Canada’s recent run of climate losses has reshaped the conversation among insurers. After a 2023 marked by an exceptional number of catastrophe events and a 2024 that set an all-time record for claim severity, the industry is now moving into 2026 trying to understand what the next phase of this volatility will look like.
For Obaid Rahman (pictured), executive vice-president, commercial insurance at Definity, the immediate concerns are manageable. It’s the long-term trajectory (and the affordability pressures that come with it) that require a different kind of planning.
Rahman said the last couple of years have tested insurers in different ways. “The year of 2023 had, from a frequency standpoint, a lot of CAT-related events,” he said. The year after that, “was obviously the worst year the Canadian industry has ever had in terms of payouts. So, the severity of events was high.”
Even so, he noted that insurers still have short-term tools at their disposal. Carriers can price for risk, refine underwriting, adjust aggregation, and reassess concentrations near rivers, forest interfaces and other high-exposure areas. Definity, he said, managed the recent volatility comparatively well.
“We were impacted, but not severely. We still outperformed the industry by quite a margin,” he said of the 2023–24 period. “And this was on the extreme end.”
For the next few years, Rahman sees climate volatility as something the industry can still absorb using the mechanisms already in place.
“In the immediate term, it’s not something we can’t manage,” he said.
But looking further ahead – 10 to 20 years out – Rahman said climate change alters the calculus.
“If climate change continues pushing the severity and frequency of events higher, which at this point is probable, then you have to start thinking about doing a bit more than just price for it,” he said.
The constraint isn’t underwriting capacity or modelling sophistication. It’s consumer affordability. Even if insurers can technically price a rising level of risk, at some point, the price becomes unworkable for households and small businesses.
“You end up in an affordability issue,” he said. “It just becomes too expensive.”
That, he argued, is where the climate conversation needs to shift – from year-over-year rate cycles to long-term structural resilience.
Rahman said the only sustainable way to deal with a future of more frequent and more severe events is to strengthen the built environment and reduce the vulnerability of homes and infrastructure.
“You almost have to accept that these events will happen,” he said. “You need infrastructure that is… able to withstand a certain amount of severity, which is going to keep on going up.”
That means better construction standards, modernized building codes, improved land-use planning, and stronger mitigation at the property level. Insurers can influence some of this – through pricing incentives, through underwriting decisions, through rewarding stronger construction and penalizing known hazards – but they cannot overhaul the system alone.
“You need provincial governments, federal governments to do certain things,” Rahman said. “You need the insurance companies to do certain things… All those incentives change behaviour, but you need a much more coordinated and deliberate effort than right now.”
Today, that coordination exists “on the margins,” he said. What’s missing is a long-term national plan that looks decades ahead and aligns the roles of governments, insurers, builders and contractors. Without that, affordability pressures grow and coverage gaps widen.
The industry has already seen early warning signs in places like California in the US.
“When something is not truly fortuitous anymore… that’s when insurers withdraw,” he said.
Rahman said that part of building a climate-resilient insurance system also involves modernizing how regulators approach product oversight. Definity, he noted, supports the shift toward principle-based rather than strict rule-based regulation, particularly as risks like climate and AI evolve faster than traditional frameworks can accommodate.
He offered a simple example: a rule that limits rate increases to 10% regardless of economic conditions versus a principle that says rates must be aligned with underlying cost pressures. The former freezes the system in place; the latter allows insurers to adapt responsibly.
“Having something very rigid, very rule-based, really prevents you from being able to change and be agile and adapt quickly enough,” he said.
Climate volatility, emerging technologies, and shifting consumer expectations all require flexibility – the ability for carriers to respond to real risk rather than fixed parameters set years earlier.
As government climate strategies develop, Rahman expects the industry’s role to evolve as well. Insurers bring the data, the modelling expertise, and the real-time view of losses; governments bring the authority to set codes and shape infrastructure. The partnership between the two – and with builders, municipalities, and other players – will determine whether insurance remains both available and affordable as conditions intensify.
