When insured losses from severe weather topped $8 billion in 2024 – triple the previous year and Canada’s costliest total ever – it confirmed what the industry already knew: catastrophe exposure is escalating faster than pricing models can absorb.
Nathan Tjandrawinata (pictured), executive vice president of personal lines at SPG Canada, told Insurance Business that this isn’t just a profitability issue, but a paradox. In some instances, the insurance market’s current structure can even make it harder for Canadians to rebuild safely.
When a home is destroyed in a flood or wildfire, logic would suggest that rebuilding in a safer location should be rewarded. Yet in much of the Canadian market, it’s the opposite.
“Right now, if you choose to rebuild elsewhere, you’re penalized because the payout is based on ACV. Under most insurers’ same-site clauses, depreciation applies if the insured does not rebuild on the original location,” Tjandrawinata said.
“With Guaranteed Building Replacement or replacement cost coverage, the insured receives the full amount to rebuild on the same site after a covered loss. But if they opt to take the cash settlement and rebuild in a safer location, they receive a reduced payout – typically around 80%. In theory, it should be the other way around,” he added.
Under current policy structures, homeowners who take a cash settlement instead of rebuilding on the same site often receive only a portion of their insured value, while those who reconstruct in a known flood or wildfire zone receive full replacement coverage.
“That’s backwards,” Tjandrawinata said. “We need to transition away from rebuilding in danger zones – but without penalizing the customer for doing the right thing.”
The result, he added, is an affordability and resilience paradox: the industry wants to reduce exposure to catastrophic losses, but existing incentives make staying in harm’s way the easier financial choice.
For Tjandrawinata, solving the affordability paradox means reimagining how risk itself is measured and shared. “We’re seeing three main changes,” he said, outlining how insurers are adapting personal lines underwriting to keep coverage viable without pushing consumers out of the market.
1. More precise pricing
Insurers are moving away from broad postal-code ratings to more detailed, property-level risk scoring for wildfires, floods, and hail. This allows them to price based on each home’s actual exposure – and even reward mitigation efforts – rather than increasing premiums uniformly.
“Canada saw over $8 billion in insured catastrophe losses in 2024 – the highest ever and almost triple 2023’s total – so this shift is essential,” said Tjandrawinata. “This isn’t about simply raising prices, it’s about making pricing fairer and more precise,” he added.
By incorporating granular data and predictive analytics, insurers can distinguish between high- and low-risk properties within the same region, reducing the need for across-the-board hikes that erode affordability.
2. Sharing big risks
The second change involves redistributing how catastrophic risk is held. “Companies are tightening how much catastrophe exposure they keep and ceding more to reinsurers,” Tjandrawinata explained.
At the same time, Ottawa is working toward a national flood insurance program, designed to prevent high-risk households from being left uninsured altogether. The federal government allocated funding for the program’s design in Budget 2024, with an initial launch targeted for 2026.
“It will likely combine a reinsurance pool and affordability support,” said Tjandrawinata. “That kind of public-private cooperation is key to keeping capacity in the market.”
The combination of reinsurance optimization and federal backstopping aims to build the kind of financial cushion that can absorb billion-dollar weather events without forcing private carriers to withdraw or overcorrect premiums.
3. Tying coverage to prevention
Finally, underwriting is increasingly linked to visible resilience measures – everything from backwater valves and sealed window wells to hail-resistant roofing and vegetation management in wildfire-prone areas.
“Eligibility now depends on showing that a property has been made safer,” Tjandrawinata said. “We’re seeing standards like the ICLR and IBC ‘Good-Better-Best’ guides and the CSA Z800 flood guidelines being built right into underwriting.”
“For example,” Tjandrawinata said, “wildfire-prone areas are increasingly adopting preventive measures with structural fire-resistant building materials and vegetation management. This is becoming a new standard for underwriting risks.”
He added that this evolution could also include financial incentives or relocation support in areas where rebuilding safely may not be feasible. “In some regions, government involvement will be necessary when relocation or rebuilding outside of high-risk zones becomes the only option.”
“Also, if rebuilding on the same site requires major safety upgrades to meet building codes, for example, the ground is unstable due to potential landslide, then relocation is often necessary,” he added.
For all the technical progress in catastrophe modelling and underwriting, Tjandrawinata said the problem is ultimately human at its core. People don’t make rebuilding decisions based on algorithms – they make them through attachment, habit, and community.
“AI would recommend moving the home somewhere safer,” he said. “But there’s a human connection to everything – to their land, to their trees in the backyard, to their fence, to their car. That’s just how people work. It’s not as easy as telling someone, ‘Don’t rebuild there because it’s a flood zone.’”
That human dimension is exactly why policy changes must balance economics and empathy. Subsidies, rebates, and cooperative programs could help homeowners make safer choices without feeling punished for leaving their communities.
“We should be saying, ‘If you relocate to a safer area, we’ll help subsidize that choice,’” he said.
“It’s no different than switching from a gas car to an electric car. We get subsidized at the start – same with housing. Give incentives or subsidies not to rebuild in high-risk zones, even insurance discounts. But a mortgage discount or government rebate would have a much bigger impact.”
For insurers, the logic is simple: prevention costs less than another multi-billion-dollar loss year. For homeowners, it’s much more personal. Emotional ties and community roots often outweigh risk calculations, leaving people – and their insurers – exposed.
“We need initiatives that make it easier and more affordable to relocate or rebuild safely,” Tjandrawinata said. “In the long run, it costs less for the insurance industry and for government as a whole.”
