I have a three-part answer.
First, the insurance industry is investing heavily in research. Our institute is part of that program. At the University of Western Ontario we have a wind tunnel. We put up a model home, we blow the roof off, we put it on better, we blow it off again. It's quite exciting; it's engineers destroying things but learning from the process.
Some of the application of that is in the new building code. In Florida, the damage to new homes was half the damage to old homes. We hope with the next generation of research that we can take it to a quarter or one-tenth the damage that happened to the older homes.
We're trying to improve the building code. We're trying to give the improvements to the Government of Canada, and we're trying to give them to the American government and others to make part of the code for the next generation of buildings. So one part is research, and the insurance industry is investing in research.
The second part is that insurance practices are reflecting the new knowledge. In areas with higher risk, the price goes up. In areas with lower risk, the price goes down.
To give a Canadian example, the most costly insurance event in Canada was the 1998 ice storm. The insurance response to it was that it was a very bad storm, but there's no real evidence that there are more ice storms; we haven't had one since. There was no change in the cost of insurance because of that storm.
In Florida, the hurricanes were modelled to predict that the damage to the insurance industry could be $6 billion. The new models are saying $60 billion. They were really missing the number with their research, so the cost of insurance for people on the coast has gone up quite dramatically in Florida. Where there is new knowledge, there are big changes in insurance practices.
One of the challenges, as you've described, in the American market is that there has been quite a bit of government interference in it, and while the industry would like to say to business and to homeowners, “If you choose to live in a very risky area, we may choose to sell you our product, but we have to charge a fair price for it”, some governments weren't willing to permit that, and they intervened and didn't allow the price to get to the market level. That led to lack of availability in some markets, etc.
Finally, the industry in most parts of the world is having a very active dialogue with government: “If you want the industry to be the private market in looking after the risk of wildfires, heavy rain, strong winds”—most of the things that are in the Canadian market.... Flood is really the only climate element homeowners can't get insurance for; for most other things they can. “If you want the insurance to stay in those markets, government, have you thought about what role the insurance industry is supposed to play, or not?”
In Canada there's not really an active dialogue going on, as there is in several other countries, about what we want the insurance market to do and what we don't want it to do, and how Canada wants to handle the damage from a flood, which insurance does not cover.