Can brokers manage clients facing quake insurance gaps?

If a major earthquake were to hit Vancouver’s City Hall, only 8% of earthquake policyholders in the Lower Mainland would likely receive a cheque from their insurers, computer simulations conducted by the Institute for Catastrophic Loss Reduction (ICLR) suggest.

For many policyholders, the damage will be below their earthquake policy deductible. For others, various policy exclusions will apply. And still others may not have purchased an earthquake endorsement when they bought their standard home insurance policy.

Earlier this year, ICLR modelled a shallow, Magnitude 7.5 earthquake hitting near Vancouver’s City Hall. When the model reached Magnitude 6 projected damages reached $10 billion.

The City of Vancouver published the results of its own simulation showing the areas of Vancouver at highest risk of damage if a Magnitude 7.3 earthquake hit in the Georgia Strait. That’s the level of earthquake for which the City of Vancouver is prepared.

Related: Earthquake deductible buy-down policies. Are they worth it?

After such a quake, some policyholders in Metro Vancouver will see their homes are “in real trouble,” Paul Kovacs, executive director of the ICLR, warned brokers attending the Insurance Brokers Association of B.C.’s 2024 Leaders Conference in Whsitler. “Some could be just gone. And then they will call [their brokers]. Our data show 40% of these calls you’re going to get [are from people who] don’t have coverage….

“Are you ready to have that conversation? That’s a tough conversation.”

Residents in Vancouver’s Lower Mainland, for example, may not receive insurance payments for various reasons, including high earthquake policy deductibles, coverage exclusions, or just a failure to realize earthquake coverage isn’t automatically part of a standard home policy.

Earthquake deductibles can reach as high as 20%. With the average price of a home in Metro Vancouver being $1.17 million, according to online personal finance encyclopedia WOWA, that would mean a damage claim of up to $234,000 for some homeowners would fall under the policy’s deductible.

There are also policy exclusions for certain types of damage caused by earthquakes. In some Canadian provinces, fire following a quake is not covered. In B.C., standard home insurance policies do offer cover for some forms of damage caused by fire following an earthquake, such as a ruptured gas main causing a fire.

Related: Risk of insurers failing increases following earthquake aftershocks

In B.C., about 50% of policyholders in Metro Vancouver have purchased the earthquake endorsement on their policy, according to ICLR research.

Modelled results from ICLR’s study show:

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• 36% of Lower Mainland policyholders will have moderate damage, but the loss will be less than the deductible on their policy, and therefore they will receive no insurance claim payment
• 28% will have less than $1,000 of damage, and therefore no claim
• 23% will have moderate damage from the earthquake, but they will have no claim because they did not purchase an earthquake endorsement on their policy
• 8% will have high damage exceeding their policy deductible and will be eligible to receive a claims payment
• 5% will have high damage exceeding their deductible, but they will not have a claim because they did not purchase earthquake insurance.

ICLR’s study suggests earthquake cover would not be available to about nine out of 10 Lower Mainland residents.

“Here in Metro Vancouver…half the population of an area at significant risk is not going to have the coverage they need. And we know there are significant protection gaps for people even if they do have that coverage,” Aaron Sutherland, vice president, Pacific and Western for the Insurance Bureau of Canada tells the Whistler conference.

This article is excerpted from one that appeared in the August-September, 2025 print edition of Canadian Underwriter.

David Gambrill

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