The smoke clears, the air cools. The hot summer of 2023 will soon be behind us, and the boreal forest is not complaining. At the time of writing, an area a hundred times larger than the annual average in Quebec was devastated by the historic fires of the summer of 2023. Even though many people's vacations were quite wet, fires are still raging in many places in Quebec, Canada, and around the world.
In Quebec, most towns and villages were lucky; the fire spared the municipalities, only threatening many of them while focusing on burning everything else (small cottages, outfitters, etc.). If this situation is historic so far, it would be naive to think that we won't see it again soon.
Insurers will not incur, at least in Quebec, as significant losses as if towns and villages had been razed. So, what could be the impacts of these major fires on insurance and co-ownership?
Insurability:
Firstly, forest fires mainly affect remote and sparsely populated areas. The risk of seeing cities razed by flames is rather slim, and before insurers really decide to stop insuring these areas, we will first see adjustments (upwards) in premiums. Since these remote areas have very little density, co-ownerships are generally not found there.
Elsewhere in the world:
While Quebec residences were spared, the same cannot be said for other places. Fires are burning elsewhere in Canada, in Greece (again), and currently, it's Hawaii devastated by torrents of flames that is making headlines. Since insurers often operate in multiple countries, premium increases are sometimes felt more globally. This is even more true when it comes to reinsurance. Reinsurers, who essentially support insurers during major disasters, vary their pricing based on their past (and forecasted) profitability. In co-ownerships, reinsurers are often present (albeit transparently) and impact the prices of large syndicates and insured disasters (flood, earthquake).
Reconstruction costs:
Wood prices are expected to be impacted long-term due to the scarcity of the resource. Although many significant condo buildings are made of concrete, a large amount of wood is used in the construction of condos, in partitions, interior trim, or even those condos whose structure is not concrete but wood.
"Fortunately," one factor plays in the opposite direction of the above increase factors: interest rates. While they bring us to tears every time the Bank of Canada makes announcements, the successive rate hikes have curbed the construction boom in Quebec: construction starts in Quebec have been plummeting for months. As the demand for lumber will decrease, prices could stabilize or even fall. However, this situation should only be temporary as the scarcity of housing will only worsen in the coming years, and we will inevitably need to pick up the hammer and build massively.
Finally, nothing very reassuring for co-owners. However, they can act upstream. Even though it's never sexy to talk about prevention, it remains a significant part of the solution to control claims costs in condos. Have a good manager, a comprehensive and respected maintenance schedule, reliable suppliers, water detectors, asset management reports, cost and durability forecasts for materials, sufficient funds, and more!
For an insurance solution or simply a second opinion, contact me!
Charles-Antoine Carra CPA, CMA
Damage insurance broker
Fort assurances
514 374 9944 x 259
3737 Crémazie Est, bureau 1001, Montréal QC H1Z 2K4
[email protected]
