How small potatoes from federal budget can help insurers

The federal government’s commitment Tuesday to spend $1 million a year on hazard awareness training – from a total budget of nearly $350 billion – will go a “long way” towards helping Canadians understand property risk, the Insurance Bureau of Canada suggests.

It its 2019-20 budget document tabled Tuesday, the government said it is proposing to spend $5 million over five years, starting the fiscal year beginning Apr. 1, on what it calls “all hazard awareness training.” That money would be used by Public Safety Canada for programs targeting what the feds call “at-risk audiences,” including low-income Canadians, seniors, people with disabilities, recent immigrants and indigenous people.

“A little bit of money can go a long way,” IBC vice president of federal affairs Craig Stewart said Wednesday in an interview. “Our industry views consumer awareness as a fundamental step in emergency management. If Canadians are not aware they are at risk, they are not going to do much to protect themselves.”

In the 2019-20 federal budget, the finance department predicts it will spend $347 billion in the fiscal year ending Mar. 31, with revenues of $332 billion, giving it a deficit next fiscal year of nearly $15 billion. Over the years, the federal government alone has accumulated a debt of about $680 billion, which is more than $20,000 for every man, woman and child.

One measure announced Tuesday is a $151.23 million investment over five years, starting in 2019–20, to improve emergency management.

“This investment will improve Canada’s ability to predict and respond to threats through the use of early warning systems, and enhance our understanding of the nature of the risks posed by floods, wildfires and earthquakes,” Finance Minister Bill Morneau says in the budget document.

IBC is hoping this will improve catastrophe modelling, especially for earthquake and flood, but it is too early to tell exactly how this could improve modelling, added Stewart.

IBC did try to give the industry an idea in 2013 of what earthquakes off the west coast and in Quebec could look like. That was when AIR Worldwide released Study of Impact and the Insurance and Economic Cost of a Major Earthquake in British Columbia and Ontario/Quebec, commissioned by IBC.

In that report, AIR said if a Magnitude 9 quake were to strike off the west coast of B.C. (similar to one that hit in 1700), there could be $34.979 billion in direct losses to commercial and industrial property and another $24.46 billion in direct losses to residential property. The damage in Vancouver to well-built modern buildings would not be severe but the suburbs of Richmond, Delta and Surrey will be worse hit because they are on sandy sediment.

The AIR study needs to be updated because it might overstate the risk a bit, Stewart told Canadian Underwriter Wednesday. He said AIR may have overestimated damage caused by liquefaction of soil in the cities of Surrey and Richmond.

IBC is hoping the $151.23 million investment promised in Tuesday’s budget could also be used to improve flood models.

Some of the digital terrain models used to predict flood risk are 40 years old. “The resolution of those models is fairly coarse,” Stewart said. In some cases, they might show the risk to areas 30 metres square. IBC is hoping to improve that resolution to five by five meters in order to give a better idea of individual property risk.