Industry needs to address earthquake risk: IBC

A major earthquake is the most significant threat that the property and casualty insurance industry in Canada faces, and creating a dialogue with governments and consumers is critical for the industry’s continued solvency, the Insurance Bureau of Canada says.

At the National Insurance Conference of Canada in Gatineau, Que. in September, IBC’s senior vice president of policy and chief economist Gregor Robinson gave the highlights of a study commissioned by the organization on how Canada could stand up to major events on both sides of the country.

Modeler AIR Worldwide created two scenarios for the study – one Western and one Eastern. The study is based on a one in 500 year return period, the regulatory standard for which insurers in Canada must be capitalized to handle.

In the Western scenario, a magnitude-9.0 quake would strike 75 km off the coast of British Columbia in the Cascadia subduction zone in late July. That quake would be felt as far as 400 km, or throughout most of B.C. and Washington state, creating long, seismic waves that would be especially damaging to tall buildings.

In the Eastern scenario, a 7.1-magnitude earthquake would occur 10 km beneath the St. Lawrence River, about 100 km from Quebec City in December. It would be largely felt throughout Quebec, Ontario, New Brunswick and New England in the United States.

Shake would account for 98% of total direct losses, and telecommunications and electrical infrastructure would be majorly affected.

While major, the two scenarios included in the study wouldn’t be enough to bring the industry to its knees. “We can take comfort from the fact that our industry is capitalized and financially prepared to withstand earthquakes of the size modeled,” Robinson said.

Still, the industry can’t just do nothing, IBC says. In a separate presentation during NICC, Don Forgeron, the organization’s president and CEO, said that having an institutional framework, aside from private insurance alone, will be critical for addressing the risk.

“These are just scenarios, but the real earthquake of the right magnitude in the right place presents the greatest existing risk to our industry and perhaps the country,” he said. “It presents as a catastrophe that could destroy our communities and segments of our industry, and yet, we’re not ready.”

One positive step forward would be a government backstop program for earthquake damage. One way to fund it could be through a levy supported by the

insurance industry, Forgeron said.