Canada isn't financially prepared to handle a significant earthquake whenever it may come, says a business observer. As a result, the property and casualty industry is at risk without a plan in place.

Models are painting a grim picture from the potential for damage caused by an earthquake disaster, warns Alister Campbell, president and CEO from the Property and Casualty Insurance Compensation Corporation (PACICC). And also the lack of a national government strategy to backstop losses means there may not be enough money in the system for that private insurance industry to reply to such an event.

Speaking at the CIP Society Symposium 2021 virtual conference, Campbell reviewed how predictions are actually showing increased damage estimates because of potential earthquakes in both British Columbia and Quebec.

\”The science got gloomier within the latest six-year period,\” he reported during his opening address at the symposium. \”Both West Coast and Montreal-Ottawa got scarier. B.C. by 25% to 50% scarier and-the Montreal-Ottawa corridor, in some cases, by 75% to 100% scarier. Those are extremely sobering numbers.\”

Based on the new estimates, the cost to the P&C industry of answering damage caused by shaking and fire following an earthquake, combined, are actually beyond $35 billion – the threshold for which the property and casualty industry could be financially equipped to respond to a quake without potential systemic financial issues.

The latest estimate losses from just the shake of an earthquake in Vancouver went up 58% to $27.5 billion. When it comes to losses fire following the event, time is pegged at $10 billion. When you add those numbers together, that's a lot more than the industry can handle, something Campbell called \”very sobering.\”

Without an agenda, \”Canada is uniquely unprepared for any major quake event,\” he added.

Campbell pointed with other jurisdictions that have managed to develop disaster response plans, elements of which Canada might follow. For example:

  • France has a government-backed reinsurer model
  • Spain has a government-backed reinsurer pool with 100% coverage and mandatory contribution by policyholders
  • New Zealand includes a government-backed pool for what's called the \”burning layer\” – the first dollar amount of damage that is covered before optional excess coverage takes over – which is mandatory for those policyholders
  • California has a standalone pool having a “mandatory offer” and a policyholder option
  • In Japan, the federal government covers the burning layer, the insurance industry covers the next layer, and policyholders are responsible for the rest

\”All of these are options, or a made-in-Canada solution, would be a good idea,\” Campbell said.

The pandemic has promoted more considering disaster planning, Campbell noted. For instance, insurance doesn't cover pandemics, meaning the losses should be absorbed by society. Using a government backstop for a pandemic, for example, would ease some of these financial pressures. Discussions for public-private partnerships to cover a pandemic are already underway, with Lloyd’s reportedly thinking about talking to the Canadian government about the idea.

Something similar could be in place for an earthquake, Campbell noted.

But nevertheless there is talk of a multi-peril pool that will cover earthquake, flood and pandemic, Campbell is cool to that particular idea. \”Every peril is different, and adding perils to the pool increases the [degree of difficulty to respond],\” he said.

But that doesn't mean it's impossible. \”If you think of FloodRe in the U.K., which started for flood, but it’s now expanded to include nuclear and terror, it’s doable. But it’s harder. But that’s an important development out of the pandemic.”

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