Season 2, Episode 15: The Impacts of Climate Change (Water) on Insurance

with guest host Markham Hislop and Derek Connick

In episode 15 of Season 2, the 7th episode of a podcast mini-series on "Water in Southern Alberta", Jenny is joined by Markham Hislop, an energy journalist, and Derek Connick, a commercial insurance broker, to discuss the impacts of climate change on insurance. The conversation highlights the increasing frequency and severity of climate events, which are challenging traditional insurance models and affecting premiums. The discussion covers various types of insurance, including homeowner and commercial insurance, and the difficulties in obtaining coverage for flood and hail damage. The podcast also explores the role of government in backstopping insurance when private companies limit coverage due to high risks. The episode emphasizes the need for proactive measures in insurance and the importance of treating water as a valuable resource amidst growing environmental challenges. The Gravity Well Podcast is available on YouTube and streaming platforms, inviting listeners to engage with the content and provide feedback.

Markham Hislop and Derek Connick Introductions

Jenny (00:00:05):

Welcome to The Gravity Well Podcast. I am your host, Jenny Yeremiy. Here you break down heavy ideas with me to understand their complexities and connections. Our mission is to work through dilemmas together in conversation and process. I acknowledge that I live on the traditional territory of Treaty seven and Metis districts five and six. The treaties and self-governance agreements established by indigenous peoples were created to honour the laws of the land maintained balance with nature by giving back and uphold reciprocal relationships. This knowledge and intention are what guide the Gravity well conversation. I ask for genuine dialogue, real hearts and openness to different perspectives. This is your invitation to find common ground with me.

This podcast is dedicated to the natural world, our children, nieces, nephews, grandchildren, and all future generations. The gravity well is on YouTube and streaming wherever you get your podcasts. Join us@thegravitywell.net. Good afternoon everyone. I am thrilled to have Markham Hislop and Derek Knick here with me Today. We are doing episode 15 of the graph season two in the Gravity. Well, we're speaking about the impacts of climate change on insurance and we have Derek, who is a commercial insurance broker that will help us understand this. I'm thrilled to have Markham with me today. Markham and I met during the run up to the election. I was introduced to him on Twitter from my friend Amy, and I think you are my second official interview Markham. Thank you so much. And we spoke through, it was your series that you did the three-part series on oil and gas liabilities.

We spoke about that at length and we've been working together ever since. Both Markham and I had an inkling in early 2024 that we needed to do a lot of collaborating work with those people that really want to generate genuine outcomes in the province and in the country. Markham started the energy circle and I started this podcast and we've been working together closely ever since. I'm thrilled with the work you're doing. Markham, thank you so much for your dedication to this subject to talk about the things that people don't want to talk about. And this is one of those, this conversation is one of those. So just to back up a moment, go ahead.

Markham:

Right back at you, Jenny. I mean, you're doing yeoman's work and you've turned this idea for a podcast into something that's really positive and so [clap] for you.

Jenny:

Thank you. Thank you Markham. Definitely. It's funny to think about doing this work and feel like you're just another podcast and then as you get feedback, it does really feel like there is value here and there definitely is. Thank you for appreciating that. We're still working in this Water in Southern Alberta series. This is I think our seventh conversation in it. We went through with the history of irrigation, we walked through some of the impacts of activity on water: resource extraction, the water laws and licencing, and modelling practices. We walked through stewardship. We spoke with the watershed councils and some farmers, which was incredible. And actually it's really interesting that insurance fell in stewardship because quite frankly, I can't think of something better to steward to than insurance actuaries, let's say. And so then in September, we're going to reconvene with all of this knowledge and we're aiming to start in mid-September, finished with the future.

In that we've already identified that we have a gap in covering the laws of nature and rights of rivers. And that's something actually that's come up in your room. Markham with Scott Jensen has brought up the rights of rivers. That's an area to explore. On the backs of that, please become a subscriber of the Gravity. Well engage with this work. Give us feedback, comments, follow me on social media: Substack, YouTube, Bluesky, TikTok, and LinkedIn. That's enough for me. Let me let you guys properly introduce yourselves. Markham, please would you lead us off with a background introduction and what you're working on currently for anybody who isn't following you yet and then how you are tied into this conversation. Thank you.

Markham:

Well thank you Jenny. Thank you for having me on here today. I'm an energy journalist and energy media is kind of in its second iteration, but my wife Joanne and I was also a journalist. We began this 17 years ago, literally in our basement of our home in Southeast Calgary in Mackenzie Town. And we're now, I'm very proud to announce that we're hitting about 3 million views per month across all our platforms and makes us one of the largest independent media in Canada. We're of the overnight success, 17 years in the making. But what we do is we look report on the global energy transition and then we say, okay, how does that apply to Canada? How does that apply to Alberta? And climate change is obviously a very big part of the push towards the electrification of the global economy. Climate policies play a big role in that.

We bring both a global perspective and also a local perspective. We do a lot of work as you mentioned, oil and gas liabilities, that sort of thing. I'm very curious to know what Derek thinks about risk and climate change because risk is a word that is entering into our conversations more and more frequently. And most importantly for your viewers and listeners is our refusal to grapple with risk, to acknowledge and accept the fact that risk is increasing and we, we don't want to be forced out of our comfort zone. I'm looking forward to the conversation here.

Jenny:

Great. Well said. Markham. I forgot to mention Derek and I also met on Twitter. We both have left that space, but we also had a brief overlap on the Alberta party board, I'm really glad to be working with you again, Derek. Yeah, please introduce yourself properly. Thank you.

Derek:

Well, I'm Derek Knick and I've been in the property and casualty insurance business here in Alberta and across different parts of Western Canada for the last 37 years, almost 38 now. It will be in September. I've accumulated a lot of knowledge, some of which I might've forgotten, but definitely seen exposure to a lot of risk and certainly have seen particularly with respect to water, the increasing risk it's presenting to people in property and well, particularly in Alberta.

Jenny:

Right. I've heard, I can't remember where I heard this, but somebody, it was a quote saying that climate is water. Just those words are practically, they can be swapped out. I'm curious how through this conversation maybe that'll reveal itself. But Markham, let me let you lead off. This is your expertise. Please lead us off with our first question for Derek.

Insurance Question and Answer with Derek

Markham (00:07:49):

Well, Derek, and this is a very general question that it came up today just serendipitously, I was reading a Bloomberg story about a gathering an annual convention of insurance brokers in Texas, and they were talking about risk and how the climate change was transforming their perception of risk. And one thing really stuck out for me, and the Bloomberg story said that the insurance industry has 250 years of data. It has been collecting data for a very long time, then of course it does the actuarial work and that's how it comes up with premiums and so on. And the point was that the recent events, the extreme weather and the caused by climate change has blown it to smithereens that this is not consistent with the historical data. We're seeing once in a thousand year events that happen year after year after year, and the insurance industry is grappling with it. They haven't figured it out yet, but they're kind of addressing the issue. How are we going, what does this mean for our customers? What does it mean? How are we going to pay this? All of those issues. In your practice, is that fair to say that the perception of risk is changing and the extreme weather that we're seeing in Western Canada is changing how you handle risk?

Derek:

Absolutely. Traditionally, insurers would make their decisions based on a couple of different things. Number one, the loss ratio, which is the ratio of claims paid out to the premiums taken in, they combine that or well literally combine that, add an expense ratio to that for their obviously salaries, commissions to brokers and agents. They call that the combined ratio, when that combined ratio is over a hundred percent, they're losing money certain years with lots of catastrophes. They've lost money in some recent years they've made it. What happens though, like you said, that's based on historical data going back in some cases 300 years for fires and floods and other storms, is this climate change is increasing the frequency and severity of the events. They were used to rating things on low frequency, high severity or low severity, high frequency, and this is just blown that out of the water. And they're having to relook at models now and make some hard decisions on whether to continue offering some types of insurance or how to limit it, still offer it, but limit it. And that's where they're at right now and that's what they're trying to muddle through.

Jenny:

I put out the video of Sheldon White House speaking about this in Congress or in the Senate I should say, about the reinsurance values going up by hundreds of percent in some cases. To address this, I'm hearing Bob Morrison in my head here, and I just want to back up and ask some of the basic questions. Can you just help people understand what types of insurance are out there? There's obviously homeowner insurance, there's commercial insurance which you focus in, and what types of insurance that different organizations need to acquire maybe when we're talking about water. Some examples like farmers or resource developing

Derek:

Companies. Well, farmers is a good one to start with. They obviously need protection for their farm property, the farmhouse, they'll need coverage for sewer backup. Whether they'll need groundwater coverage or not is questionable. They certainly need coverage for their crops crop hail insurance, and that is something that, and some crop hail insurance in fact covers wildfire damage as well. Those are two things that would be very important to a farmer, particularly in Alberta.

Markham:

Derek, I'm kind of curious the extent to which your practice has changed over the last 10 to 20 years, but particularly the last five years with respect to extreme weather. Whether it be flooding, whether it be hail, whether it be cold or whatever it is, but have you seen a marked change? And are people within your customers, basically, are they noticing that there is a change and are they tying it to climate change?

Derek:

The change in the practice is that certainly brokers have become much more proactive in reviewing their policies to make sure their clients have the proper coverage. You want, for instance, a homeowner's client you want to make absolutely sure they have the best coverage they can possibly get, which includes sewer backup. And if they can't have full flood coverage, whether that's because of where they live or they just can't afford the full limits, you want to have them have something to at least begin the rebuilding process. Commercially speaking, again, the same sort of thing. I've seen it commercial clients, certainly if they own the property they're in, are a little more attuned to severe weather and flooding and hail damage. Whether they're making that connection to climate change, I'm not so sure. I think some are. Some are, but I wouldn't say that that's definitive right now that they're making that connection.

Jenny:

Right. I wonder when you provide a quote, Derek, I'm thinking of you mentioned and what came to mind to me, if you can get flood insurance. I'm thinking of in the just off elbow river in Calgary when we had the flood, it's my understanding that there are some homes that could not obtain flood insurance after that because of where they exist. They're in a floodplain and we can see that, like you said, these frequency of supposed a hundred year floods are shrinking and we're getting those more rapidly so that therefore they can't have flood insurance. That's one way it plays out. What about hail damage? You mentioned it when we were preparing before going live here, the hail damage that happened last year in Calgary. I've heard of, maybe you can elaborate on the cost of that, but how does that then translate into reinsurance risk?

Derek:

Oh sure, absolutely. Actually the hail damaging Calgary last year I believe was, oh, how many? I had the figure here about 800 million in insured damage, if not more. Sorry, I lost my place there with the statistic. It's extremely, basically, what reinsurance is, is that reinsurance is the insurance company's insurance. It's usually offered by global insurers or global reinsurers that operate worldwide. They are very, very attuned to climate change and climate risk and what brings that on. They are putting pressure on domestic insurers to what limit coverage. They see the losses increasing in certain areas and they can in fact put pressure on domestic insurers to limit coverage in certain geographical areas. So the insurers, insurers basically take it from both sides. Unfortunately, they're having, they're paying out losses and having to increase rates just to break even or make a small profit margin for their ownership and reinsurers, they're putting pressure on them to limit losses that they have to pay out because the global reinsurers also have to make money in the end. They're businesses and they have to make a profit. So that's where the reinsurance really comes in. And that's both in personal lines, homeowners insurance as well as commercial insurance.

Markham:

Derek, I'm kind of curious if we're heading to an inflexion point here because I see at the global level there's a lot more discussion of risk and climate change.

We're starting to see it at the national level, but we haven't really seen it in Alberta. We haven't seen it or seen it in a little more in British Columbia. There's been some flooding and so on, but it really hasn't sunk into the voters, the citizens. And I am wondering if, I'll give you my personal opinion. I think until it bites them in the wallet, they're not going to pay attention. I wonder if we're at the point now where the potential costs of insurance or being denied insurance is ready to bite the consumer hard enough that they'll make the connection between climate change and risk that they haven't up to now.

Derek:

I think that's starting how long the process is going to be is anyone's guess. When someone, anecdotally, I saw an old associate of mine who worked in the insurance industry in Calgary, had hail damage to his home, of course, took some proactive steps and his premiums still increased by 50%. When people see their average premium double or go up by 20 30% in a year, they start to take notice and they can shop around as much as they want, but they're going to get the same or worse answers wherever they go to. Then they really, you're right, it hits them in the pocketbook. They have to take notice. They have to start to think, what can I do to prevent things from happening? What can I do to pressure insurance companies to help people build back better? And I think the process is starting, it's just a question of how long it's going to take.

Jenny:

Yeah, I think about a similar analogy is like oil prices. If you're above that threshold of $65 a barrel, everybody's doing okay, we're fine. And then as soon as you approach that, that's when really things can fall apart. That's what I think Markham is describing that potential breaking point where like you were saying, Derek, some years they lose money, but now it's becoming more years where they're losing money and less years where they're making money because of that overall risk. Again, back to how it amounts when you're doing an analysis. Let's maybe go back to a home just because that's something everybody can relate to. Is the process literally, this is in a flood zone, this is potentially in a hill zone. How do you go through and decide what the premiums are to begin with, I guess, and then if it's changing how those are measured?

Derek:

Well, we have, okay, taking a homeowner for example, we have a, each broker or each insurance company has a software program where they, as objectively as possible assess the reconstruction of the home. That first and foremost is what drives the premium. Secondly, it's the location, is it in a densely populated area like Edmonton, red Deer, Calgary, Lethbridge medicine hat, and then they look at while fire protection is one, then they look at the historical incidences of hail. Oddly enough, medicine hat and around Red Deer have suffered quite severely. There are some insurance companies that, and I'm not sure if this is still the case, but there was some time ago that really didn't want to write insurance in the medicine hat area because of the hail and flooding risk that was there at the time.

They take that, they look at, they do each, I'm sure each insurance company has their own flood maps. They all have access to the provincial national flood and national flood maps, and they will look at those and assess potential flood loss. And that's where we get into limiting coverage. If it's a high-end or high probability of flood loss, like along the elbow river in Calgary, you're going to find them with a very minimal overland water or flood coverage sub limit offered and they won't be able to buy it up. If you're in Lethbridge on top of the coulee, you'll be able to buy that coverage up. If you're in Medicine hat, as long as you're not in the flats, you're probably going to be able to buy the coverage up.

Jenny:

It's available for you.

Markham:

Yes, Jenny, I've got a question for you actually, because you were a geoscientist in the oil and gas industry. I find actually that first of all, oil and gas is very risk averse and they will continue, in my experience, they will continue with practices that could be improved with better technology or better equipment. But as long as they're making good money, they don't want to take a risk on something new that maybe it doesn't pan out, then it's on them. Right? And if you're an engineer or a geoscientist, if you were the one making the recommendation, you wear the loss even if it's just in terms of reputation. But it's astonishing to me how we have these conversations about things like pipelines or new LNG plants or whatever it is, and we don't talk about risk and we don't just pretend that it doesn't exist. If we're talking about the pipeline to Prince Rupert, we've identified all sorts of risks.

We think that the oil demand in China is going to go on forever. In fact, according to some Chinese sources, it's already peaked and we'll be going down in the next few years. Petrochemical demand is not necessarily, it's going up. It may not be for oil, it may be for natural gas liquids instead, not heavy AC crude, on and on and on and on. There are all these risk factors and we keep arguing that whether or not you do the pipeline is you should accommodate, you should incorporate these risk factors into your conversation. And what I hear from Derek is the insurance industry is very good at doing those calculations. I don't see that in the oil industry, but these are sometimes tens of billions of dollars that are being invested. Now what's your take on that?

Jenny:

Well, I think it goes back to the conversation you held for us late last year, Markham. And when we were talking about the engineer's dilemma with Zach and Scott, and the key thing for me is where the decisions being made that a pipeline needs to be developed. That's not happening from a development standpoint. There is not a group of geoscientists and engineers and professionals and oil field workers that are saying, we need a pipeline to China. These decisions are coming out of a corporate headquarter office and being pushed through stakeholder relations teams, which don't necessarily have a safety first, a risk first mentality. It's rather a relations and business development mentality. To me, that's the first hurdle that we are struggling as a industry is that we are not starting these decisions from a place of what are the opportunities and what are the risks to those opportunities, and should we be even exploring that or should we be just simply closing sites and cleaning up our mess and helping expand the renewable rollout. To me, that's why. And Derek, I'm curious from your perspective, I did touch on briefly here from an energy company, have you been involved in providing insurance for an energy company or can you speak at all to how they are even provided insurance? I'm thinking of TMX for example.

Derek:

Well, they can get insurance. Obviously they would need it to obtain any sort of financing, even if it was from a government, although I'm not familiar with terribly with it. You would think that they would need, I think environment, they would definitely need some sort of environmental impairment policy. That's one of the toughest policies in my experience to write. You need a lot of engineering and I guess topographical info where things are going. And it's a very difficult to place. There are companies, global companies that still offer that coverage. I know there has been some high profile global companies pull out of the energy business or anything that goes below ground or related to pipelines, but it is still available, although recently I have read where pressure is still being brought to bear, particularly in the London, England market, which is the world center of insurance where environmental groups and groups from the UN are bringing pressure to bear on the remaining companies that are offering that coverage and saying either phase it out or get out and put these companies on the spot.

Jenny:

Interesting. Markham, and you're up.

Markham:

Well, I am kind of curious, Derek, who pays, because at the end of the day, it seems to me that we're headed for a situation where private insurance companies will not want to pay. They'll refuse to write the business or they'll limit the coverage provided in the policy. And when we get to that stage, people still need to have insurance on their homes and their businesses, but oil and gas companies have to have them or utility companies, whatever it is, you've got to have some kind of insurance. Does government step in? Does the insurance industry evolve? What's your take on that?

Derek:

Well, I think you look at what happened with the floods in 2013, and basically there was the provincial government stepped in to backstop. A lot of that am not sure how much they contributed or how much was paid out. Figures not at my fingertips, but eventually government slash taxpayers usually step in. Now, what I'm worried about happening in the interim is much like housing, it's going to be an affordability crisis. People are not going to be able to afford insurance on their home are they? Can't risk going without insurance, especially if they have a mortgage, they won't be allowed to do it. That brings a whole affordability issue. And does government get involved in property insurance much like they've gotten involved in auto insurance in Alberta? Well, that just makes the situation worse.

Markham:

Maybe Jenny, I just want a follow up question if I can, because that's one of the things that bothers me the most here. It's one thing when government decides that it's going to take an industrial policy, as we've discussed in the energy circle where the government says, okay, as a country we have a strategy to build a particular industry, could be battery plants, whatever. It's we're going to put public money into that because it'll generate tax revenue, create jobs, attract investment. But when you're coming at it from the other end when the government is basically backfilling because private sector won't provide it anymore, then it becomes like a subsidy. We're basically paying for a sun setting industry in the case of oil and gas. And I think my takeaway from Derek is that there's some point, some inflexion point where the risk is too great for the private sector. We're all too committed to the industry or to whatever to back out entirely. And then government and our pocketbooks step in to fill in the gap and then it becomes risk when we're bearing a whole other kind of risk in case that it goes belly up?

Either one of you have a crack at that one.

Derek:

Well, we've seen an attempt by the insurance industry along with the federal government to build a national flood insurance program similar to what they have in the United States, although that's probably, it's not perfect, but it's not the worst program. Something like that. And those discussions have been going on for years. And in fact, now that the spectra of wildfires has entered the picture, they seem to have put, and cyber insurance, they've seemed to put the national flood insurance program on the back burner. I certainly don't read about it as much as I used to, but that is something that could be looked at where then again, at least people are able to buy affordable flood insurance in addition to their home insurance.

Jenny:

Right. Yeah, it makes me think about these automatic renewals with things and potentially not the terms and conditions potentially changing without people appreciating it

That when a crisis comes suddenly you realize that this whole neighbourhood is not no longer covered for flood insurance, for example. I feel like a lot of this is just being pushed off and not really made people necessarily made aware of it. I have a couple of questions. I'm going to start with this one. Can you talk a little bit about mitigation for insurance? What I mean is cloud seating is an example of something that is an attempt to both. So if I understand it right, it does two things. You can potentially help get rain for crops, so it's trying to draw in moisture, but then of course that can backfire and you've got too much moisture or maybe it happens naturally and now you're doing the opposite where you're trying to put in, I can't remember what the particles are, you probably remember for me into the air to try and dissipate hail damage.

Now we all know in Calgary, was it last year when that big hailstorm came through, there were planes going all around that area forever, trying to cloud seed to mitigate the damage. And actually a friend of ours, Mike Klein, did offer the actual number for you. The Insurance Bureau of Canada noted it was 3.25 billion total damages for that storm in Calgary. To me that was a failure if I know nothing about cloud seating. Excuse me. Can you talk a little bit about these potential mitigation efforts like cloud seating and their success rate or not.

Derek:

Cloud seeding? It's where silver iodide is, the particle that's sprayed into storm clouds to basically well soften or dissipate the hail so it actually melts before it hits the ground. I think what it does is it makes the water particle heavier so it's not caught in the updraft and freezes as much, and so it's heavier, it falls to the ground faster. It's smaller sized hail or just water. It is basically how that works. And it's primarily seeded in what they call hail alley, which in Alberta is mainly between Calgary and Red Deer, which is seen the most severe hailstorms, unfortunately don't, they can't see as far south as Lethbridge simply because they have to fly into US airspace, which causes its own set of problems. But definitely I believe it's helped. I'm not sure how many planes they have. The Alberta catastrophic kale reduction plan has to reduce how many planes they have to fly out in storms. But it was obviously something that, and maybe this is a consequence of climate change. It came on too hard and too fast to be able to respond to it.

Jenny:

They're just not able to get the scale. The scalability of it is not working. Yeah?

Derek:

Yeah.

Jenny:

That makes sense. Sorry, Markham your turn if you're ready as it going.

Markham:

Well, Jenny, this is an issue that you've talked about many times at our energy circle meetings, and that is the oil water consumption by the oil and gas industry. And there's the conventional side and then there's the oil sand side, and both of them use fair amounts of water. And at what point, if climate change is changing our climate, we're having more severe and longer droughts, at what point does it become a conflict between other types of businesses like farmers and ranchers and citizens over the use of that water, the headwaters of both the rivers to service Calgary, for example, 1.2, 1.5 million people in Calgary and suddenly they on water restrictions. That kind of gets the government's attention, but are we headed in that direction? I

Derek:

Think possibly we are. What scares me too is the potential that selenium poisoning from new coal mines will damage the old man and permanently damage and poison the old man river system much as it did in BC. I don't care what the mining company says, but the multi-billion dollar minor tech corporation has not found an issue to the selenium poisoning and contrary to industry cheerleaders, if you will, it's not just salt. There's visible, obvious evidence of fish being deformed and dying off because of the poisoning. Now, who's going to pay for that? You know what? The insurance industry, the insurance company of that coal company will not pay for that damage. That's pollution. And in most cases, pollution is excluded unless it's sudden and accidental, ongoing selenium poisoning is not sudden and accidental.

Jenny:

Oh, interesting. Pollution is not included.

Derek:

In most commercial policies. There is what they call an absolute pollution exclusion, and where it's where any sort of release of material, especially if it's ongoing, is completely any damage from it is completely excluded. There is, you can buy limited, and this is, keep in mind, this is limited coverage. Many cases it's limited to $250,000, which could be a drop in the bucket depending on how bad it is for sudden and accidental and sudden and accidental means it happened and it's reported to the insurance company within 24 or 72 hours of it being discovered. Beyond that, it's not sudden and accidental anymore.

Markham:

Jenny, what are there insurance requirements for conventional oil and gas wells?

Jenny:

I am not familiar with it, to be honest with you. I know that, like Derek was saying, you do get your limited insurance, at least for corporate insurance of some kind. Can you speak more to that, Derek,

Derek:

For wellhead insurance? Is that what we're talking? Well, usually, I'm not overly familiar with the down hole coverage, but we certainly cover, I've certainly covered a lot of well independent contractors or consultants on oil well sites with the pro vio that there's no extent to cover damage below six feet underground.

Jenny:

Oh, wow.

Markham:

I guess what I'm going with this is Jenny, you and I have had many conversations about this very, very serious unfunded liabilities for the conventional oil, the gas industry. Let's say there are, right now there are about 80,000 inactive wells and some of those walls are leaking. We know that. And the question and talk to people like Mark Doran and Dwight Popovich, it's a very large percentage of them are leaking. And who then pays for that if the oil companies don't pay? Is there an insurance company backstopping it? Probably not. Absolutely not. Absolutely

Jenny:

Not. That's where I think the Polluter pay principle is supposed to come into play and our regulator is supposed to be making them address it. Contamination is supposed to be on a timeline where mediation is law in Alberta, it's supposed to be being addressed. Unfortunately, our province has reduced to the number of inspectors to the point that we don't know these things until we go to a wellhead to find out what's going on to either act on it. I did want to touch on what you mentioned earlier, Markham. I just want to hit this on because this has been more, we talk or about doubling Alberta's oil and gas, or sorry, oil production. We currently use over [4] million barrels a day of fresh water. So yes, we use recycled water as well, but that is, we are actively polluting over 4 million barrels a day.

Every time we're bragging about exporting over 4 million a day, we are simultaneously polluting 4 million a day. The thought of doubling that, where is that water coming from when we are experiencing severe drought shortages? And as you said Derek, we're seeing contamination from historical fossil fuel development that is accumulating and has accumulated over the years. Bill Donahue just put out an article to counter Joseph ER's comments around these lab results that can contain selenium. It's not possible in the real world. Thank you for bringing that into the conversation. I really appreciate it. Sorry, I think I cut off a question there, or do you want me to roll into one?

Markham:

No, I was engrossed in your answer. I forgot my other question.

Jenny:

That's okay. I did want to ask about, you said no insurance, where that's coming from. There's some areas where there's not going to be a ways to write insurance. Again, and I agree with Markham, we are headed towards a water shortage. That's the evidence, that's the science overall, especially when we are removing water from the system by disposing it down hole. And by the way, this can all be reversed by investing in restoration, investing in nature and restoring water capacity. But the way we are headed is to catastrophe where we are going to reduce the groundwater to a point where we aren't going to have access to freshwater in some areas. Derek, a big question for you, hopefully you can give a little bit of colour on it, is relocation, community relocation efforts. For example, if I just saw in India there was a community that was right near a river, a massive flood event came through and wiped out, I want to say about, call it 50 to a hundred homes. Are you rebuilding there? And if so, how is that justified? Or how do communities start making decisions like that? Should we be rebuilding here or should we be letting nature come back? How are those decisions made from an insurance perspective, if you can?

Derek:

Well, then we have the question of affordability. Again, housing affordability comes up is can these people in concert with what little insurance money they get for the flood rebuild somewhere else? Or can they pick up and live somewhere else? And quite often the answer to that is no. Some of the homes that are susceptible to flooding are generally, while with the exception of around the elbow river in Calgary, of course, are generally not high value homes. They're lower to mid value homes. And some of those people have lived there for 70 years, can't afford to go anywhere else.

Municipalities would, I think, are making some credit, are making some inroads with infrastructure to mitigate those damages. I think of the town of Coaldale just east of Lethbridge as a Malloy basin project, which basically helps the water from extreme rainfall events drain properly or drain away from the town to the outskirts of town to catch basins where it's properly dealt with, that sort of thing. I see the efforts the city of Calgary has made at trying to mitigate potential flood risk, and I think that's where the drive is coming is from your major urban centers. I look at in Lethbridge, nothing, nothing's been developed in the river bottom residentially wise for I think 50 years at least. I mean, there is one development on the west side that does get close to the river. They did have some flood damage in 2013, but it was fortunately it was minimal.

Markham:

I Jenny, I wanted to just jump in with an observation. We were talking about timelines a minute ago for reclamation of abandoned, inactive wells. One of the great revelations for me when I was doing my unethical oil series in 2023, which what I interviewed you for is that there is not and never has been a timeline that's enforceable by law for reclaiming an oil well. Yes, they're required by law to do it, but there's no timeline on when they have to do it. You can leave a well in the inactive list forever in theory, without having to reclaim it.

Jenny:

Yes, I will add that there is precedent setting law that was passed by the UCP government under Jason Kenny in 2022 that does put sites on timelines in Cold Lake of all places, the hotbed of oil sands development. It's also there because Cold Lake has a severe loss of caribou population. That's the main driver of that. But to me, those land stewardship laws are the laws of the land. This is where, as I was saying earlier, in these conversations on water, we have to get back to a place of reality. What can we actually sustain and do? Back to your point about risk Markham, do we even have the reserves to and the capacity to increase our production by two times, that doesn't seem realistic when we go after the best stuff and the basin first, and there's more waste product for reservoir extraction today than there was 20 years ago. Definitely a lot of things Go ahead.

Markham:

Well, what I was going to say is that the idea of doubling Alberto oil production is a fantasy. It's a fever dream. There's no basis for it. No.

Well, let's back up a little bit. The premier, the oil industry and the business community in Alberta firmly believe in OPEC view of the oil's future in that there will be a big increase from 103 million barrels a day today to 120 my mid-century. That is improbable at best. And I mean IE International Energy Agency says it's going to peak in 2029 and then decline in the early 2030s. The premier, premier Danielle Smith is basically relying on shoddy modelling. That is, nobody believes it. But then you get into the physical problems. For example, today after all the capital is paid off, you might be able to produce a barrel minimum for $27. But if you're going to fill up a new pipeline and you have to build greenfield new, that your costs are now 60 to $80 a barrel. And there's no way that you can compete with the Saudis and the Iraqis in the Chinese or Indian markets. This is one of the things that keeps bothering me over and over again is just show your math. If you believe in a pipeline, if you believe in expansion of the oil sands, show your math, and let's talk about that math and subjected to some scrutiny. And instead we were obsessed with narrative, narrative, narrative, narrative. And I see on the risk side, around water, much of the same thing is in the public, in the decisions made by the government. It's all about narrative. It's not about data and evidence.

Jenny:

Yeah, agreed. And this is going to be the breaking point if we don't intervene in some way. And some of the things that we're seeing, and maybe this is our last question and then into some takeaways, Derek, but when we were talking with farmers about water shortages, and also we were talking about with Arlene and Davin about the water licence system and where it broke down. For example, there was a moment where there was water shortages in Southern Alberta, and they realized that the lowest owner of water, the lowest rank in terms of licence fit for first in time, first in right, was the meat processing company. If you're a rancher, you need to be able to sell your product. You can't say, sorry, you can't have that water because now you're not selling your product. So there is this overlap that's coming. I wonder, Derek, is there any, for you, what sort of breaking point do you see? Is there any particular area that you think is a place to watch in terms of insurance that might be a hot point for people to take note?

Derek:

That's a difficult question to answer. Yeah.

Jenny:

It's areas where you might see things sort of cascading together where it's like somebody can't get flood insurance or can't get hail.

Derek:

I dunno. Yeah, I mean, we're at a point now where I think the level water levels on the old man river and the Waterton River have been very low for a few years running and it's causing some farmers problems. Granted, many of them here have irrigated fields. They have had difficulty growing some bumper crops, some of their regular crops. And whether I think because they do seem to have the ear of the current governing party in Alberta, whether I don't like to say the name, whether that might be the tipping point where the farmers and the ranchers rise up, similar to what we're seeing in the crow's nest pass with respect to the coal mining rising up and saying, enough is enough, you're killing me.

Key Takeaways

Jenny (00:54:46):

Mark Dorn would heavily agree with you in terms of the landowners are the ones that have not only the power to change things too. Right. That's where there is a big opportunity there. Thank you for flagging that. I just want to offer a couple things I heard before we wrap here and then I'll let you guys do the same. Yeah, I'm hearing the frequency and severity of events, climate events are impacting both the rates and the ability to ensure people more. Brokers are becoming more proactive in your analysis, trying to make sure that people have a sense of what's coming at them and be prepared for that. Relocation is still a question. How are people going to decide? And I hear what you're saying, Derek, I'm sure there is a big piece that people can't move. That's not realistic, that's not something that's going to happen. So what are we going to do about that as a society? I will say that Mike Klein, our friend in the chat here was talking about potentially state owned mortgages or corporations that would help mitigate those costs for the population. And the last thing is big is that pollution is excluded from insurance coverage. Yeah. So that's a big one. Thank you. That's everything I've got from it. I don't know who wants to go first. Maybe you first Markham and then Derek, you can finish. Give us the last word.

Markham:

Sure. I've got a couple of key takeaways from my point of view. One of them is the extent to which the insurance industry is a global industry, and changes that are taking place, it's not all about Alberta, and this is something that Alberta, we politely call Alberta exceptionalism, right? It's not about us. I'm sorry, Jenny. I live long enough in Alberta and I've been long and I get it, but there are changes that are taking place at the global level in the reinsurance industry and then in the larger industry as a whole that are going to play a role, what insurance costs and when it'll be available, and to what degree that has nothing to do with Alberta and be prepared for that. The other thing that, I don't know if it's a takeaway, but it raised an issue. Again, if we're going heading to some sort of collapse or some, the issue becomes big enough that the private sector can't or won't handle it, then the government will have to step in. And now the taxpayer's on the hook again, and we see this, I've seen this over and over again, and I think that it's one of the criteria for any kind of development in round oil and gases.

Will the public have to, will the taxpayer have to step in and subsidize it? And to what extent? And we should just say, no, we're not doing that anymore unless it's things like the 2013 flood. It's an extraordinary event and that's different. Those would be my two takeaways, the global issues and the fact that the government may have to step in again with public money.

Derek:

No, I think why can't the government mandate each oil company to post a bond for each well site to a minimum level to cover cleanup costs. If you don't clean up by a certain time, we're going to exercise the bond to clean up. It's going to cost the insurance company money. That's probably why we haven't seen anything like that. Or sorry, not the insurance company, the oil company money. I think you'd probably find some insurers who would be willing to take that on for a right price. I also think, and this is stepping out of my insurance hat a bit, it's time to treat water like the valuable resource it is. And I think we're getting to a point now, and I remember saying this to my wife, gosh, it must be 20 years ago or more, now that fresh water is going to become the new oil

Jenny:

A hundred percent.

Markham:

Assuming we have enough of it. Yeah.

Jenny:

Yes. Well, and again, that's why we're working towards trying to wake people up to this massive issue so that we can start moving in the right direction. Thank you, Derek. Thank you, Markham. This has been awesome, awesome conversation. Thrilled. And yes, I think we got to do this again, Markham, and it'd be great to circle back with you on a regular basis. Derek, if you think of anything else that you want us to talk about in the space of water that comes to mind, would love to hear more from you as well.

Derek:

I will send you what I get. I am a profuse and almost addicted reader, I will send you anything I come upon.

Jenny:

Yeah, I have to say, I appreciate you. There's very few people that are aware in this space and willing to talk, and I've appreciated your support virtually and now it's nice to actually put a face to that and hopefully we'll have a chance to meet in person sometime soon. I'll let you know when I'm down your way. Okay, thank you so much guys. Have a great rest of your day. Take care for now. Thank

Derek:

You. Thanks, Jenny. Have a nice day. Bye now.