The author argues for a federal emergency backstop arrangement...
August 3, 2016 – The fault lines from a major earthquake in Canada could quickly spread through the insurance industry and have a systemic financial impact, according to a new report from the C.D. Howe Institute. In “Fault Lines: Earthquakes, Insurance, and Systemic Financial Risk,” author Nicholas Le Pan, former federal Superintendent of Financial Institutions, urges policymakers to take several steps now to avert this chain of events.
“Since the 2007/08 financial crisis, policymakers have paid much attention to the buildup of risk in the banking system,” commented Le Pan. “However, no equivalent discussion exists for the impacts of natural disasters to Canada’s economy.”
The author argues for a federal emergency backstop arrangement for property and casualty insurers that would minimize the systemic financial impact resulting from a catastrophic and likely uninsurable natural disaster.
The report notes that in BC, there is at least a 30 percent chance of a significant quake in the next 50 years. As well, there is also a sizable earthquake risk in the Quebec City-Montreal-Ottawa corridor – a 10-to-15 percent chance according to Natural Resources. Overall, some 40 percent of Canadians live in areas classified as “moderate” or “high” risk.
The author also urges insurance industry bodies, as well as the federal and provincial governments, to undertake awareness programs to enhance homeowners’ understanding of catastrophe risks. This should encourage Canadians to evaluate the merits of disaster insurance coverage, particularly in the Quebec City-Montreal-Ottawa, where only about 2 percent of homeowners have earthquake coverage.
Click here for the full report.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information contact: Nicholas Le Pan, former federal Superintendent of Financial Institutions; Senior Fellow, C.D. Howe Institute; Chair, C.D. Howe Institute Financial Services Research Initiative: 416-865-1904 or email: kmurphy@cdhowe.org.