Canada’s rising secondary peril losses: Mitigation beyond modeling

• $1 billion in insured losses stemmed from the summer floods in Ontario and the Greater Toronto area.
• $2.9 billion came from the post-tropical storm that travelled across southern Quebec in the aftermath of Hurricane Debby.
• $1.2 billion in insured damages was inflicted by wildfires in Jasper, Alberta.
• Nearly $3.2 billion in insured losses resulted from a record-breaking hailstorm in the Calgary area in early August, which became the second costliest NatCat event in Canada’s history.

Notably, all four of these events are classified as secondary perils – a term that can be misleading.

Traditionally, natural catastrophes have been split into primary and secondary perils. Primary perils, such as earthquakes and hurricanes, are severe but relatively infrequent. In contrast, secondary perils such as floods, wildfires and hailstorms occur frequently but have historically been less severe than primary perils. Primary perils modeling has kept pace with key loss drivers like inflation, urbanisation and climate change, while modeling of secondary perils requires continued focus and investment.

Last year’s total industry insured cat losses of around $8.9 billion far outpaced the $6 billion from 2016 (adjusted for inflation), the year of the Fort McMurray wildfires, and is 12 times the annual average of $701 million recorded in the decade between 2001 and 2010. Yet much of 2024’s losses were driven by two secondary perils: the Calgary hailstorm and Hurricane Debby, which combined nearly equaled the total annual cat losses in Canada from 2021-2023.

In recent years, secondary perils have accounted for over 60% of annual natural catastrophe losses globally. So was last year an aberration, when secondary perils accounted for nearly 90% of total losses in Canada?

If you look across the past 10 years, Canada had nine secondary peril losses greater than $1 billion (adjusted for inflation). Essentially, the industry should expect a billion-dollar cat loss every year. In addition, 2022, 2023 and 2024 were among Canada’s largest insured natural catastrophe loss years, which illustrates the upward trend of cat frequency and severity.

Climate change always comes to the forefront of this rising trend. For example, it’s clear that wildfires will increase as temperatures rise. But did you know that Canada is warming at twice the rate of the global average? In fact, further north in the Canadian Arctic it is more than three times.¹ This means wildfires will be more likely to occur in Canada as temperatures rise and we may see fires occurring in areas that haven’t traditionally been a concern. The Halifax fire in 2023 the Manitoba wildfires this year are examples.

It’s important to acknowledge that climate change is not the sole cause of increased secondary perils. Urbanisation and inflation also play a major role, with more costly assets increasingly being impacted by secondary perils.

More people are moving to cities and more buildings are built to accommodate a growing population, including houses. When a cat event occurs, there is more exposure, which leads to more claims and larger claims. Between 2016 and 2021, Canada’s population grew about 5%, while 18 of the largest 25 municipalities saw population growth of over 10%. In fact, the United Nations expects Canada to have an 88% urbanisation rate by 2050 compared to 83% in 2021.²

Between 2020 and 2024, Calgary experienced rapid growth and was the fastest growing Canadian city in 2023 and 2024. Despite lasting only a few hours, last summer’s Calgary hailstorm caused over $3 billion in insured losses compared to losses of $1.6 billion from the 2020 Calgary hail event (adjusted for inflation).³  The storm’s severity was largely a function of the storm’s location, but also because exposures had increased over time. Severe convective storms pose challenges as a slight shift in location can lead to significantly more severity. Calgary will continue to be exposed to hailstorms and as the city continues to grow the re/insurance industry will see larger and more frequent cat claims.

Inflation also drives increased costs. Statistics Canada reports a cumulative increase in residential construction costs of more than 65% since mid-2020 versus an ~18% increase in the same time for CPI. This increase varies by city and location, with greater Toronto seeing an increase of over 80%. This translates to higher costs to re/insurers when claims occur, and retaliatory tariffs imposed by Canada on US parts and materials suppliers are fuelling increased costs for auto repairs and home construction.