average homeowner’s pocketbook in a way that it didn’t 10 years ago,” says Keys.
And, he expects home prices in the most at-risk areas to face downward pressure – as the cost of insuring them, or getting a mortgage, or paying higher property taxes for infrastructure upgrades – rises over the coming years and decades.
“Today’s insurance prices are not tomorrow’s insurance prices.”
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