Insurers should be able to offer comprehensive earthquake, fire following coverage: Fraser Institute

Allowing Canadian insurers to offer comprehensive coverage for ground shaking due to an earthquake and fire following an earthquake will prevent problems of the type that U.S. insureds faced following Hurricane Katrina, the Fraser Institute contends.
In its report, Preventing a Disaster after a Disaster: Lessons for Canada from US Experience, the institute examines the coverage disputes that resulted from Hurricane Katrina. In the United States, a typical homeowner’s policy includes coverage for damages resulting from wind, but excludes flooding from surface water or storm surges resulting from a hurricane.
Determining the extent of damage from each peril is difficult and led to many disputes between policyholders and their insurers, and between regulators and insurers over the validity of such an exclusion, the Fraser Institute report notes.
The report’s authors reference this event in discussing Canada’s biggest natural catastrophe risk – a major earthquake in eastern or western Canada.
In Alberta and B.C., the perils of earthquake shake and fire-following are separated in the respective provincial insurance legislation, the Fraser Institute notes. Coverage for following earthquakes exists in a typical homeowner policy, but coverage for ground shaking is excluded.
“The experience in the U.S. following Hurricane Katrina shows that the Alberta and B.C. government approaches to earthquake risk could have disturbing consequences should a major earthquake occur that leads to significant damages from both fire and the ground shaking,” the report says.
The most significant concern is that payments of claims to consumers will be delayed when the cause of damage is not evidently clear.
“The sheer volume of claims and infrastructure damage after a disaster can create challenges for insurers in resolving claims expeditiously and cost effectively – but public policies that minimize coverage disputes will ease the process,” the report says.
“The lesson from Hurricane Katrina is clear. Splitting insurance coverage for a natural disaster should be avoided where possible. There are circumstances where this may not be avoidable, such as where a peril, such as flooding, is uninsurable. However, this is not the case for earthquake risk in Canada.”