Fort McMurray disaster could add up to $9B in insurance claims if fire gets worse

The damage costs from the fire ripping through Fort McMurray, Alta., could reach $9 billion for insurers if it gets to the point that the town has to be rebuilt, an analyst at Bank of Montreal said Thursday.

Emergency personnel are still battling the wildfire that has essentially wiped out several sections of the city while leaving others virtually intact, so the full economic cost of the tragedy is hard to calculate. 

But with 80,000 people displaced and hundreds of homes and businesses destroyed already, it's clear the financial toll will be heavy.

A similar fire in Slave Lake, Alta., that wiped out much of the town in 2011 came with an insurance price tag of almost $750 million, making it the most expensive fire-related disaster in Canadian history.

Considering the size of the two communities, it's clear the Fort McMurray fire could cost much more than that.

Standard home and business insurance typically provides coverage for the property, the possessions inside and living expenses elsewhere while unable to stay in the residence, Celyste Power of the Insurance Bureau of Canada said in an interview.

"The policies differ a little in terms of the length and amount, but generally damage and destruction coverage is standard."

While homeowners should have little to fear in terms of having coverage, if the Slave Lake fire can be used as a guide, the cost for insurers could be enormous. 

Price tag could be as high as $9B

BMO analyst Tom MacKinnon said if one assumes that if the ultimate damage can be limited to somewhere between a quarter and a half of all buildings being destroyed, the price tag to rebuild would be between $2.6 billion and $4.7 billion, based on the lessons of 2011.

"But since Fort McMurray is nearly 10 times the size of Slave Lake, a disaster of the same magnitude impacting nearly all of Fort McMurray [similar in the way that nearly all of Slave Lake was significantly impacted] could potentially lead to $9 billion in insured industry losses," he said.

That would make the disaster far and away the costliest disaster in Canadian history. Currently, the 1998 ice storms in Quebec that cost insurers almost $1.9 billion in today's dollars are the most expensive insurance event ever in Canada in inflation-adjusted terms, according to IDC's 2015 annual report.

Next come the floods in southern Alberta in 2013 at $1.8 billion. 

The cost of Fort Mac's ongoing fire could potentially be much higher, but it's too early to tell. 

"We are looking at a considerable cost, but it is early days," economist Todd Hirsch at ATB Financial said. "[It's] far too early to even start contemplating what those costs are going to be at this point [but ] the economic costs are going to be significant," Hirsch said. "Probably into the billions of dollars."

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