Which Insured Perils Are A Concern to Policyholders?

All plausible perils are a concern to policyholders, but on different levels of risk. Winter storms, severe rain, hail, fire, etc., are all commonly insurable perils, but the risk that each of these poses to Ontario homeowners and Canadians on a larger scale tends to vary.

Defining which risks are most relevant to your circumstances is pinnacle in purchasing insurance, since it helps you determine exactly how much coverage you need, what coverage you need, and all-around what makes the most sense for you and your family. The best coverage is the coverage that can be easier designed to fit your needs while simultaneously cutting loose any unnecessary “threads” – i.e., the coverage you don’t need which is only just costing you extra money. But how exactly do we gauge which insured perils are the most concern to policyholders?

To answer this question accurately, let’s examine some data and examine what the most basic elements of insurable risks are.

The difference between pure risk vs speculative risk

Most insurance companies will only indemnify against what is known as pure risks, sometimes also referred to as event risks. Pure or event risks defines any uncertain situation where the opportunity for financial gain is zero and the opportunity for loss is present, however large the loss.

Here are some examples of pure risks:

• Fire
• Flooding
• Automobile crashes
• Injuries
• Falling objects

Speculative risk is really the opposite; the loss might produce a profit, such as with business ventures or gambling transactions. Speculative risks are virtually never insured and lack the main elements of what it takes for a peril or risk to be insurable.

An insurable risk must have the prospect of an “accident,” i.e. the loss can only be due to an unintended action and needs to be unexpected in its impact and/or its timing. Intentional actions are not insurable. Accidental losses are referred to as “due to chance.” And, as always, risks that could occur more frequently or have a higher required payout will have a higher premium.

How do insurers measure what events are insurable vs which are not?

Standard insurance covers accidental, unexpected events that are not catastrophic. The way that insurance companies define catastrophic is a little different than how you might expect.

See, for one, a catastrophic risk is present whenever many units are contained within a risk group (i.e., policyholders in a certain class of insurance all exposed to a nuclear fallout, a hurricane, an earthquake, volcanic eruption, and so on.)

Catastrophic risk is also defined as when there is an unpredictably enormous loss of value that cannot be anticipated by either the policyholder or the insurer. A major example of this could be a terrorist attack, a tsunami, or a Richter scale 8.0 earthquake.

While we say that standard insurance companies won’t cover against these risks, there are some companies that do specialize in catastrophic insurance.

Which insured perils should we be most concerned about as policyholders?

While we hate to sound like a broken record, since this is the answer so often when it comes to insurance, but it really depends. It depends on where you’re located, what your insured assets look like, their condition, how you use them or what you do with them, who you are, and more.

But what if we looked deeper at the data?

Well, according to a new Angus Reid poll that was commissioned by First Onsite Property Restoration, severe rain, flooding, and winter storms are at the top of the list when it comes to insured perils that are concerning Canadians. With this poll, it was gauged that winter storms topped the list at 67%, whereas severe rain/flooding came at 66%.

In this poll as well, over half of Canadians were deemed concerned about how well they were insured against common perils included in insurance, such as: earthquakes, home fires, winter storms, wildfires, tornadoes/severe wind, hurricanes, and flooding or severe rains.

Did you know that roughly 40% of Canadians live in earthquake zones? That percentage is largely made up of individuals and families living in BC, Ontario, and Quebec. Over half of BC residents are nervous about the prospect of earthquake risk, whereas less than 30% of Ontarians consider earthquakes a threat.

Risks need to be statistically measurable

For common insured perils such as fire, windstorms, hail, falling objects, and more, the loss can roughly be measured. Insurance all comes down to statistics, and insurance providers need to be able to gauge how often a loss could occur, and how severe that loss could end up being. Not pertaining to property insurance (but relevant nonetheless with this topic) life/health insurance providers use mortality and morbidity tables as well as actuarial science to project losses throughout populations.

The bottom line is this: risks are insurable because they pose a threat to policyholders on a measurable, statistically observable scale. They are unpredictable and unexpected in nature and can be of some concern for policyholders. To ensure that you are adequately protected against certain risks, work with a broker to gauge your level of coverage. A broker, like the Defenders from Excalibur, is one of the best resources to have if you are uncertain about your coverage or worried that your insurance may not be sufficient. A broker can also recommend coverage options based on your circumstances and geographical location.