Rethinking your car insurance coverage as the planet warms

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Across Canada, temperatures are rising, rainfall is increasing, and the risk of flooding keeps growing. These findings, published by the federal government in 2019 as part of Canada’s Changing Climate Report , offer a grim look into the future of our climate.

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For the insurance industry, the impact of climate change is probably best measured by the types of claims customers are filing the most. In the home insurance space, for instance, severe weather and climate risks have replaced fire as the peril “​​that defines the relationship between property owners and the insurance industry,” according to a 2020 report by Paul Kovacs , a senior researcher with the Insurance Institute.

Drivers face climate risks, too. Extreme weather can potentially lead to expensive car repairs. As with property owners, however, drivers can minimize the blow of these costs by making sure they have an auto insurance policy with the right coverage.

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Types of auto insurance coverage for weather-related perils

To take their cars on the road, drivers in Canada are required, by law, to have auto insurance. The minimum amount of coverage that drivers are required to have (liability coverage) varies from province to province, but in general, this minimum coverage does not protect drivers from weather-related perils. (One exception: This rule does not apply to drivers in Manitoba , where the mandatory all-perils coverage offers financial protection if your vehicle is damaged due to hail and fire.)

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That means you need to buy additional coverage on top of your basic coverage, to ensure you’ll be financially compensated in the event your car is damaged by a climate event. Your coverage options are: 

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Of course, all types of coverage are subject to exclusions, limits, and deductibles. Before committing to any additional coverage, make sure you understand exactly how far your coverage goes, and if that meets your needs.

How to choose the right coverage for your needs

In his report, Kovacs writes, “The largest impact climate-related risks pose for the insurance industry over the next 10 years will come from random extreme events that strike exposed and vulnerable properties and communities, resulting in loss and damage.”

Since the 1980s, and after adjusting for inflation, the number of severe weather claims paid by the Canadian insurance industry has doubled every five to 10 years, Kovacs writes. He adds that recent “large loss events” include hail storms, urban flooding, wildfires, tornados, severe winds, and residential overland flooding. 

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The Insurance Bureau of Canada also reports that in 2020, severe weather caused $2.4 billion in damage — making last year the fourth-highest in insured losses since 1983.

While it seems that severe weather is here to stay, that doesn’t mean every driver needs the same type of coverage against weather-related perils. To determine what kind of additional coverage you should get — or whether you need to get additional coverage at all — you should consider the following questions: 

As always, we recommend doing research, comparing rates, and talking to specialists to make sure your insurance coverage meets your needs. 

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