Get ready for an earthquake in Eastern Canada, experts warn insurance industry

Much of the discussion about earthquake risk in Canada has centred on British Columbia, but speakers at a seminar Monday warned insurers to also consider their ability to respond to a tremor in Quebec and Eastern Ontario.

“I don’t think we spend enough time in Canada looking at the impact of an Eastern Canada quake,” said Carol Jardine, an independent insurance consultant who was previously senior vice president of claims services at TD Insurance.

“Everyone is focussed on B.C.”

Jardine — a former president and chief operating officer of both Canadian Northern Shield Insurance Company in BC., and CUMIS General Insurance Company — made her comments Monday at an earthquake response seminar, held in Toronto by independent claims adjusting firm Catastrophe Response Unit (CRU).

Also speaking was Dr. Kristy Tiampo, a professor who teaches geophysical modeling methods at Western University’s department of earth sciences in London, Ont. Tiampo also works with the Institute for Catastrophic Loss Reduction (ICLR), which is affiliated with Western and aims to educate property owners on how to reduce risk from hazards including wildfire, wind, flood and earthquake.

“Montreal and Ottawa are both at significant risk of ground shaking,” said Tiampo, noting both cities are the sites of previous earthquakes measuring around 6 on the Richter scale.

A 2011 earthquake in Christchurch, New Zealand, which measured 6.3 on the Richter scale, killed 183, Tiampo added.

Both Tiampo and Jardine referred to a report released in October 2013 – titled Study of Impact and the Insurance and Economic Cost of a Major Earthquake in British Columbia and Ontario/Québec – which was commissioned by the Insurance Bureau of Canada.

In that report, AIR Worldwide modelled the effects of two hypothetical earthquakes. One, called the Western Cascadia Subduction Scenario, is a Magnitude 9.0 quake 75 kilometres off the west coast of Vancouver Island. The other – called the Eastern Charlevoix Crustal Scenario – is 7.1 on the Richter scale and occurs under the St. Lawrence River,  nearly 100 km northeast of Quebec City.

In the eastern scenario, AIR’s model predicted total direct losses of $49.2 billion and indirect losses of $11.336 billion.

“Because the epicentre of the earthquake is so close to it, Québec City and its environs experiences more violent shaking than Vancouver does in its scenario,” AIR Worldwide wrote at the time. “Modern engineered structures should perform well, but poorly-built masonry buildings in particular will experience serious damage. The historic unreinforced masonry buildings that are so prevalent in Québec City’s upper and lower towns for example, are particularly at risk.”

Total insured losses in the Eastern Charlevoix crustal scenario are $12.28 billion.

“We often look at the biggest events or those events which occur most infrequently like the Charlevoix event or the (Western Cascadia) subduction event,” Tiampo said. “But what happens if we start to look at earthquakes that occur a little bit more frequently? They might be a little but smaller but they still have a significant likelihood of occurrence.”

Jardine echoed Tiampa’s comments.

“Let’s recognize that if it’s not the big one, it will be some form of earthquake will strike in our lifetimes in this country and we have to move from hoping it doesn’t happen to recognizing that it will,” she said. “It’s just a matter of what day, and let’s get ready. Let’s not embarrass ourselves like we have in other events with not being prepared when our customers expect us to be prepared.”

Jardine noted that contingency plans are addressed by the Office of the Superintendent of Financial Institutions (OSFI) in its Earthquake Exposure Sound Practices (Guideline B-9), which took effect Jan 1.

Guideline B-9 stipulates that carriers must have “contingency plans in place to ensure continued efficient business operations.” Those contingency plans, OSFI says, “should address the key elements of claims management,” including emergency communications links and availability of adjusters, among other things.

“They didn’t just say you had to have capital available,” Jardine said of OSFI. “They actually said you had to be prepared to respond, you need a contingency plan.”

She explained why claims officers should be concerned about contingency plans.

“Do we have the key elements of claim management? If the (first notice of loss) phones are ringing, if the earthquake just occurred, do you have the engineers? Do you know where to get power? Do you know where to get satellite phones? Do you understand how your organization needs to pick up and go immediately?”

In the Western Cascadia subduction scenario, AIR predicted $60 billion in direct economic losses to properties and $1.89 billion in indirect economic losses to infrastructure in British Columbia. Total insured losses were pegged at $20.4 billion. AIR predicted “light to moderate damage” to terminals, towers and hangars at Vancouver International Airport.

It was these predictions about airport damage surprised Jardine, she suggested Monday.

“When you look at the (Western Cascadia subduction) scenario, it’s going to be ground shaking, it will cause masonry to collapse, fires, landslides and business interruption and liquefaction,” Jardine said. “It’s everything that we expect it be. What surprised me in this example was they said the airports are going to be operational. I will be really surprised if (Vancouver International) airport out in Richmond survives.”