The insurance industry and government are stuck in a dangerous state of inertia when it comes to tackling earthquake risk, Sen. Scott Tannas warned at this year’s Canadian Insurance Financial Forum in Toronto. The founder and vice chairman of Western Financial Group said the issue of earthquake is hanging over the heads of p&c insurers — and there is evidence that the issue threatens the entire financial system. Although the quake risk areas are concentrated in Quebec and B.C., a catastrophic earthquake could cause widespread economic damage. “The odds are pretty good that this will happen in the next 50 years,” Sen. Tannas said. “In aggregate, the total industry could handle a $20bn event, where insurers are prepared with capital and reinsurance today (but) it also appears that at $30bn to $35bn, widespread insurer default can happen and the contagion would spread through the Property and Casualty Insurance Compensation Corp. to surviving insurers. “Higher numbers would bring contagion to Canadian banks, to businesses, to the national economy.” Although several studies have outlined the scope of a catastrophic earthquake, all but one omitted recommendations on how to tackle the issue, Sen. Tannas said. He said last fall’s C.D. Howe Institute Report, penned by former superintendent of financial institutions Nicholas Le Pan, spelled out that a federal backstop will be needed to prevent insurer insolvencies and other financial services failures. But the recommendations stopped there. “I submit that this situation is the perfect recipe for many more years of talk, study and inaction,” Sen. Tannas said. “Our current situation features prominently the most beguiling force for inaction: the ability to procrastinate.” He said while there have been unconfirmed reports that earthquake risk and solutions will be considered as part of the 2019 federal financial regulatory review, the industry should not hold its breath — because the review coincides with the next federal election. “Instead it will fall to a new government which will be fresh from a campaign trail with promises to fulfil and a bold and exciting agenda to implement,” Sen. Tannas said. In any event, he said, the federal government will never prepare for the financial consequences of a massive earthquake unless the insurance industry does the legwork. In other words, the onus falls on the industry to fashion a solution it can bring to the government. “I don’t think we’ll ever see a solution if we wait for the government to actively solve this problem for us, it’s that simple,” Sen. Tannas said. He proposed a five-part plan that, if followed, would bring this issue to the national agenda.

More coverage of Sen. Tannas’ address and the Canadian Insurance Financial Forum is presented in Thompson’s June 5 weekly edition. Email mpub@rogers.com or use the ‘subscribe’ tab for a copy or to subscribe.