Governments, insurers need to educate Canadians about earthquake disaster recovery: Swiss Re

Canadian property and casualty insurers need to collaborate with Canadian governments to paint a kind of ‘pre-Day of Reckoning’ picture of what earthquake damage might look like, in order to better inform Canadians about the role of insurance in reconstruction efforts.

Also, governments need to spell out clearly to Canadians the financial commitment they are prepared to make in earthquake disaster recovery efforts. This will allow consumers to make more informed choices about whether or not to purchase earthquake insurance coverage.

In a meeting with reporters after the Swiss Re Canadian Insurance Outlook Breakfast on Mar. 29 in Toronto, Swiss Re executives raised these points when asked what more insurers could do to improve earthquake insurance take-up rates throughout the country.

In B.C., earthquake insurance take-up rates are in the range of between 40% and 50%, depending on the location within the province. In Ontario and Quebec, also at risk of experiencing a major earthquake, the rates are 10% or lower.

Eric Smith, president and CEO of Swiss Re Americas, says insurers in Canada need to work with the government to paint a picture of what it is going to be like if something really bad happens.

“Unfortunately, there are just too many consumers that just push [the prospect of an earthquake] off to the side,” Smith said. “And when they put it off, they just assume the government is going to sweep in and put everything back to normal.

“There needs to be a pre-Day of Reckoning. The government has to sit down and communicate to people: ‘This can happen. And if it does happen, this is what the aftermath is going to be. And this is the role the government is going to play, and that’s it.”

Smith replied “absolutely” when asked if governments could help the public education efforts by clearly identifying the financial commitment they are prepared to make towards disaster recovery after an earthquake.

But whether or not a consumer decides to purchase earthquake insurance, “you’ve got to have a plan,” Smith said. “So many people don’t have a plan. They just ignore it. They think some magical person is going to come in and put them back together again.”

Even if some people buy earthquake insurance, but others don’t, that will have an effect on disaster recovery, observed Thomas Holzheu, chief economist of Swiss Re North America.

“It’s a societal question, too,” Holzheu said. “If whole neighbourhoods get destroyed, if you are insured, but your neighbours aren’t, the whole value will still be destroyed. There will be no jobs in the neighbourhood. We saw it happen in Hurricane Katrina. It was a different peril, but the same question: If the neighbourhood is not insured, it doesn’t get rebuilt. These are questions where you have to collaborate to find solutions.”

Sharon Ludlow, president and CEO of Swiss Re Canada, promoted insurer-government public education efforts in her morning address to the breakfast meeting.

“In Canada more than 4,000 earthquakes are recorded every year, according to a report from the Institute for Catastrophic Loss Reduction (ICLR), and it is an uncomfortable reality that one day Vancouver, Montreal or Ottawa will likely be hit by a major earthquake,” she said. “We believe that we need to be prepared to address this risk. In that vein, we applaud the IBC’s decision to make earthquake preparedness a priority in its strategic plan. And we acknowledge OSFI’s initiative already underway to review EQ Guideline B-9.”

Guideline B-9 outlines risk factors and loss estimation factors to be considered in estimating probable maximum losses arising out of a devastating earthquake.