The ‘conundrum’ of how to convince Quebeckers to buy earthquake insurance

It will take insurers an “extended period of time” to convince even one-quarter of Quebec property owners to buy adequate coverage, an industry executive suggests.

Only three to four per cent of homeowners near Quebec City have earthquake coverage, Edouard Schmid, group chief underwriting officer for Swiss Re, said Tuesday during the reinsurer’s 33rd annual Swiss Re breakfast meeting in Toronto.

“It’s a bit of a conundrum” as to why the penetration of earthquake insurance is 3-4% in Quebec, about 60% in British Columbia and 12% in California, Don Forgeron, president and CEO of the Insurance Bureau of Canada, said at the breakfast.

Asked how the industry could get a 25% takeup rate in earthquake insurance in the Quebec City area, Forgeron replied: “I just think awareness is at the heart of it. There is no question there is a lack of awareness in Quebec.”

Swiss Re reported earlier that $45 billion in economic losses could result if Montreal were to be hit with an earthquake measuring 5.8 on the Richter scale, the estimated strength of an earthquake that hit Montreal in 1732.

Eastern Canada was hit in 1663 by a 7.0-magnitude quake, Swiss Re noted.

In a study commissioned by IBC in 2013, AIR Worldwide modelled the effects of two hypothetical earthquakes affecting Canada, one off the west coast and the other a 7.1 magnitude earthquake about 100 km northeast of Quebec City.

Total insured losses in the Quebec scenario were $12.28 billion, but economic losses are modelled at more than $60 billion.

“Modern engineered structures should perform well, but poorly-built masonry buildings in particular will experience serious damage,” AIR wrote at the time. “The historic unreinforced masonry buildings that are so prevalent in Quebec City’s upper and lower towns for example, are particularly at risk.”

Earthquake coverage in Quebec “is not an inexpensive product,” Forgeron said Tuesday during the Swiss Re breakfast meeting. He suggested it will take Canada’s property and casualty insurance industry “quite an extended period of time” to get 25% of Quebec homeowners insured for earthquake.

The total “insurance gap,” which is the difference between annual insured losses and annual economic losses from catastrophes, is US$35 billion in North America alone, Swiss Re reported. “That is not a satisfactory situation,” Schmid said Tuesday.

Worldwide, total economic losses from catastrophes was about US$337 billion in 2017 and the majority of that was not insured, Schmid noted.