Major quake could cause large-scale insolvencies across financial sector
Toronto, ON (Nov. 24, 2016) – Today, the Conference Board of Canada released a new report: Canada’s Earthquake Risk: Macroeconomic Impacts and Systemic Financial Risk. The analysis makes it clear that the macroeconomic and financial impacts of a large earthquake in Canada would be devastating. It also highlights the likelihood of large-scale insolvencies across the financial sector resulting from the earthquake, and how these would amplify the earthquake’s impact leading to higher job losses, skyrocketing budget deficits and lower economic growth.
“Preparing Canada for an inevitable earthquake is a priority for our industry because we recognize this is a national social and economic threat,” said Don Forgeron, President and CEO, Insurance Bureau of Canada (IBC). “While we cannot stop an earthquake, the private sector, governments and Canadians must all work together to make sure we are adequately prepared. Under the current regulatory framework, a major earthquake in British Columbia would lead to a chain of insolvencies not only in insurance, but across the financial services sector. This would generate massive losses in Canada’s overall economy.
The report states that, in the absence of measures to prevent financial contagion, the fiscal impact for federal and provincial governments would nearly double, adding $122 billion in net new debt to government coffers. Economic growth is expected to halve in the aftermath of the earthquake, leading to a cumulative GDP loss of nearly $100 billion and 43,700 jobs lost over the 10-year horizon.
IBC supports the report’s findings and is committed to working with the federal government to address this important issue. “We agree that both the government and the P&C insurance industry have a role to play to mitigate the risk of exceptionally rare, but also potentially very costly, disasters,” added Forgeron. “Natural Resources Canada pegs the probability of a large earthquake in British Columbia at 30% over the next 50 years – and that makes the urgency of addressing this issue paramount.”
On average, the Geological Survey of Canada records and locates over 4,000 earthquakes in Canada each year. That is about 11 per day. Of these 4,000 quakes, only about 50 are generally felt. Experts predict that there is a 30% chance that a major earthquake will strike Canada at some point over the next 50 years. Despite the relatively high likelihood of an earthquake in the next 50 years, a 2014 poll commissioned by IBC showed that most Canadians living in earthquake zones do not think an earthquake is likely to hit their area during that time.
About Insurance Bureau of Canada
Insurance Bureau of Canada (IBC) is the national industry association representing Canada’s private home, auto and business insurers. Its member companies make up 90% of the property and casualty (P&C) insurance market in Canada. For more than 50 years, IBC has worked with governments across the country to help make affordable home, auto and business insurance available for all Canadians. IBC supports the vision of consumers and governments trusting, valuing and supporting the private P&C insurance industry. It champions key issues and helps educate consumers on how best to protect their homes, cars, businesses and properties.
P&C insurance touches the lives of nearly every Canadian and plays a critical role in keeping businesses safe and the Canadian economy strong. It employs more than 120,000 Canadians, pays $8.2 billion in taxes and has a total premium base of $49 billion.
For media releases and more information, visit IBC’s Media Centre at www.ibc.ca.