Insurance gap hurting marginalized Canadians

Every year, extreme weather events wreak havoc across Canada, disrupting the lives of tens of thousands. Financial losses from these events have surged, surpassing $7 billion in 2024, due in part to climate change, asset accumulation and more people living in high-risk areas.

Evidence from Canada, the United States and Europe shows that weather-related disasters aren’t experienced equally. The people hardest hit are often those with the fewest resources to cope.

Lower-income and marginalized populations face greater exposure, have fewer resources to prepare or recover and incur a higher proportion of losses not covered by insurance.

Even if they are insured, many people have difficulty covering the deductible because they lack emergency savings. This means damage is not repaired, people live in unsafe or unhealthy conditions and the financial and personal risk of future events is increased.

Insurance helps households recover and can prevent them from falling — or falling deeper — into poverty after a disaster.

But across Canada, insurance is becoming costlier and, in some places, harder to get.

Between 2019 and 2023, average home insurance premiums rose by 21 per cent overall. For lower-income Canadians, that increase was 40 per cent.

WIDENING PROTECTION GAP

Canada’s growing insurance protection gap is a serious concern, and it’s widening at a time when weather-related disasters are becoming more frequent and more severe.

When households are uninsured, losses can strain household budgets and leave people unable to meet their basic needs.

As extreme weather escalates, so does the likelihood that more families will find themselves unable to recover.

Affordability is the primary driver of the protection gap, but it is not the only one.

Many Canadians do not understand the benefits of insurance, or underestimate the probability and cost of suffering a loss.

Accessibility to insurance is also a challenge, especially in remote areas where it is usually purchased in person. While the growth of digital purchasing channels helps, it is not a solution for those without reliable internet or sufficient digital skills.

Finally, the market itself does not always meet the needs of low-income or otherwise marginalized groups. There is a lack of insurance products designed for these groups, leaving many without the protection they need.

STRENGTHENING COMMUNITY RESILIENCE

Better insurance options, stronger investments in mitigation and better support for consumers can help reduce inequities and strengthen resilience.

Community-level mitigation is a good starting point. Land-use planning that steers development away from high-risk areas can prevent future losses. Programs like FireSmart, which reduces wildfire losses, and infrastructure designed for a changing climate also help limit damage as severe weather becomes more frequent.

National assessments show that making housing more resilient reduces exposure for lower-income and marginalized households that are more likely to live in older or poorly maintained homes, putting them at greater risk.

While major retrofits can be costly, even small upgrades such as improving drainage, installing backwater valves or fire-resistant materials can help prevent damage. Many municipalities provide targeted subsidies and incentive programs that support these upgrades, particularly for households facing greater financial constraints.

Making hazard information easier to find and understand can also help ensure no one is left behind when disasters strike.

Many Canadians lack clear information about the hazards they face and how to prepare for them. Some residents, including newcomers and seniors, may face barriers in accessing or acting upon available information.

Finally, community supports can further strengthen resilience. People with strong social ties and access to community organizations recover more quickly after disasters. Programs that build local networks and support neighbourhood groups can help accomplish this at a relatively low cost.

CLOSING THE PROTECTION GAP

A critical step in reducing the unequal impacts of weather-related hazards is closing Canada’s insurance protection gap. Microinsurance is one promising solution, and these simplified, low-cost policies can provide basic protection at a fraction of the cost for households that cannot afford traditional coverage.

Embedded tenant insurance — automatically included when renters sign a lease — is another approach that ensures basic coverage.

Digital tools, such as mobile-friendly signup platforms and plain-language policy explanations, can reduce barriers for those who struggle with technology.

Public support for income-tested premium subsidies or credits can bring essential coverage within reach for low-income households, while community-based catastrophe insurance — where local governments or community groups arrange coverage on behalf of residents — offers another option.

While Canadians can’t stop extreme weather, we can work together to prevent it from worsening inequality.

Increasing awareness, reducing losses, closing insurance gaps and building resilience are key to protecting those at greatest risk.

» Anne E. Kleffner is a professor of risk management and insurance at the University of Calgary. Derek Cook is director of the Canadian Poverty Institute at Ambrose University. Mary Kelly is chair in insurance and professor of finance at Wilfrid Laurier University.

» This column was originally published at The Conversation Canada: theconversation.com/ca