Brace yourselves, Canadian homeowners: 2025 is shaping up to be a stormy year—weather-wise, and for your finances.
As extreme climate events become the new normal, insurance companies are feeling the squeeze, and so will your budget.
The new normal: Has climate change arrived and settled down to stay?
Last year, Canada experienced its most expensive year on record for weather-related insurance claims, with payouts reaching a staggering $8.55 billion, according to the Insurance Bureau of Canada (IBC).
By comparison, the previous record year, 2016, saw $2 billion less in claims. Leading the list of disasters last year were:
- Jasper wildfires: $1.1 billion in insured damages. The costs of damage and recovery—including rebuilding homes, clearing debris, and accommodating displaced families—added up quickly.
- Greater Toronto Area floods: $990 million in claims following severe summer storms. These catastrophic floods required extensive cleanup and repairs, with thousands of insurance claims filed for everything from damaged basements to total property losses.
These extreme weather events left insurers grappling with unprecedented losses. Alberta was hit particularly hard, recording $4.1 billion in damages in 2024 alone.
According to Max Dugan-Knight, a climate data scientist at Deep Sky, a Canadian carbon removal company, wildfire risk has shot up in large swathes of Canada and extreme rainfall is becoming more frequent, leading to more flooding and devastating property damage.
Climate models project that by the end of the century, an extreme rainfall event that now occurs once every 20 years in Canada could happen every five years, and the amount of 24-hour extreme precipitation that occurs once in 20 years, on average, is projected to increase by 12%.
But there’s really no way to see the full scope of what the future has in store, he says, saying that only a few years ago, climate scientists were not able to predict the types of hailstorms we’re seeing now.
“It is hard to predict what the next unforeseen climate risk will be, but we do know there will be some,” he says.
Related: How is climate change affecting home insurance premiums?
Insurers estimate costs, you pay, and then... surprise, it’s more than they expected
Did you know that over 1.5 million homes across the country are located in areas of high flood risk? Eighty per cent of Canadian cities are built, in whole or in part, on floodplains
When insurance companies pay out massive claims due to disasters – like floods - it directly impacts how they set premiums.
“Climate change is increasing the risk of property damage,” says Dugan-Knight. “This forces insurers to charge more for home insurance.”
Here’s a simplified breakdown of how the increase in insurance costs are handled:
- The risk factor: Insurance is fundamentally a business of managing risk. When risks increase—in this case, due to climate change and extreme weather events, so does the cost of covering those risks.
- Reinsurance costs: Insurance companies buy their own insurance, called reinsurance, to help cover big payouts from disasters. When disasters happen more often, the cost of this 'insurance for insurers' goes up, and those extra costs get passed on to homeowners through higher premiums.
- Rebuilding and repair costs: With 2024 seeing a record number of costly repairs, construction materials and labor have also increased in price. This makes home insurance more expensive across the board. Plus, Trump’s tariffs, specifically on steel and lumber, are making materials even costlier.
When claims surge, insurance companies must adjust premiums to account for heightened risks, rebuilding funds to cover future events.
Insurers estimate that for every dollar in insured losses from flooding, there are two dollars in uninsured damage that are borne directly by households and taxpayers.
As a result, insurance rates have climbed sharply in some regions of Canada.
“Rates have jumped up the most in regions that have seen costly disasters, like wildfires in British Columbia and Alberta or severe storms in Atlantic Canada,” notes Dugan-Knight.
According to Dugan-Knight, Canadian home insurance providers are responding to these losses by a) raising rates, b) offering new insurance products (specifically for flooding), c) stopping coverage for properties in high-risk areas, and d) investing in advanced risk modeling to better understand new climate risks as they develop.
But often, the insurer’s hands are simply tied.
"More and more insurers are not taking on policies in what they deem to be high risk areas,” he says. If this trend continues it is particularly worrying for those homeowners, but also for climate change’s impact on the Canadian housing market in general.”
Read more: Is severe flooding making your home uninsurable?
What’s being done and how the costs of inaction become too high
As extreme weather events get more frequent – and more damaging – the insurance industry searches for new solutions.
A new national flood insurance program in the works could help some homeowners in high-risk areas that may struggle to find coverage as insurers withdraw from these regions. This leaves many exposed to costly property repairs or replacements after extreme weather events.
Insurers are also using tools like AI and up-to-date data to better assess risks.
The Canadian government recently announced a $12.1 million investment in climate adaptation projects across the country, focusing on building strength and resilience in the norther regions and the forestry sector. According to the government, every dollar spent on disaster prevention could save $15 in long-term costs involved in climate impacts and extreme weather recovery costs.
The takeaway? Investing climate resilience into our homes pays off in the long run.
Learn more: Failing to plan is planning to fail: Do you have an emergency savings fund?
Here’s a look at how to prepare, highlighting cost-saving tips, the importance of understanding policy exclusions, and how to fill potential coverage gaps.
- Shop around and compare policies: Not all insurers offer the same rates or coverage. By comparing options from various providers, you can often find significant savings.
- Bundle policies: Many insurers offer discounts when you bundle your home and auto insurance policies. Discounts can reach 10-20%, depending on the provider.
- Increase your deductible: Opting for a higher deductible (the amount you pay out of pocket for a claim) typically lowers your yearly premium. However, make sure the deductible is an amount you can afford in case of a claim. For example, moving from a $500 deductible to $1,000 could reduce premiums by up to 20%.
- Improve home resilience: Some insurers reward proactive homeowners. Upgrades like installing a sump pump, backflow valves, or fire-resistant roofing materials can qualify you for deductions. Contact your provider to find out which measures can reduce your premium.
You can also trim trees and bushes that may be making your home more prone to wildfire damage, and replacing or renovating your roof to be more resilient to storms.
“These measures can have the added benefit of making your coverage cheaper. More and more insurers are analyzing risk at granular levels and collecting data on specific details of each property,” says Dugan-Knight.
Related: How to lower home insurance rates by keeping your home in good shape
Understand policy exclusions
Scan through your policy to make sure you’re covered for any possible climate risk. Standard home insurance often excludes overland flooding (a common risk for homeowners in flood-prone areas like parts of British Columbia) or landslides (a concern for homes built on slopes). These are known as exclusions.
If you’re unclear on your coverage, don’t be afraid to ask your provider:
- Does this policy cover overland flooding?
- Are wildfires included, or do they require an endorsement?
- Are exclusions tied to my home’s location (e.g., near bodies of water or steep terrain)?
By understanding what’s excluded, you can avoid being blindsided after a disaster.
Read more: How much home insurance coverage do you actually need?
Fill your policy coverage gaps
When it comes to making sure you’re completely covered in the event of a natural disaster, make sure your insurance policy is strong.
1. Add endorsements for specific risks
Many insurance providers offer optional endorsements to cover risks excluded from standard policies. Overland flood protection, earthquake insurance, or wildfire coverage are common add-ons worth considering if you live in high-risk areas.
For instance, homeowners in British Columbia can add earthquake coverage to mitigate the financial burden of potential seismic activity.
2. Consider strata insurance for condos
Condo owners should ensure their insurance complements the building’s strata policy. While strata insurance covers shared property (like hallways and roofs), it doesn’t extend to your unit or personal belongings. Adding “unit coverage” to your policy fills gaps and covers risks like water damage or fire within your condo.
3. Supplement for high-value items
If you own expensive items like jewelry or electronics, standard policies may have claim limits. Ask your broker about adding a rider to ensure those valuables are fully protected.
Always review your policy with a broker or advisor to ensure no gaps or surprises await when you need coverage the most.
Rising home insurance premiums aren’t just numbers on a bill; they’re a reflection of a world that’s changing. The good news? You have the power to adapt and protect what matters most.
Read next: Can your home insurance provider stop covering your home insurance claims?
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