Introduction Insurance is a form of risk management primarily used to protect against the risk of the contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment (Wikipedia). Insurance is important to everyone in Canada and also in the world. Insurance is to ensure that everyone life/property is protected from uncertain loss. There are lots of factor that can affect insurance affordability and availability in someway. The physical and human characteristics are one of the factors.
Canada is divided into six regions, each region has its characteristic that can be differentiate from other regions (Bone). Insurance in each region is different according to their characteristic. There are many kinds of insurance, these include: crop insurance, flood insurance, auto insurance, life insurance, and health insurance. Physical characteristic like climate change can be one of the greatest impacts on insurance because if floods occur in Canada, they would destroy all the crops that have been growing by farmers, thus, insurance can provide these farmers with protection to the loss from these extraordinary events.
Human characteristic can also affects insurance because human activities similar to pollution will affect the health of individual that can lead to higher insurance rate on life/health insurance. There are many social tensions that lead to different insurance rate for different people. These tensions include youths and elders, sick and healthy citizens. These tensions can greatly apply to auto, and life insurance. In this essay, the impact of geography of Canada on insurance industry, and the faultlines that arise from insurance will be discussed. Human/Physical Geography
The greatest strategic threat facing the insurance industry is climate change. In present-day, global warming is a big issue in Canada and the world, it does not only affect nature but as well as affect personal health. As a result of personal health and natural phenomena, they both affect insurance. “Global warming causes changes in weather patterns and shifts the underlying probability of insured loss from floods, wind storms and other phenomena. Climate change also affects pricing structures, reserving policies, solvency and corporate viability, as well as more gradual consequences like increased health problems.
” The rising cost from catastrophic events similar to changing weather patterns, terrorist attacks pandemics are primary concerns could impact insurers’ earnings and capital (ERNST & YOUNG). “Present-day impacts of weather events on financial services are caused mainly by extreme events. Differences in vulnerability exist, caused by geographical location, population distribution, and national wealth. (Berz)” Especially in Canada, some regions are cooler than other regions, hence, their climate will also be different. In Canada, the biggest insurance payout is related to catastrophic events.
Floods are most common in British Columbia, Ontario, Quebec, and Maritimes (Sandink). “During the winter, the Arctic air masses often dominate weather conditions in the Prairies, placing the region in an Arctic ‘deep freeze’. A combination of strong winds and sub-zero temperatures can produce blizzard-like weather. (Bone)” Droughts are common and floods are second common natural phenomenon in the prairie ecosystem. In Central/Western Alberta, natural disasters such as hails, droughts, and floods could have great impact on farming, and insurance claim on crops are very high (Sandink).
The following bar graph illustrates the geographical and weather related disasters in 1960s to 1990s in Canada (Sandink). As for human characteristics, we create pollutions that will certainly affect our health and our environment, and as a result, will lead to global warming. In Alberta, human vulnerability issues like growing urban population, increasing wealth, reliance on rivers for water, reliance on irrigation, can lead to droughts, hails, and floods. These are serious issue in Alberta that will affect the insurance industry (Sandink). In Canada, air and water quality are getting worse.
From 1990 to 2005, statistic shown a 12 percent increase in ground-level ozone, a major component of smog, over the 15-year period. These pollutions are mainly coming from transportation, electricity generation, wood burning and the use of chemical products. We, humans, are the creators of pollution by driving, generating electricity, and releasing factory chemicals (CanWest News Service). Pollution will then affect our health and because of this, it will have huge impacts on the insurance industry. Pricing for life insurance will increase because of poor health affected by pollution.
The Regionalization of Insurance In 1998, Ontario and Quebec ice storm, the insurance payout is $1. 95 billion. On August 19, 2005, heavy rainfall and wind event in the GTA, the insurance payout is $500 million. In 1991, Calgary hail event, the insurance payout is $444 million. These are the most expensive insurance payouts according to the Canadian insurance industry. In Central/Western Alberta, the highest frequency of hailstorm occurred between 1977 and 1993, there were about 3-7 days hailstorm in warm months (from May to September).
From 1900 to 2005, there were 36 hail related disasters occurred in Canada, and 20 out of the 36 were occurred in Alberta. The most expensive hailstorm was occurred in Calgary in 1991, there were 116,311 insurance claims total $342,745,000. The flood insurance payouts in Southern Alberta in 1995 were amount to $20,764,000. The provincial disaster relief payouts were $12,672,842. The flood insurance payouts in Southern Alberta in 2005 were amount to $300,000,000. The provincial disaster relief payouts were $55,000,000. The increase in insurance payouts from 1995 to 2005 was approximately 14 times.
There were two severe rainfall events occurred in July, 2004 in Edmonton, there were 9,500 insurance claims for sewer backup, which amount to $143 million (Sandink). The total damages payouts were $166 million. Jack Chadirdjian, director of public affairs for the Quebec branch of the Insurance Bureau of Canada, stated that the insurance payouts regarding water water-related claims in 2005-06 is $500 million in Quebec. He also noted that the amount represents 45 percent of $1. 1 billion in payouts overall. He also said, “The 45-percent figure is significant because water-related payouts represented only 21 percent of the total as recently as 2001-02. ”
In July 1987 in Montreal, 100 millimetres of rain fell in one hour (The Gazette). Insurance payouts increase as climate changes; this is a huge effect in the Canadian insurance industry. Social Tensions There are a few social tensions arise from insurance which lead to different rate for different people. These tensions include youth and elders, sick and healthy people. There are a few factors that affect the price of auto insurance for teens: driver’s gender, age, address, purpose of driving, and types of vehicle.
Insurance price for teens will always be more expensive than parents/guardians because their risks are higher; they will have a higher chance of involving in an accident. “Companies offer prices to their drivers because of the driver’s circumstances, which all play a factor in the driver’s level of risk. These young drivers, as mentioned earlier, have a very high level of risk because the chances of them being involved in an accident are high due to their inexperience on the road. (Car Auto Insurance)” There are three factors that affect the price of life insurance: risk costs, administrative expenses, and investment returns.
People with health history or any other medical problems will pay a higher premium than healthy people. This is because they have a higher risk of dying or being disable, and they will have higher coverage. “Young, fit people who are just about to begin the most productive part of their lives are the ones who get the cheapest policies. The premium component gradually increases as the age of the applicant progresses. (Life Insurance Reviews)” Age is important for pricing an insurance policy, no matter whether it is auto or life policy, because age will determine the risk of each individual.
Conclusion In conclusion, from the above research, the physical and human characteristic can have a huge impact in the insurance industry. Insurance payouts have increase overtime, and most of these increases were based on catastrophic events/natural phenomenon. Research also illustrates that each region in Canada, their natural phenomenon are different because of their weather patterns. In the Prairies, droughts and hails were a big problem, and insurance payouts were high on those natural phenomenon.
There are two faultines arise from insurance: youth/elders, healthy/sick people. These two faultines can affect the pricing of auto and life insurance policy. Based on the research, a prediction has arisen; the insurance payouts will increase as time goes on, and the climate changes will be getting worse because droughts and floods have being increasing from the past, and therefore, these disasters will have a likelihood of increasing in the future. Due to that, the price of insurance policy will also increase over time as the insurance payouts will be increasing.
The purpose of this research is to provide insurance companies with an overview of the issue that can have an impact on the industry. This research will be useful to insurance companies as to whether how they will price the policy in different regions in Canada based on their weather patterns and their fautlines. Finally, this research will be helpful to the insurance industry in deciding how to price the insurance policy in Canada where the country is divided into six regions.
Work Cited Lists Berz, Bouwer, Huq, Kozak, Palutikof, Schanzenbacher, and Soler.“Insurance and Other Financial Services. ” Insurance in a Climate of Change. PIER VELLINGA and EVAN MILLS. Web. 20 Nov. 2010. . Bone, Robert M. The Regional Geography of Canada. 4th ed. Don Mills, Ont. : Oxford UP, 2008. Print. CanWest News Service. “Pollution in Canada Getting Worse, Statistics Show. ” Canada. com – Breaking News‚ Canada‚ World‚ Weather‚ Travel‚ Video & More. CanWest MediaWorks Publications Inc. , 15 Oct. 2007. Web. 20 Nov. 2010. . Car Auto Insurance. “Cheapest Auto Insurance Price for Young Drivers – Insurance Articles and RSS Feeds.
” Auto Insurance Articles and Car Insurance RSS Feeds. 2010. Web. 21 Nov. 2010. . ERNST & YOUNG. “ERNST & YOUNG | Climate Change Tops Insurance Risk List: Ernst & Young. ” CNW Group. 24 Mar. 2010. Web. 16 Nov. 2010. . The Gazette (Montreal). “Climate Change Blamed as Insurance Payouts Increase. ” Canada. com – Breaking News‚ Canada‚ World‚ Weather‚ Travel‚ Video & More. 24 Apr. 2008. Web. 10 Nov. 2010. . Life Insurance Reviews. “Factors That Determine Life Insurance Price | LifeInsuranceReviews. Org. ” Life Insurance Reviews | LifeInsuranceReviews. Org. 30 May 2010. Web.