Head Of Canada's Insurance And Banking Regulator Floats Backstop Fund To Mitigate Effects Of Future Catastrophic Weather Events

Rogers Partners LLP


Rogers Partners LLP is an experienced civil litigation firm in Toronto, Ontario. The firm represents insurers and self-insured companies in all types of losses, including product liability, occupiers’ liability, professional negligence, motor vehicle accidents, property losses, municipal liability, medical negligence, and sexual abuse.
In February 2024, Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI), spoke at the 2024 CatIQ Canadian Catastrophe Conference.
Canada Insurance
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In February 2024, Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI), spoke at the 2024 CatIQ Canadian Catastrophe Conference.

For those perhaps unfamiliar with the organization, OFSI is Canada's sole financial regulator over the banking system and the premier regulator of insurance companies in Canada.

In a fireside chat with Celyeste Power, President & CEO of the Insurance Bureau of Canada, Mr. Routledge warned that while Canada's insurance industry has "experienced financially the consequences of climate change", the insurance industry in Canada remains at risk in the event of a future environmental catastrophe.1

As Canada continues to experience climate-related events such as wildfires, floods and storms, the OFSI head warned that more needs to be done to help insulate the insurance industry from large environmental catastrophes that could potentially threaten the viability and stability of the insurance industry.

One only needs to recall the 2021 wildfires that destroyed nearly 90%town of Lytton, British Columbia, which according to the Insurance Bureau of Canada caused nearly $102 million in insured damage with hundreds of residents and a nearby First Nations community being evacuated. 2

Furthermore, the intense rainfall and associated flooding in British Columbia in November 2021, resulted in the tragic deaths of 5 individuals, the destruction of a number of major highways and railways in the province, and disrupted critical global supply lines out of the Port of Vancouver. Figures from the IBC and Catastrophe Indices and Quantification Inc (CatIQ) estimated that those floods caused an estimated $675 million in insured damages.3

Last year in 2023 alone, the IBC and CatIQ reported that damage from severe weather events reached over $3.1 billion nationwide.4

Looking forward, Mr. Routledge noted recent environmental research projections which forecast that Vancouver has a 30% chance of experiencing a significant earthquake event in the next 50 years, and that that should the worst come to pass, the associated "price-tag attached to" the damage could be as high as $35-40 billion dollars.5

The head of OFSI warned that should such a scenario come to pass it could potentially destabilize the entire insurance industry in Canada. He cautioned that the worst case scenario could be a "It's a Wonderful Liferisk, when one institution gets in trouble and it spreads to a whole bunch of institutions" reminiscent of the widespread institutional banking closures during the 2008 Global Financial Crisis.6

Mr. Routledge also pointed out that Canada was alone amongst all G7 nations in having no mechanism for government and financial/insurance regulators to backstop the insurance industry should it be destabilized following a severe weather catastrophe.7

In his remarks, Mr. Routledge proposed the adoption of a mechanism similar to the Canada Deposit Insurance Corporation (CDIC) that is in effect in the banking sector. The CDIC is a mechanism whereby financial institutions such as banks contribute to an industry fund which is capable of absorbing small bank failures to help depositors become whole in case of a collapse by a minor institution. If a larger bank fails or a problem arises, the federal government steps in to provide bridge funding and then bills the cost to the industry over time so that taxpayers do not bear the burden of the backstopping of the industry.8

While Mr. Routledge noted the preference by the insurance industry for a public-private mechanism whereby the federal government would provide direct funding for a the industry backstop mechanism, he cautioned the industry to be mindful of placing too much of a burden on the Canadian taxpayer. He posited that "for Canadians to have confidence in that process, I think they don't want to feel like they're subsidizing the industry's exposure to the costs of the downside."9

While discussions between the federal government, financial regulators and the industry for the creation of such a backstop mechanism in the insurance industry have been ongoing for over a decade, the recent rise in extreme weather events globally has lead to a greater urgency for action and resolution by all parties involved.

Hopefully, government, regulators and industry can collaborate on such an important backstop mechanism soon, before Canada should ever be forced to reckon with such potential environmental disaster in the future.

Official Summary of Remarks of P. Routledge – https://www.osfi-bsif.gc.ca/en/news/summary-remarks-peter-routledge-catiq-canadian-catastrophe-conference

For further details from the event – https://financialpost.com/fp-finance/insurance/disaster-systemic-problem-insurance-industry-osfi


1 https://financialpost.com/fp-finance/insurance/disaster-systemic-problem-insurance-industry-osfi

2 https://www.ibc.ca/news-insights/news/insured-losses-in-lytton-bc-increase-to-102-million

3 https://www.ibc.ca/news-insights/news/severe-weather-in-2023-caused-over-3-1-billion-in-insured-damage

4 Ibid.

5 https://financialpost.com/fp-finance/insurance/disaster-systemic-problem-insurance-industry-osfi

6 Ibid.

7 https://www.theglobeandmail.com/business/article-osfi-property-insurers-fund/

8 https://financialpost.com/fp-finance/insurance/disaster-systemic-problem-insurance-industry-osfi

9 Ibid.

Rogers Partners LLP is an experienced civil litigation firm in Toronto, Ontario. The firm represents insurers and self-insured companies in numerous areas, including motor vehicle negligence, occupiers' liability, product liability, professional negligence, construction claims, statutory accident benefits, disability benefits, municipal liability, medical negligence, sexual abuse, and insurance coverage disputes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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