How Canada's Climate Changes Affect Business Risk Management

Did you know that major cities in British Columbia, Alberta, and Saskatchewan are facing a significant threat from the increasing wildfire season this year? According to a recent study conducted by MyChoice, Kamloops, B.C., has been identified as the city with the highest risk score of 9.4 out of 10. Following closely behind is Saskatoon, Sask., with a risk score of 8.8 out of 10. 

The next three cities with the highest risk scores are Regina, Sask. (8.6), Kelowna, B.C. (8.6), and Medicine Hat, Alta. (8.6). These rankings indicate the cities that face the greatest risks regarding wildfires. Interestingly, in 2024, Saskatchewan is gaining attention as a region of concern despite being renowned for its prairies rather than its forests, as highlighted by MyChoice. 

As extreme weather events caused by climate change become more frequent and intense, business owners face rising challenges in safeguarding their operations and financial stability. From floods to wildfires, these natural disasters have a significant impact on insurance costs, coverage availability, and overall business resilience. Understanding the evolving climate landscape in Canada is crucial for developing effective risk mitigation approaches.

FIRST ONSITE has commissioned a Weather and Property Survey, which delves into Canada's foremost apprehensions regarding disasters. See the table below for results of Canada’s top disaster and severe weather fears.

“We conduct this survey every year to get a benchmark of Canadian attitudes, weather worries, and concerns that businesses and homeowners have for their properties,” said Jim Mandeville, SVP, First Onsite Property Restoration.

People are aware that storms aren’t acting like they used to, and we are seeing an increase in all types of property damage from weather events.

Rising Insurance Costs and Coverage Challenges

Increased frequency of catastrophic events

Canada's climate change has led to a surge in extreme weather events, significantly impacting insurance claims. From 1983 to 2008, insurers paid an average of $400 million annually for catastrophic claims. Since 2009, this figure has skyrocketed to almost $2 billion per year. 2023 marked Canada's worst wildfire season, with devastating fires burning coast to coast.

“By September 5, more than 6,132 fires had torched a staggering 16.5 million hectares of land. To put that in perspective, that’s an area larger than Greece and more than double the 1989 record.”

These events have brought climate change to the forefront for Canadian CEOs, with 75% viewing natural disasters and extreme weather as significant factors affecting prosperity.

Insurance premiums and cancelled policies

The financial strain is particularly felt all over Canada, including the province of Saskatchewan. New research conducted by KPMG in Canada reveals that a significant number of Canadian small- and medium-sized businesses (SMBs) have been adversely affected by various natural disasters such as wildfires, storms, floods, and heat domes. 

The report highlights worries regarding the increasing financial impact of weather-related calamities, which have become more frequent and severe due to climate change. This has led to a rise in the cost of business insurance, posing challenges for many business owners who are finding it difficult to obtain coverage.

After conducting a survey among insurance companies, the Insurance Bureau of Canada (IBC) has found that there have been no significant changes in the accessibility or affordability of wildfire insurance coverage nationwide. However, due to the increasing number of losses and updated risk assessments, Canada is now considered a higher-risk location for insurance providers. 

As a result, many Canadians are facing difficulties obtaining flood insurance policies. This situation arises from the perception that insuring properties against flood damage poses a greater financial risk. 

Financial Impacts

Supply chain interruptions

Shipping companies in Canada know the weather challenges they face when operating in a vast country that spans nearly 10 million square kilometres, from the Pacific to the Arctic to the Atlantic. This includes both the immediate effects of short-term weather events, such as road closures and the shutdown of local supply chains due to business office closures, and the more significant impact of severe weather events that result in the destruction of supply warehouses, infrastructure, etc.

The primary track of the Canadian National (CN) Rail in Jasper, which was temporarily stopped due to wildfires, has now recommenced its operations. Nevertheless, both CN Rail and Canadian Pacific Kansas City Limited (CPKC) rail systems still face the looming threat of wildfires. This persistent risk presents a potential obstacle for retailers who depend on these rail networks to transport their products.

Gary Newbury, a Strategic Advisor and Delivery Executive at RetailAID.ca, stated that retailers have been grappling with supply chain problems since the pandemic began and that these issues continue to persist.

“During the restrictions, retailers became vitally aware of opportunities and challenges presented by their existing supply chain capabilities. Many found creative ways, both internally and working with their partners, to overcome levels of what seemed then-unprecedented levels of disruption,” said Newbury. According to a report published by KPMG in July 2024, 47% of Canadian business leaders surveyed had encountered supply chain disruptions or broken supply chains. This highlights the awareness among retailers of the opportunities and challenges presented by their existing supply chain capabilities during post-pandemic restrictions.  

“Disruption has not receded, it has merely shifted and become, to a degree, more localized, leaving Canadian businesses pulling their hair out,

The ongoing wildfires and flooding problems in Canada present a constant threat that could potentially challenge retailers in terms of inventory management and product availability in the retail sector. Businesses that rely heavily on rail networks to transport their products are just one example of the disruptions caused by climate-related issues that challenge these retailers.

Canadian business profitability hits

Climate impacts are slowing Canada's economic growth, with projected costs of $25 billion annually by 2025. “The extreme weather events of the last couple of years have driven home the cost of climate change to the Canadian economy and the bottom line of individual businesses,” says Roopa Davé, KPMG in Canada’s National Climate Risk Leader.

Devastating forest fires, floods, hurricanes, and extreme heat have impacted profitability for more than half of Canadian companies. Even those that escaped damage fear they will be hit this year – with over two-thirds being very or extremely concerned.

KPMG Key Poll Findings

• Overwhelming concern: Nearly all Canadian businesses are expecting weather events this year to hit their business during 2024:21% are “extremely” concerned46% are “very” concerned25% are “slightly” concerned

• Severe financial hit: More than half suffered financial losses from 2023’s extreme weather:49% faced significantly increased costs41% reported loss of revenue

Proactive Climate Risk Assessment Strategies

Vulnerability analysis of assets and operations

It is crucial to assess the vulnerability of your assets and operations to climate-related threats. This involves evaluating the resilience of your physical infrastructure, the adaptability of your business processes, and the preparedness of your workforce. 

• Identify vulnerabilities: Pinpoint assets and operations most susceptible to climate-related risks (e.g., flooding, wildfires, extreme heat).

• Quantify potential losses: Estimate financial impacts of various climate scenarios to inform insurance coverage needs.

Risk management planning with insurance 

To address the emerging climate risks, it is advisable to broaden your insurance coverage by considering additional options such as:

1. Business Interruption Insurance:

Coverage: Covers lost income and ongoing expenses when a business is unable to operate due to a covered peril, such as a natural disaster.

Climate relevance: Protects against losses from events like hurricanes, floods, wildfires, and extreme weather that can disrupt operations.

1. Flood Insurance:

Coverage: Specifically designed to protect against losses caused by flooding. While often federally backed in some countries, private flood insurance options are also available.

Climate relevance: Essential for businesses located in flood-prone areas or those at risk of rising water levels.

1. Cyber Insurance:

Coverage: Protects businesses from financial losses from cyberattacks, including data breaches, system failures, and business interruption.

Climate relevance: Although not directly related to weather, cyber insurance can cover losses from climate-related incidents, including ransomware attacks targeting critical infrastructure. During a crisis caused by a climate event, certain systems may face increased vulnerability to cyber attacks due to the shift in focus and allocation of resources.

The changing climate in Canada has a profound influence on business risk management strategies. Rising insurance costs, coverage challenges, and operational disruptions are reshaping the business landscape. Companies need to adapt their risk assessment and mitigation approaches to address these evolving threats. 

As climate change continues to shape the Canadian business environment, adaptability and foresight will be crucial to thriving in the face of uncertainty.

FAQs

• How is climate change impacting Canadian businesses?

Climate change leads to extreme weather events, such as major windstorms, that can delay the transportation of goods and resources, potentially causing significant disruptions in business operations and affecting earnings.

• What business risks are associated with climate change?

Climate change introduces chronic risks stemming from long-term shifts in climatic patterns, such as increased temperatures and altered rainfall patterns. These changes can lead to sea level rise and more frequent heatwaves and pose physical risks, including asset damage and supply chain disruptions.

• In what ways does climate change influence business management in Canada?

The unpredictability of weather due to climate change can directly impact businesses by increasing the likelihood of water shortages or flooding. This unpredictability makes it challenging to secure insurance and necessitates that businesses develop strategies to mitigate these risks, such as flood protection measures.

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