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Canada is due for a major earthquake \u2013 and we\u2019re not ready. <\/b>With a high risk of being hit with a significant earthquake in the next 50 years<\/a>, Canada urgently needs to address the significant risk this poses to Canada\u2019s financial resilience. At a time when we\u2019re already experiencing economic uncertainty and instability, this is a risk we can\u2019t afford to ignore any longer.<\/p>\n For over a decade, Canada\u2019s property and casualty (P&C) insurers have been advocating for a public-private earthquake insurance solution to ensure financial resilience after a major seismic event.<\/p>\n Good news is finally on the way: Canada\u2019s 2025 federal budget<\/a> \u00a0released on November 4, makes a commitment to \u201cconsult federally regulated property and casualty insurers and other interested stakeholders on ways to ensure the stability of Canada\u2019s insurance sector in an extreme earthquake event.\u201d<\/i><\/p>\n This announcement is a significant step towards ensuring the stability of Canada\u2019s financial sector and broader economy in an extreme earthquake event and is a welcome development for the P&C insurance industry<\/a> and the broader financial services sector. Canada\u2019s P&C insurers are ready to engage with the government to quickly find a solution\u00a0that\u00a0will protect Canadians in the aftermath of a catastrophic earthquake and address the risks associated with a seismic event to the Canadian economy.<\/p>\n Canada experiences an average of 4,000 earthquakes<\/a> every year. And while most are just a minor rumble that go unnoticed, there are regions in Canada that sit on fault lines capable of producing earthquakes with a magnitude of 7.0 or larger<\/a>. To put that in perspective, a magnitude of 7.0 can cause buildings without earthquake-proof construction to collapse, rupture roads, damage pipelines and railways. If it happens offshore, it can cause tsunamis and damaging aftershocks.<\/p>\n And we\u2019ve come close to that level of devastation before: In 2012, an earthquake with a magnitude of 7.8 hit Haida Gwaii, British Columbia. Fortunately, <\/b>despite the earthquake\u2019s large magnitude, no major structural damage was reported, likely due to the remoteness and sparse population of the region. However, other parts of British Columbia, including its busiest cities, are also at risk for seismic activity of this scale or even larger.<\/p>\n A large offshore fault off the west coast of Canada, known as the Cascadia Subduction Zone, has ruptured several times, resulting in major earthquakes. The most recent was in 1700, producing a magnitude 9.0 earthquake.<\/p>\n According to Natural Resources Canada, British Columbia has a 30 per cent chance of being hit with a significant earthquake in the next 50 years. If that 9.0-magnitude earthquake occurs again, it could result in approximately $128 billion in total economic losses. These were the findings from an IBC-commissioned study by The Conference Board of Canada<\/a>. And the risk isn\u2019t isolated to the west coast. A previous study by AIR Worldwide<\/a> found a smaller earthquake in the Quebec region, which is also at a high risk, would produce losses in the tens of billions of dollars.<\/p>\n A major earthquake near these major Canadian cities would result in significant loss of life, reducing neighbourhoods and businesses to rubble. Roads and bridges would become impassable, leaving people stranded, and making emergency response extremely difficult. Power grids, water systems, and communication networks would shut down, cutting off thousands of people from essential services. Fires sparked by ruptured gas lines would add to the destruction, while liquefaction and landslides would further destabilize the ground. Even a moderate earthquake near one of Canada\u2019s largest port cities could lead to broad-scale and lasting economic disruption. It could sever international and interprovincial trade and transit corridors, and lead to insolvencies in the insurance and credit-lending sectors. The landscape would be transformed overnight, leaving scars that linger for years and possibly generations.<\/p>\n This sounds alarming \u2013 and while we\u2019re not trying to incite fear, this is simply the stark reality Canada faces if a major earthquake strikes before meaningful action is taken.<\/p>\n Earthquake insurance coverage is widely available, but take-up is low, especially in Quebec where an estimated 4% to 7% of residents carry the coverage for personal property. In British Columbia, that number is estimated at 50% to 65%. This low uptake may be due to a misconception that earthquake coverage is part of standard home insurance contracts. Others may not believe they need it, be deterred by the costs, or assume the government would provide financial support in the event of an earthquake disaster. This points to a need for more education on earthquake risks and what individuals can do to better protect themselves<\/a>.<\/p>\n The low uptake of earthquake coverage adds another pressure to the insurance industry. Without enough in premiums to cover the risk, insurers become more reliant on reinsurance, i.e., the insurance for insurers. A severe earthquake is likely to exhaust the capital and reinsurance of individual insurance companies, triggering insolvencies.<\/p>\n Canada\u2019s P&C insurers are among the most well-capitalized in the world and must follow rigorous regulatory standards. Under ordinary disaster conditions, the industry is more than prepared to support its policyholders. However, an earthquake of catastrophic proportions could overwhelm even the most prepared insurers.<\/p>\n Beyond individual insurance company failures, the earthquake\u2019s impact could trigger a cascading effect throughout the industry. The Property and Casualty Insurance Compensation Corporation<\/a> (PACICC) provides a safety net by ensuring policyholders have some protection even if their insurer fails. PACICC\u2019s assessments have the potential to cause surviving companies to fail because of the unpaid claims of their competitors. In a post-earthquake worst-case scenario, it is possible that every P&C insurer in Canada would fail. This impact would spill into the broader financial system, adding stress to banks and credit unions.<\/p>\n In all G7 countries with high earthquake risk, except Canada, the national government sets up a tailored insurance plan with a safety net or \u201cbackstop.\u201d This allows the government to immediately step in to protect people, businesses and the economy while managing recovery in the event of a catastrophic earthquake.<\/p>\n New Zealand (2010)<\/a> and Japan (2011) <\/a>have demonstrated that a pre-planned recovery system is crucial for rebuilding homes, businesses, communities and the economy after a major earthquake. California manages its seismic risk through a public-private partnership called the California Earthquake Authority (CEA). This non-profit entity provides financial backing for earthquake insurance that is sold through private P&C insurers. These frameworks show that such solutions can work effectively, distributing costs and ensuring a quicker, more equitable recovery.<\/p>\n Canada\u2019s federal and provincial governments should have similar plans and partnerships like those of other countries around the world. This includes developing a customized insurance solution with a federal backstop \u2013 a program designed to support both the insurance industry and individual policyholders in the wake of a disaster \u2013 to provide a vital financial safety net, enabling rapid recovery without placing the full burden on any one group.<\/p>\n Policymakers, insurers, and citizens need to look at a major earthquake as a matter of \u201cwhen,\u201d not \u201cif.\u201d If we don\u2019t address it now, we may lose this critical moment with a federal government that has recognized this major financial risk. A national solution that protects lives, livelihoods, and the economy would make Canada proactive rather than reactive, and ready to respond to the inevitable with resilience. Without coordinated action, Canada risks catastrophic economic fallout and a collapse of its insurance safety net. Preparedness is not about immediate disaster response; it\u2019s about creating a foundation for recovery ahead of time that doesn\u2019t leave Canadians shouldering impossible losses in the future.<\/p>\n As Vice-President, Federal Affairs, Liam leads the development and execution of IBC\u2019s federal advocacy strategies, working in collaboration with IBC members. Previously, Liam served as Vice-President, Strategy, where he developed pan-Canadian advocacy priorities, and was responsible for IBC\u2019s corporate planning. Prior to joining IBC, he held senior positions at Deloitte and the Ontario Chamber of Commerce. Liam earned a Bachelor of Arts degree at Carleton University and a Master of Public Policy at the University of Toronto.<\/p>\n Established in 1964, Insurance Bureau of Canada (IBC) is the national industry association representing Canada\u2019s private home, auto and business insurers. Its member companies make up the vast majority of Canada\u2019s highly competitive property and casualty (P&C) insurance market.<\/p>\n As the leading advocate for Canada\u2019s private P&C insurers, IBC collaborates with governments, regulators and stakeholders to support a competitive environment for the P&C insurance industry to continue to help protect Canadians from the risks of today and tomorrow.<\/p>\nA catastrophe waiting to happen<\/h3>\n
Canada isn\u2019t ready<\/h4>\n
What Canada can learn from other countries<\/h3>\n
Canada urgently needs a solution for its earthquake risk, and the time to establish it is now.<\/h3>\n
About the Author<\/b><\/h4>\n
About Insurance Bureau of Canada<\/b><\/h4>\n