Lonsdale Quay plaza in North Vancouver in April. B.C. has a 30-per-cent chance of experiencing a significant quake by 2075, Natural Resources Canada estimates.Isabella Falsetti/The Globe and Mail
The federal government is launching consultation with insurers to review the industry’s resilience to earthquakes – a catastrophic event that experts say could hit Canada within the next 50 years.
For decades, Canadian property and casualty insurers have been sounding the alarm on the country’s unpreparedness for a major earthquake off the coast of British Columbia. Natural Resources Canada estimates the province has a 30-per-cent chance of experiencing a significant quake by 2075.
In the federal budget released in November, the government announced its intention to consult federally regulated property and casualty insurers, and other interested stakeholders, on ways to ensure the stability of Canada’s insurance sector if an extreme earthquake hits.
Benoit Sabourin, a spokesperson for federal Finance Minister François-Philippe Champagne, said the timeline and scope of the consultation will be “forthcoming in due course.”
“Insurers are well-positioned to respond to earthquakes, with sufficient resources to cover insured losses for a one-in-500-year event,” Mr. Sabourin said in an e-mail. “However, more can be done to ensure Canadian consumers are protected by a resilient financial system in the face of more extreme earthquakes.”
Liam McGuinty, vice-president of federal affairs for the Insurance Bureau of Canada (IBC), said the federal commitment is encouraging, but it’s just the first step.
“We are happy the government is finally seeing the risk of earthquakes as we do – which is a major risk to our economic resilience,” Mr. McGuinty said in an interview. “I can’t think of a bigger risk that could take down our economy than the big one, and it would have ripple effects throughout Canada.”
A major earthquake would not only create solvency challenges for some insurance companies, he added, but it would also have an effect on the mortgage and banking sectors.
Canada has an average of 4,000 earthquakes every year. Most are minor events that go unnoticed, but there are areas in the country that sit on fault lines, which could produce an earthquake with a magnitude of 7.0 or greater.
The highest-risk zones are the Pacific Coast, known as the Cascadia subduction zone, and in Quebec and Eastern Ontario, within the Charlevoix seismic zone. In 2025, a 7.0-magnitude earthquake hit the Yukon-Alaska border while a 7.7-magnitude earthquake hit the Haida Gwaii archipelago off the coast of Northern B.C. in 2012. Both areas are remote regions with a sparse population, and the quakes caused no major damage.
The largest Canadian earthquake ever recorded was in 1700 – estimated to be between an 8.7- and 9.2-magnitude event off the coast of Vancouver Island.
In a report released last month, the IBC estimates a 9.0-magnitude earthquake would result in total economic losses of $128-billion and 43,700 jobs over the subsequent 10 years.
Insured losses could cost the insurance industry about $52.6-billion, more than 11 times the Fort McMurray wildfire in 2016, which cost insurers $4.7-billion in losses.
While Canada has among the highest industry capital requirements for earthquake risk – or the amount of money insurance companies need to set aside for claims – the IBC says the federal government must be “positioned to inject liquidity into businesses, stabilize markets and reassure Canadians that recovery is possible.”
In B.C, 92 per cent of the population and 90 per cent of businesses are at risk of being affected by an earthquake, and while earthquake insurance is widely available for homeowners and business owners, the take-up is low, Mr. McGuinty said.
About 40 per cent of B.C residents are estimated to have purchased earthquake insurance for their personal property. In high-risk zones – such as Vancouver and Vancouver Island – that climbs to 50 per cent and 60 per cent, respectively, while about 70 per cent of B.C commercial properties have it included.
The low uptake may be owing to limited awareness, the higher cost of premiums, a perception of low value for the price, as well as a misconception that earthquake coverage is part of a standard home policy, Mr. McGuinty said.
In the Ottawa Valley and the Western Quebec region – which has a fault line present but is not as exposed to a “mega-thrust” event (a quake of at least 7.5-magnitude) – only 4 per cent to 7 per cent of residents have purchased earthquake coverage for their homes. There are no commercial property estimates in this region.
“For some people, there is also an assumption that the government would step in to provide financial assistance after an earthquake,” Mr. McGuinty said.
The low number of policies adds pressure to the insurance industry, the IBC said in its report, because without enough premiums to cover the risk, the industry will have to turn to the reinsurance market, which is made up of insurers to the insurance industry. In recent years, reinsurance costs have spiked owing to the increase in severe weather events.
“A severe earthquake is likely to exhaust the capital and reinsurance of individual insurance companies, triggering insolvencies,” Mr. McGuinty added.
Canada remains the only G7 country with significant earthquake risk that lacks a public-private partnership under which the government would take on some amount of liability for damages.
Nearly 15 years ago, Japan implemented a recovery system for earthquake disasters that helps rebuild homes and businesses, while Italy has a national seismic prevention plan. In the U.S., California set up a public-private partnership called the California Earthquake Authority, or CEA. The non-profit organization provides financial backing for earthquake insurance that is sold through private P&C insurers.
The Canadian insurance industry is calling on all stakeholders – including insurers, policy makers, provincial governments and citizens – to consider a federal backstop program, which would provide a “vital financial safety net” and enable rapid recovery without placing the full burden on any one group.
“We need to look at a major earthquake as a matter of when, not if,” Mr. McGuinty said. “If we don’t address it now, we may lose a critical moment with a federal government that has recognized this major financial risk.”