Natural Disasters

Fort McMurray: Claims handling challenges

Six months after the devastating wildfires that tore through the Canadian province of Alberta in the spring of 2016, the rebuild of Fort McMurray is in full swing. Residents are now returning to the town that was largely destroyed by the fires, and reconstruction work has begun. Yet a number of factors are preventing claims from being settled quickly.

For one, not all former residents of Fort McMurray are expected to return home. The tar sands industry, one of the major employers in the region, had been suffering as a result of low oil prices even before the wildfires hit. Because of this, real estate prices in Fort McMurray had already started to drop. Those residents who do not return will be claiming reimbursement of the current market value of their homes instead of having them rebuilt. However, calculating this market value is complicated by price erosion prior to the fires. In many cases it will be difficult to determine the extent to which the current low prices are due to the disaster as opposed to simply being a continuation of the longer-term trend. To make matters worse for the former residents, the resulting market value may well be below the price they originally paid for their homes.

Other residents do want to rebuild their homes in the town, just no longer on the floodplains of the river or in areas contaminated by the fire. As a rule, rebuilding on a different site is more expensive. Despite this, the increased costs are usually covered, provided the move is the result of mandatory official regulations. Things look different, however, when claimants decide of their own accord to build on a different site. Additional costs will then only be reimbursed in very special cases where there are humanitarian reasons for doing so. Disputes about whether such reasons exist can significantly delay reconstruction.

The fact that parts of Fort McMurray have been temporarily closed off by officials due to contaminated ash is causing additional delays. Moreover, local authorities have been faced with significant challenges in clearing the debris, examining and issuing planning permissions, and setting up the infrastructure necessary for reconstruction to begin. In many cases, the result has been that construction could not be completed before winter. Since work is usually impossible while the ground is frozen, many claims will not be settled until well into next year. 

All in all, the Fort McMurray wildfires demonstrate once again the importance of close cooperation among all those involved following a natural disaster. Getting claims settled quickly and avoiding unnecessary costs after such major losses is only possible if local and national authorities, insurers and aid organisations work together seamlessly. 

Munich Re Experts
Tobias Büttner
Head of Claims at Munich Re
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