Some earthquake deductibles too high: IBC

Brokers are telling the Insurance Bureau of Canada that for some homeowner clients, the deductible on earthquake coverage is so high that the clients could still end up broke after a major tremor.

“Right now, the deductible on some of these policies is $100,000 or more,” IBC CEO Don Forgeron said of earthquake endorsements on homeowner policies.

“It’s so high that even some consumers who are covered may end up financially ruined as a result of an earthquake and that does not seem to make a lot of sense to a lot of people,” Forgeron said Thursday during the Property and Casualty Insurers’ Risk Management Conference.

“We need to do our part,” Forgeron told insurers and institutional investors attending the conference, co-hosted by IBC and Global Risk Institute, a Toronto-based research organization. “We need to examine our products that we offer and make sure they actually serve consumers in at risk areas. I realize this is a complex and competitive side of our industry, but it is what we are hearing from policymakers, consumers and brokers who are on the front lines of selling these polices.”

Earthquake was one topic Forgeron discussed during his presentation – Protecting Canadians from Catastrophic Risk – at the conference at the Toronto Region Board of Trade.

With earthquake risk, complacency is a major problem in Canada, especially in Quebec, suggested Forgeron.

In an IBC-sponsored study released in 2013, AIR Worldwide modelled economic and insured losses at about $60 billion and $12 billion respectively from a hypothetical earthquake measuring 7.1 on the Richter scale 100 kilometres northeast of Quebec City.

“Generally speaking, people in Quebec do not perceive earthquake as a plausible threat,” Forgeron said Thursday.

But scientists estimate there is a 10 to 15% chance of a major quake, in the next 50 years, near Montreal. Only one in three Quebec businesses are insured for earthquake and that figure is 4% for homeowners, said Forgeron.

In British Columbia, nearly two in three households have earthquake insurance.

“A third of residents don’t have any coverage and our surveys show may people don’t understand the coverage that they do have or the limits that are imposed,” said Forgeron.

“If insurers are going to take on more risk as a result of increased public awareness and increased take up of earthquake insurance, then governments and insurers need to work together to create a framework for stability in the case of a truly catastrophic earthquake. To be clear we are talking about an event that exceeds the one in 500 years thresholds established by OSFI for capital requirements – something like the (2011) earthquake and tsunami that we witnessed in Japan. Our industry would very well face an existential threat.”