Fort McMurray Wildfires to cost governments and insurers more than $5B
More than $5.3 billion will be re-invested in Alberta’s economy over the next three years to rebuild Fort McMurray following the devastating wildfires in May 2016, according to a Conference Board of Canada report on the economic impacts of Canada’s most costliest natural disaster.
“A massive injection of funds from provincial and federal governments, insurance companies and private sources will go towards the clean up and rebuilding effort in and around Fort McMurray,” said Pedro Antunes, deputy chief economist. “The wildfires will leave a sizeable dent in public finances, while property and casualty insurers will have to absorb the massive cost of claims.”
The lion’s share of the $5.3 billion will be absorbed by the insurance industry, which is estimating $3.6 billion in claims. In contrast, the federal and provincial governments covered the majority of payments in the 2013 Alberta floods. This is because flood insurance for residences was unavailable in the province and elsewhere in the country, while fire insurance coverage is almost universal.
As a result of the wildfires, an estimated 1,935 residential and 23 commercial/industrial structures were damaged or destroyed and more than 12,000 auto claims are expected. Close to 45,000 claims are expected to be processed at an average payout of almost $80,000. Initial estimates from Insurance Bureau of Canada suggest that commercial property claims will total $1.2 billion.
Overall, the Conference Board expects the impact of the wildfires to shave $456 million or 0.1 per cent from real gross domestic product (GDP) in Alberta in 2016. The sheer size of the firefighting, emergency services, and clean-up efforts will generate plenty of economic activity, but will not offset the losses in oils and production in May and June. Estimated production valued at over 47 million barrels and $1.4 billion in revenues will be lost to producers and the province in 2016. On its own, this lost production would take 0.5 per cent out of economic growth in the province. Mining activity is expected to return to normal in 2017 and thereafter.
The rebuilding effort is expected to boost economic activity in Alberta by $1.1 billion, or 0.4 per cent of GDP next year. The Conference Board expects more than 2,500 homes to be rebuilt over the next three years along with repair works, furnishing of homes and purchasing of new cars, helping to boost residential construction and retail sales.
The increased economic activity will generate close to 16,000 person-years of employment between 2016 and 2019—employment would peak at almost 9,000 jobs next year. The recession has left the province with excess capacity and excess labour, especially in industries like construction, manufacturing and many business services that were hardest hit by the recession.
Real GDP in the Regional Municipality of Wood Buffalo is expected to decline by more than 12 per cent in 2016. The Conference Board expects the rebuilding effort to boost real GDP by 4.1 percentage points in 2017 with the construction industry accounting for the lion’s share of the gains. This work will add nearly 5,100 jobs to the Wood Buffalo economy in 2017.
SOURCE: Conference Board of Canada