With insured catastrophe losses climbing and protection gaps persisting, Canada’s insurance sector is facing intensifying calls to evolve – from a reactive payer of claims to a proactive steward of climate resilience.
The first half of 2025 brought $162 billion in global economic losses tied to natural disasters, with insurers absorbing $100 billion of those costs, according to Aon. It was the second-highest first-half insured loss on record globally. And while the United States accounted for the lion’s share, experts warn that Canada cannot afford complacency.
Record wildfire seasons, inland flooding, and severe convective storms are reshaping Canada’s own risk landscape – especially in Western provinces and along urban watersheds. The challenge now confronting the sector is not just one of underwriting, but of systemic adaptation.
“We are clearly on a pathway now of 2.7 degrees or 3 degrees where adaptation is simply not doable anymore. This is just what it is. We cannot protect Amsterdam from sea level rise of three metres. This is just not doable,” said Allianz board member Günther Thallinger, speaking to CNBC.
Globally, the insurance protection gap – the portion of losses not covered by insurance – narrowed to 38%, the lowest on record. But this figure obscures a harsh truth: most gains have occurred in high-income markets like the U.S., while middle- and low-income countries remain highly exposed.
In Canada, coverage varies widely by geography and peril. While most homeowners carry fire insurance, many remain uninsured for overland flood or earthquake. As urban density increases and infrastructure ages, vulnerability is deepening—particularly in areas prone to flash flooding, such as Toronto, Ottawa, and Vancouver.
“If this volume just grows even more, we simply have a societal situation that is not bearable anymore because it is just too much risk that is no longer covered,”warned Thallinger.
To sustain the industry’s ability to absorb growing losses, Aon CEO Greg Case has called for a massive influx of capital-particularly from private equity and institutional investors.
“If we don’t bring in a trillion dollars in alternative capital in the next decade, we’ve failed.”
he told the Financial Times.
Alternative capital-via catastrophe bonds, insurance-linked securities, and sidecar vehicles-has already attracted over US$115 billion, but Case sees room for exponential growth. His vision: a broader investor base that can absorb tail risks as traditional carriers retrench or become more selective. “To the extent we can access other pools of capital… we want to bring as much in as we can, to offset the volatility that our clients face,” he said.
For Canadian insurers, particularly those operating in property and casualty lines, this could mean greater collaboration with capital markets. Canada’s CAT bond participation has historically lagged, but as the country’s exposure to extreme weather increases, interest is expected to rise.
Insurers around the world are raising premiums, tightening terms, or exiting high-risk markets altogether. The wildfire crisis in California earlier this year-now the costliest in history-served as a wake-up call for even the most developed economies.
Zurich Insurance Group described the climate outlook as “alarmingly bleak” in an April paper, noting that insured losses have been growing more than twice as fast as global GDP since 1994. “If insured losses continue to grow at this rate, premiums for climate risk coverage will need to increase to reflect the additional risk. This, in turn, will affect the level of protection that individuals and businesses are willing and able to purchase.”
Canadian underwriters are already facing political and regulatory scrutiny over affordability and availability of home insurance in wildfire-prone areas such as Kelowna and Fort McMurray. Climate modelling suggests worsening wildfire seasons and growing displacement risk for many small communities.
“There are many people who are actually talking about how you cannot insure certain assets. It’s very, very difficult to deal with these assets as an investor,” said Thallinger.
While some reinsurers argue that insurance remains viable so long as risks are properly priced-“It’s all about the question of price,” said Munich Re’s Tobias Grimm in a CNBC interview-others caution that pricing alone won’t protect vulnerable populations or critical infrastructure.
The World Economic Forum’s report released today calls for insurers to help build resilient systems, not just financial safety nets. In Canada, this includes supporting resilient land use, infrastructure retrofits, and public-private catastrophe risk pools such as the national flood insurance program now under design.
Canada’s insurance sector stands at a critical juncture. It must not only reprice and redistribute risk, but reimagine its role in climate governance. That means investing in analytics, advocating for resilient design codes, and, crucially, working in lockstep with government and capital markets to prevent the uninsurable from becoming the inevitable.
