Earthquake is an issue in Québec, which is why IBC has been addressing it for several years.
The low earthquake endorsement subscription rate, up only 1% over the past five years, is a major concern. Thus, only 4.19% of policyholders in 2018 held insurance for damage resulting from a quake.
Based on our observations, two main reasons account for the low rate: Quebecers’ low perception of risk and the high cost of insurance.
Note that a higher percentage of policyholders, estimated at about 85%, are insured for damage resulting from a fire following a quake.
Earthquake endorsement
In 2017, IBC revised the earthquake endorsement to make it more flexible. The new form allows policyholders to choose which belongings they wish to protect, as well as the coverage amounts. The settlement terms and conditions offer policyholders more options, should they have to rebuild elsewhere or if the damage exceeds coverage amounts.
Find out more: Earthquake Endorsement [PDF]
IBC representations to governments
The earthquake issue remains a topic of ongoing discussions between IBC and the Québec and Canadian governments, which remain concerned about the low policyholder subscription rate for earthquake coverage.
Therefore, IBC believes that governments must play a more active role in awareness activities among the population. This support is key if we really want to change the way risk is perceived by citizens in a meaningful way.
Autorité des marchés financiers (AMF) set up a working group to study the issue (insurance coverage, compensation programs elsewhere in the world). IBC is awaiting the group’s conclusions with interest to find out what the government’s intentions and recommendations are on this issue.
Obligations of insurers
The significant financial consequences of an earthquake in Canada for insurers and, by extension, the population, are a major issue when it comes to earthquake risk.
Under the current legislation, by 2022 insurers will have to have the capital needed to cover damage to insured property following a 1-in-500-year event. This represents an amount equivalent to $30 billion.
The objective of the current representations with the federal government is to reach an agreement whereby a financial mechanism would guarantee the solvency of the industry, if a quake greater than a 1-in-500-year event were to occur, or in the case of several earthquakes during a shorter sequence.
A number of proposals were made to the government. The option currently under study looks at how the Property and Casualty Insurance Compensation Corporation (PACICC) works, to make it more flexible in case of a major catastrophe. Discussions are also ongoing regarding the possibility of financial assistance from the government in the event certain insurance companies become insolvent.
IBC is continuing its representations to find a solution that factors in the concerns of both the industry and government.