CALGARY – Canadian insurance companies will be expected to shell out hundreds of millions for the houses burned in the fire in Fort McMurray on Tuesday and Wednesday, but re-insurance companies around the world could also feel the pain if oilsands facilities are damaged as the inferno grows.
“If you look at the housing in Fort McMurray, most if not all of that would be underwritten by Canadian insurance companies, so that’s where the impact would be in terms of losses in the underwriting sector,” said Ken Hughes, who owns Calgary-based Alpine Insurance brokerage and was previously the province’s energy minister.
If the fire spreads further north, to the multi-billion oilsands facilities that are the major contributors to Canada’s total oil production, the economic fallout could be felt around the world, Hughes said.
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“The larger assets, if affected, are underwritten by international insurance players,” Hughes said. “That would tend to have an implication on a global basis, where there’s the capital capacity to underwrite those kinds of risks.”
Spokespeople for oilsands producers Canadian Natural Resources Ltd., Suncor Energy Inc., Shell Canada Ltd. and Imperial Oil Ltd. said the fire is still far away from their facilities. The closest oilsands mines to Fort McMurray is roughly a 30-minute drive north from the city.
Representatives from Enbridge Inc., and Pembina Pipeline Corp., which own and operate pipelines running from oilsands operations southbound, said their assets have not been damaged by the fire. On Wednesday afternoon, officials from the Alberta Emergency Management Agency said energy sector companies were enacting their emergency procedures and Suncor, Shell, ATCO Ltd., Inter Pipeline and Enbridge had or were preparing to shut down pipelines in the area.
Insurance losses could reach $9.4 billion if nearly all homes, cars, and businesses in the Fort McMurray area were destroyed and owners filed a claim to insurers, according to a research note to clients from Bank of Montreal analyst Tom MacKinnon.
But he said it’s more likely that one-quarter to half of assets would be damaged, leading to total insurance industry losses of $2.6 billion to $4.7 billion, as much as quadruple the costliest Canadian natural disaster.
Even if the fire is contained, Hughes said he expects the costs to repair the damage will exceed the price tag from the devastating Slave Lake fire in 2011.
Steve Kee, spokesperson for the Insurance Bureau of Canada, said the latest figures show total claims from the Salve Lake fire were $742 million, but added that it’s too early to estimate what the costs of the Fort McMurray fire will be.
Officials from PCS Canada and CAT IQ, two agencies that estimate catastrophic insurance damages, also said it was too early to calculate what the total value of the damage could total, partly because neither they nor the insurance companies have access to the city to inspect the damages.
Estimates will be compiled in the coming days and weeks, and then updated in the weeks following, once estimators are allowed to access the city.
The 2011 fire in Slave Lake destroyed 374 homes. But estimates on Wednesday afternoon put the total number of structures – houses and small businesses – at 1,600. The damage was most significant in the Waterways neighbourhood, where 90 per cent of homes were destroyed.
The fire had also destroyed 80 per cent of the homes in the city’s Beacon Hill neighbourhood and 50 per cent of the homes in the Abasand neighbourhood.
The fire was also threatening the city’s airport on Wednesday, which opened a new $258-million terminal in 2014.
Glenn McGillivrary, managing director of the Institute for Catastrophic Loss Reduction, said that Alberta is “by far ground zero for catastrophe losses in Canada” following events like the Slave Lake fire, flooding in Calgary and in southern Alberta, and events like major hailstorms.
The fire in Fort McMurray, as it continues to burn, will add to those insurance losses in the province.