Do you remember what you were doing the week of January 5,1998? For millions of Quebecois that week will forever be etched in their minds. Some regions in the St. Lawrence River valley received 110 mm of freezing rain. For those of you south of the border that is more than 4 inches. Transmission tower after transmission tower collapsed - the accumulated ice load toppled them much like the tiles in a game of dominoes.
4.7 million Canadians (mostly in Quebec) lost power during the ice storm, some for almost a month during the coldest time of the year. Like any tragedy, there was a human toll to the storm, which resulted in 45 people losing their lives. 600,000 were people forced out of their homes and 100,000 took residence in temporary shelters to escape the cold. 3,000 kilometers (1850 miles) of power network was impacted. 800,000 insurance claims were filed in Canada causing insured losses in Canada alone of $1.5B (Swiss Re Institute sigma). At the time, it was by far the largest insurance event in Canada surpassing the 1991 Calgary hailstorm of $400M.
The phenomena of freezing rain starts when a layer of warm air is sandwiched between two layers of cold air. Snow starts in the upper tranche of cold air (where the temperature is below freezing) and then melts and turns to rain as it passes through the warm air beneath it (where the temperature is above freezing). It then essentially super cools as it passes through the lower tranche of cold air mass and then freezes on contact with surfaces. The meteorological conditions responsible for the 1998 phenomena remained stationary and lasted almost a week.
How did homeowners insurance policies respond to such an event? Homeowner's policies responded in three ways:
- Direct physical damage
- Indirect compensation for Additional Living Expenses (ALE)
- Damage associated with the loss of power itself
Direct physical damage is damage caused to roofs and cars by falling tree limbs, which is obviously covered. The other two were not so clear. On January 8, 1998 the Insurance Bureau of Canada (IBC) declared that ALE would not be covered without an evacuation order from the government. On January 13 the premier of Quebec announced that those without heating should leave their homes; however, this was not perceived to be a statutory act. On January 22 the IBC acknowledged this constituted an evacuation order for claims processing. However, a large portion of homeowners felt they weren't fully compensated for their loss and a lawsuit was launched in January 2000. It wasn't settled until 2013 when a group of 15 insurers decided to settle for $52.5M.
Damage associated with the loss of power itself refers to losses from frozen bursting pipes from lack of heat, and sump pumps that stop working due to lack of power, which can lead to flooded basements and spoilage of food in refrigerators and freezers. The first two of these are covered; however the last one is more contentious. Freezer content spoilage coverage is usually purchased by grocers and restaurants but is not a standard part of a homeowner's policy. However, insurers paid freezer content losses on the basis that the loss of power was associated with the weather catastrophe. Nevertheless, it was impossible to verify what was in people's freezers and what had spoiled. Insureds recognized this and it was not surprising that claims were vastly exaggerated as many reported to have freezers full of lobster, scallops, crabs and steak.
If we have a repeat of the Great Ice Storm of 1998 - would insured losses be as severe? Let's take a look at this question more closely. Direct physical damage to homes and cars would be covered the same as they were back then. If a similar event were to occur, the government would likely be much more prompt with evacuation orders and ALE would commence shortly after an outage. Damage associated with the loss of power itself such as bursting pipes and flooded basements from inoperable sump pumps would be covered. However, freezer contents are no longer covered. Since 1998 it has been excluded unless it is brought back in via the purchase of a special endorsement. If the endorsement is purchased it is typically limited to $250 or $500 per occurrence. In addition to this, deductibles have increased since then and are typically between $500 and $2,500. Therefore, homeowner's freezers contents claims would be a fraction of what they were back then. Therefore, the answer to whether insured losses would be as severe is not so clear cut.
One cannot leave this topic without mentioning the great strides Hydro Quebec has taken to improve the grid. The utility has spent $2B improving the system. They have reinforced poles and pylons to better withstand freezing rain. They have reconfigured the system so that there are alternative paths for the electricity to travel so if one transmission line fails there is an alternative route. The biggest improvement in my opinion is that they have made every 10th transmission pylon a more robust anti-cascading tower. So today, if a tower collapses, it won't take down kilometers of towers with it. With the improvements in the power grid and the tightening of homeowner's policy wordings, insured losses from a repeat of the Great Ice Storm of 1998, although devastating, would somewhat be mitigated.
Category: Climate/natural disasters: Floods/storms