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Insurance losses from Fort McMurray fire could top $9 billion, analyst says

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The wildfire that devastated the Fort McMurray region this week is expected to trigger the largest insured property losses from a single disaster in Canadian history.

With an estimated 1,600 homes, small businesses and other structures destroyed in the inferno — more than four times the number of homes lost in the disastrous Slave Lake fire — insurance losses could range as high as $9.3 billion.

That estimate is from BMO Capital Markets analyst Tom MacKinnon, who said in a report that a “more reasonable” estimate would peg total losses in the Fort McMurray area between $2.6 billion and $4.7 billion, which assumes that 25 to 50 per cent of all the housing units were destroyed.

Even if one uses those more conservative estimates as a guide, however, the cost of the unfolding disaster is likely to be “by far the largest potential catastrophe loss in Canadian history,” he said.

It would far outstrip the $742 million in insured losses stemming from the 2011 Slave Lake fire. The floods that struck Calgary and other parts of southern Alberta in 2013 — which led to total insured losses of about $3.2 billion — currently rank it as the single most costly disaster in the country’s history.

Initial estimates of insured losses often tend to be low, one expert warned. And that could push the ultimate price tag for the Fort McMurray disaster toward the mid or high end of MacKinnon’s current range of estimates.

“The best way to do these estimates is to survey insurance companies, and that takes time,” said Glenn McGillivray, managing director of the Toronto-based Institute for Catastrophic Loss Reduction.

“But there are people who try to use models (to estimate insured losses) and the models have proven to be inaccurate. No matter what catastrophe you’re talking about, they almost always come up light,” he said.

Two women walk between portable houses at a camp just outside of Wandering River, Canada, on May 5, 2016. The camp is currently housing more than 400 people displaced by the Fort McMurray forest fires, as many make their way south to Edmonton.

Two women walk between portable houses at a camp just outside of Wandering River, Canada, on May 5, 2016. The camp is currently housing more than 400 people displaced by the Fort McMurray forest fires, as many make their way south to Edmonton.

A key factor that tends to drive costs up is “demand surge,” McGillivray said. “So when you get a big loss, the price of contractors and building materials often goes up because demand is so high. That’s sometimes hard to capture in models.” 

A second key factor is the length of time evacuees are forced to stay in hotels or other rental accommodation. Those costs, plus food bills, are typically covered by insurers. “So those are two really difficult things to model and it only kind of plays out after a while,” he said.
 
Local real estate values, which have historically been high in Fort McMurray, are another key factor. “There are so many factors that play into it, it’s crazy. With businesses, you have business interruption and supply chain interruption (insurance) and things of that nature, so there are a couple of wild cards in play there, too.”
 
MacKinnon’s estimates to replace Fort McMurray’s damaged homes and other structures range from a low of $1.6 billion — if only 25 per cent are affected — to a high of $6.2 billion, if all have been hit by the fire. 
 
Toronto-based Intact Financial, one of the largest insurance industry players in Alberta, could incur an after-tax loss of as much as 95 cents per share due to fire-related losses, MacKinnon said. The company’s share price has dropped nearly $7 or 7.5 per cent since the blaze struck Fort McMurray.
 
But Mike Van Elsberg, Intact’s deputy senior vice-president claims, western division, declined to offer any estimates.

“It’s a question everyone is asking but our focus right now purely is on the safety and well-being of our customers, being there to help them, supporting first responders, and making sure we’re supporting emergency services,” he said.

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“We’re deploying our catastrophe teams, they’re all en route to Edmonton where we’re gathering our troops. We will then wait for the green light from the municipality and emergency services people. Once they’ve cleared the site to ensure it’s safe and our customers are allowed back, we’ll be there with them.”

Anne Marie Thomas of InsuranceHotline.com, an online service that compares home and property insurance rates, said evacuees should contact their insurance firms immediately to get the process going.

“The insurance company will assign them an adjuster and it goes from there. Meantime, if they’re displaced and have to stay at a hotel, they should keep their receipts and any receipts for food. Most insurance policies will reimburse them for incurred expenses as a result of not being able to live in their own house.”

glamphier@postmedia.com


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