There’s anywhere from a 10% to 30% chance that a devastating earthquake will hit the West Coast within the next 50 years. Canadian insurers are now asking the feds to get ahead of it.
Driving the news: Ottawa launched a consultation with federally regulated property and casualty insurers on how to fortify the industry in the face of a future catastrophic earthquake. Insurers will use this face-to-face as an opportunity to pitch a federal backstop for the industry.
Catch-up: Between California and Vancouver Island, there’s a tectonic region called the Cascadia subduction zone, which is estimated to produce a massive earthquake dubbed “the Big One” every 200 to 800 years. The last such quake occurred in 1700, meaning those tectonic plates are primed to go off eventually. The result will be an event that could top 9.0 magnitude.
Why it matters: Last month, an Insurance Bureau of Canada study found that a 9.0-magnitude quake could cost insurers ~$52.6-billion. That’s over 11 times more expensive than the current record-holder for priciest Canadian natural disaster, and potentially enough to capsize the entire industry.
Canada is the only G7 nation with severe earthquake risks where the feds can’t easily step in and prop up insurers, instead relying on an industry-funded bailout system.
Bottom line: We understand if insurers going under sounds like the world’s smallest violin playing to your ears, but the consequences could be dire, resulting in uncovered claims for Canadians struck by a historic disaster and knock-on effects for the banking sector.—QH