With the unprecedented wildfire season that we have experienced here in Canada this summer, the insurance industry is talking about perils and how these are defined, evaluated and taken into consideration when setting rates. With this discussion around perils come the terms primary peril versus secondary peril. We thought we’d touch on these terms briefly, and consider their impact for insurance moving forward.

First off, what is a peril?

We have talked about the term “peril” more generally in this post. In a nutshell, a peril is refers to the causes of a loss when in comes to an insurance claim. Perils and how they are defined is the cornerstone of insurance policies.

What is a primary peril?

To dig a little deeper, a primary peril is defined as a loss that is severe and far reaching, causing wide spread loss across the market. Examples include:

• Hurricanes
• Cyclones
• Earthquakes

What is a secondary peril?

A secondary peril on the other hand occur more frequently and cause a smaller amount of damage in a smaller area. The losses are less severe and more geographically focused. Examples include:

• Wildfires
• Hail storms
• Convective storms
• Floods
• Landslides
• Droughts

What do the impact of these perils have on insurance coverage moving forward?

The terms primary and secondary peril have been coming up in the industry due to the fact that surge of damage from secondary perils has left the industry reeling. Globally in 2022 secondary perils accounted for 52% of losses and thus far in 2023, secondary peril events are anticipated to account for a major share of claims damage in Canada (source: Canadian Underwriter).

So while secondary perils cause less damage, as they pile up they are accounting for a large portion of the claims being made and the costs are adding up rapidly. And as we have seen here in Ontario and around the world, these secondary perils are happening more and more regularly. It is this cumulative effect that has grabbed the attention of the industry and may lead to a change in focus and approach when writing policies and extending coverage.

So what does the future hold? It can be expected that insurers will be looking more carefully at and digging a little deeper to assess risks and set rates. Many secondary perils have not yet been quantified or modeled by insurance providers. This might change as technology makes risk assessment more effective and precise.

Have questions about perils and the coverage that you have in place for your home, property or business? What to talk insurance with a specialist? Get in touch with someone from our team today.

Resources referenced for this post:

Why secondary perils are of primary concern to insurers – Canadian Underwriter

Aon on the challenge of secondary perils – Insurance Business Magazine