Canadian insurers failing to price earthquake coverage adequately

The Canadian insurance industry is failing to price quake coverage properly, said Alister Campbell, CEO of Zurich Canada.
Campbell spoke during the panel discussion, ‘Canadian Earthquakes: Preparing for the Big One,’ on Sept. 27 at the National Insurance Conference of Canada (NICC) in Vancouver.
When running a 1-in-390 year event, Zurich’s catastrophe modellers suggest damages from a severe windstorm would cost $5.1 billion, and damages from an earthquake would be more than five times that – at $27.3 billion ($10.7 billion if it’s a quake in British Columbia, and $16.3 billion if it’s a quake in Quebec/Ontario).
Running an exercise like this is tremendously illuminating, he said. When the claims department “settles” the claims theoretically, the damages are often twice what the underwriters had anticipated.
“In the commercial market today, competitive forces have reduced the price for quake cover to zero dollars,” Campbell told delegates. “It’s also not clear to me that our regulatory requirement of a 1-in-390 year event is fully adequate to think about whether each individual carrier is up to it.”
He said losses stemming from sprinkler damage are seldom taken into account, but property losses from sprinkler damage would cost as much as fire following. “From an insured asset basis, I don’t think anyone has that worked into their models yet,” he said.
Also, guaranteed replacement cost coverage offers an “unlimited exposure,” he continued.
“The price of risk is a signal that allows individual consumers and corporations to appropriately trade off between risk and reward,” he said. “We do Canada no favours by inappropriately pricing quake coverage.
“In fact, we are insuring consumers and businesses engage in riskier behaviour than they need to – failing to upgrade the building codes, failing to upgrade their buildings and failing to take appropriate measures to protect their employees.”