Canada’s P&C industry should be discussing earthquake preparedness with consumers

Property and casualty insurers frequently talk about their financial wherewithal to make claims payments following a major earthquake in Canada, but industry rarely mentions if it is prepared to deliver on the promise underlying its earthquake insurance policies, an audience heard at a June 11 Property Casualty Underwriters Club (PCUC) luncheon in Toronto.

Urs Uhlmann, senior vice president of Zurich Canada’s global corporate segment, made the observation in the context of discussing earthquake risk in the Canadian market.

“If we think of a major event happening in B.C, how are we actually going to deliver if the infrastructure is significantly impaired?” Uhlmann asked. “How are we going to get our customers back into business? I think we should pay more attention to that.

“To me, it’s somewhat astonishing that very rarely do my customers or brokers actually ask me the question: ‘How are you going to deal with a major earthquake in an area where you don’t have power, or if half of your employees are busy getting their own lives together? How are you actually going to handle my claim?’ We don’t get those questions.”

Uhlmann advised brokers to educate their clients to ask these sorts of questions about earthquake exposures. In doing so, they will differentiate themselves as brokers and also cause insurance companies to differentiate themselves in the marketplace.

One reason why insurers may not hear these questions is because consumers don’t know enough about their own earthquake exposures to ask them.

“It seems quite clear that consumers don’t understand the exposure in which they are living, when only 60% of consumers in B.C. buy earthquake insurance and less than 2% of people elsewhere in Canada buy it,” said panelist Justin MacGregor, executive vice president of Martin Merry & Reid Limited. “As an industry, there is a huge communication job to be done. Somehow we have to make people aware of the exposures they are going to be living with. In reality, a lot of them are going to have their lives turned upside down.”

MacGregor added that natural catastrophes such as last year’s earthquake in Japan and flooding in Thailand have brought to light some exposures previously unconsidered. The possibility of contingent business interruption (BI), for example, might cause industries in Manitoba — which is not normally considered a prime market for buying earthquake cover — to consider purchasing parts of earthquake cover to protect against supply chain interruption.

“Canadian businesses in Manitoba that are buying from the Far East could actually prevent contingent BI,” MacGregor said. “We all need to educate brokers and insurance partners alike to educate our customers as to the intricate weavings that are going on within the business environment and how a business in Manitoba should actually be buying an element of earthquake coverage. It may not be for physical damage, but it could be for a supply chain exposure that exists.”

Global preparedness for earthquakes, as expressed in low earthquake insurance takeup, is an issue not just nationally, but globally.

Swiss Re Canada CEO Sharon Ludlow noted 2011 was the worst year for natural catastrophe losses in history. “The numbers that we’ve shown you are $370 billion of economic losses for all kinds of disasters, with earthquake clearly being a significant one,” she said.

“One interesting thing to note is not just the increase in economic losses, but the incredibly increasing gap between the insured and the not-insured losses. We’re showing somewhere north of $100 million insured, and the rest not.

“Our discussion around the world with various governments that have faced earthquakes and other natural catastrophe risks is: How are you going to close that gap? Because we recognize that governments around the world clearly cannot shoulder this burden alone.”