2025 federal budget promises to move the needle on quake backstop

After decades of Canadian property and casualty insurers lobbying for a federal government backstop for earthquake losses, the Liberal government’s 2025 budget signals its intent to start that conversation formally.

“More can…be done to ensure Canadian consumers are protected by a resilient financial system in the face of extreme events like earthquakes,” the 2025 federal budget says, in its sole reference to the topic. “Budget 2025 announces the government’s intention to consult federally regulated property and casualty insurers and other interested stakeholders on ways to ensure the stability of Canada’s insurance sector in an extreme earthquake event.”

Despite the brevity of the statement in the budget, it’s music to the ears of the industry.

“A major earthquake isn’t hypothetical,” Insurance Brokers Association of Canada CEO Peter Braid said of the announcement. “We have been raising the alarm on earthquake risk and the potentially devastating impacts, not only on people in affected regions, but on all Canadians.

“We look forward to participating in these discussions and providing the perspective of insurance brokers who have on-the-ground experience and understand the challenges of the earthquake insurance product in their respective communities.”

In response to the budget, Insurance Bureau of Canada said it has been calling “for years” for the federal government to help protect Canadians from the economic fallout in the event of a major earthquake.

“Canada is the only G7 country with a significant earthquake risk that lacks a formal government-backed financial backstop for earthquake,” said Liam McGuinty, Insurance Bureau of Canada’s vice president of federal affairs. “Without a federal backstop, a major quake could trigger widespread financial instability. 

“Modelling shows that a major earthquake off the coast of B.C. would have staggering impacts on Canada: nearly $100 billion in total economic losses. In Quebec, a smaller earthquake could produce losses in the tens of billions of dollars. In either scenario, the economic and social repercussions would extend across the country, posing a foundational threat to Canada’s economy.

“IBC is eager to partner with the government to quickly find a solution that will protect Canadians in the aftermath of a catastrophic earthquake and address the risks associated with a seismic event to the Canadian economy.”  

Quake risk in Canada

In the Ottawa-Montreal-Quebec City corridor, which sits on a seismic zone, the quake insurance take-up rate is about 3%, industry sources have previously told CU.

And in B.C., at the Insurance Brokers Association of B.C.’s leadership conference last June, Institute for Catastrophic Loss Reduction executive director Paul Kovacs indicated about 61% of residents in the lower Vancouver Mainland have purchased earthquake coverage, while 39% have not.

And yet, if a major quake of Magnitude 7.5 hit the City Hall area of Vancouver, only 8% of earthquake policyholders in B.C. would experience damage high enough to trigger a significant claims payment under their home insurance policies, he added.

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Policy deductibles for a B.C. quake can be as high as between 10% to 20%. With the average price of a Vancouver detached home being just over $2 million, according to a January 2025 study by Vancity bank, that would put a quake deductible for the average homeowner anywhere between $200,000 to $400,000.

Contagion risk

But a Magnitude-7.5 quake isn’t the highest in the range of troubling quake scenarios, Alister Campbell, president and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC), told brokers attending the IBABC conference on June 11.

“We asked the people of Natural Resources Canada to give us a [quake] scenario, and they gave us a scenario that scared the wits out of us,” he said. “And they assured us it was not the one that kept them up at night: it was easily in the range for them.”

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Campbell outlined NRC’s full scenario as follows: “The big 9.0 Cascadia [quake] happens. It’s the worst thing that’s happened to Canada since the colonizers arrived. It’s terrible. It causes maybe $40 billion of losses, but only $20 billion will turn out to be covered.”

That volume of loss could impact insurers’ ability to stay profitable. In a matter of months, the mega-quake would cause three small, regional insurers — each with a high concentration of quake risk in their book of business — to go under, according to a PACICC systemic quake risk model of the NRC’s scenario.

Worse, in the NRC scenario, a Magnitude-6.8 aftershock quake happens right between Nanaimo and Vancouver, in the Georgia Strait, six months later. That causes another $20 billion in insured damage. Canada would lose three more insurers, PACICC modelling shows, plus one large, Top 20 insurer.

Back at the National Insurance Conference of Canada meeting in 2023, Peter Routledge, Superintendent of Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), expressed concern about the industry’s financial stability in the wake of a major quake on the West Coast. PACICC representatives met in the Fall with OSFI in a joint effort to model the risk.

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.