Insurers lowballing PMLs for Vancouver eartbhquake scenario

Individual insurer’s probable maximum loss (PML) estimates for insured earthquake damages in Canada are about four times lower than those calculated by an Insurance Bureau of Canada (IBC) working group, a panelist told the National Insurance Conference of Canada in Montreal.Recent research indicates that an earthquake event in Vancouver similar to that of the 1994 Northbridge event would incur damages of Cdn$28 billion, but only if you ignore several exacerbating factors that would likely take Vancouvers loss well beyond Cdn$30 billion, David Wilmot, chair of the Insurance Bureau of Canada (IBC)s EQ Risk working group, said.
The IBCs working group on earthquake hazard, Wilmot said, has developed a conservative PML estimate for a Vancouver earthquake in the high Cdn$20 billion range for a 500-year event.
In fact, its a very conservative estimate as we move toward a 500-year return period loss, but its a number four-times of that of the PMLs insurers are currently filing with OSFI, he said.
According to IBC research and reports, he explained, there is Cdn$23.2 billion available earthquake capacity.
Panelists also discussed the accuracy of models in predicting losses, noting that insurers are still missing the mark on data that they are feeding into the models, David Lalonde, senior vice president of AIR Worldwide, told the crowd.
He pointed to the fact that post-Katrina, nine out of 10 commercial properties have replacement values that were calculated using out-dated methods, he said, adding that 50% of commercial insurers had no construction or occupancy information for roughly 1/3 of their policies.
Sean Russell, managing director, Guy Carpenter, added that models fail to cover all of the bases in their calculations of replacement costs.
There are a lot of factors that happen in real-life that the models arent taking into consideration, he said, citing the example of government intervention in the settlement of claims.