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What the regulator found when asking if fire following earthquake is covered in Quebec


February 5, 2020   by Greg Meckbach


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Most Quebec homeowners are covered for fire following earthquake, according to a survey by the province’s regulator, which canvassed about 90% of insurers doing business in Quebec.

The results of the Quebec Autorite des Marches Financiers (AMF) survey indicate that nearly 10% of locations in Quebec are not covered for fire following an earthquake. The result suggests that, depending on policy wording, property damaged by fire after an earthquake might still be covered, despite the fact that the same property lacks an earthquake endorsement. And while only one in 30 buy an earthquake endorsement on their insurance, the earthquake endorsement adds about 16% to the total price of the policy.

Fire following earthquake was a topic of discussion Wednesday at CatIQ Connect, produced by Catastrophe Indices and Quantification Inc. (CatIQ) and held at the Metro Toronto Convention Centre.

“Some insurers automatically include [fire following earthquake] coverage with their basic policies or an endorsement without any additional premium,” AMF senior director Nathalie Sirois said during Canada’s Survival Guide to Overcoming a Major Earthquake, a panel held Wednesday at CatIQ Connect.

Fire can follow an earthquake due to electric shorts, release of gas, spilled chemicals, open flames, candles or industrial processes, said Charles Scawthorn, president of SPA Risk LLC, during the panel. This is exacerbated by the time it takes to discover a fire if a building’s occupants left during an earthquake, as well as the time it can take the fire department to respond if multiple fires follow an earthquake.

One of Scawthorn’s slides showed photos of massive fires in San Francisco in 1906 (following the massive earthquake) and Tokyo following the 1923 earthquake that killed about 140,000.

“The potential for these kinds of disasters has not gone away,” said Scawthorn.

He recently wrote a report for the Institute of Catastrophic Loss Reduction on the risk of massive fires following earthquake in Montreal. Canadian insurers should care about this because for most Montreal properties, fire following earthquake is probably covered. In some scenarios, the report estimates insured losses of $30 billion due to fire following earthquake in Montreal.

Most Quebec insurers told AMF they cover fire following without any additional premium, said Sirois. This corresponds to 65% of the total locations written. But other insurers offer fire following coverage through an endorsement or an additional premium.

For earthquake endorsements on home insurance, the takeup rate for is 3% in Quebec and 40% in British Columbia, said Sirois.

The price can be expressed either as a percentage of the total premium or just a dollar amount.

The average Quebec earthquake endorsement costs an additional 16% in premium or $220 a year. In B.C. it’s 35%, or more than $600 a year, said Sirois.