Canadian Underwriter

PACICC Study Asks “How Big is Too Big?” for Systemic Risk to the Industry

May 12, 2021   by Property and Casualty Insurance Compensation Corporation

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TORONTO, ON, MAY 12, 2021/insPRESS/ — The Property and Casualty Insurance Compensation Corporation (PACICC) has released the latest study in its ongoing Why Insurers Fail research series ‒ an update to the Property and Casualty (P&C) Insurance Industry Model ‒ entitled, “How Big is Too Big? The Tipping Point for Systemic Failure.

The study, authored by PACICC Chief Economist Grant Kelly, examines the threshold above which some form of catastrophic, tail-risk event (e.g. earthquake, grid failure, asteroid strike) would trigger the systemic collapse of Canada’s P&C insurance industry. Using information about the state of the industry in 2019, the report establishes, as accurately as possible, the ‘tipping point’ for systemic failure of the industry.

Alister Campbell, PACICC President and CEO notes the importance of this new study. “Our research makes clear that while the Canadian P&C industry is well-capitalized and prudently reinsured, there remains a definable limit to the capacity of Canada’s private insurance system. The COVID-19 pandemic has powerfully illustrated the merits of having an “in-case-of-emergency-break-glass” plan developed, in advance, for worst-case scenarios. This important research finding amplifies the urgent need for a federal backstop mechanism to protect Canadians from the impact of a particularly severe tail-risk event.”

Says Grant Kelly, “Our modelling shows that Canada’s P&C insurers can readily respond to a large disaster resulting in insurance claims up to $30 billion, with no expected impact on the solvency of well-run, healthy insurance companies. This level of preparedness is seven-times larger than any catastrophe ever experienced in Canada, and likely greater than any other country around the world.” However, the author cautions about the danger beyond this point. “From $30 up to $35 billion of insured losses, we would likely see multiple insurers fail and, if claims exceeded $35 billion ‒ we would reach the ‘tipping point’ and massive losses would completely overwhelm the capacity of the industry to respond.”

Campbell notes, “PACICC was not designed to protect insurance consumers from this magnitude of risk. At this level of catastrophe, the Canadian economy could be permanently damaged.” He adds that “new research from Natural Resources Canada and the Institute for Catastrophic Loss Reduction shows that this danger threshold is closer than we would like. It is time for government action to put a backstop mechanism in place.”

Copies of all Why Insurers Fail studies are available on the PACICC website (

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PACICC is the industry-funded, non-profit resolution authority for Canada’s Property and Casualty (P&C) insurance industry. PACICC’s mission is to protect eligible policyholders from undue financial loss in the event that a Member Insurer becomes insolvent. The Corporation works to minimize the costs of insurer insolvencies and seeks to maintain a high level of consumer and business confidence in Canada’s P&C insurance industry through the financial protection it provides to policyholders.

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