Earthquake Risk and Insurance B.C. Construction Round Table Seminar June 23, 2011 Lindsay Olson Vice-President BC, SK, MB Order of Presentation Canada s P&C Insurance Industry Canadian Earthquake Risk and Insurance Recent Natural Disasters Earthquake Costs Earthquake Management in Canada Lessons Learned BC B.C. Shake Out Going Forward 2 1
Canada s P&C Insurance Industry Canada s private home, car and business insurers Insurance Bureau of Canada (IBC) is the national industry association, with member companies representing 90% of the property and casualty (P&C) insurance market in Canada The P&C insurance industry: employed over 114,000 Canadians in 2010 paid more than $7 billion in taxes to the federal, provincial and municipal governments in 2009 paid over $27 billion in claims in 2010 3 What We Do P&C insurance underpins the country s economy by assuming part of the financial risk of running a business, driving a car or owning a home At IBC we: Promote competition for consumer choice Promote preparedness to limit risk Promote safety on the road, water and at home 4 2
Earthquake Risk in Canada 5 Earthquake Effects Primary effect: Ground motion caused by seismic waves Secondary effects: Fire following earthquake Landslide Tsunami Liquefaction 6 3
Earthquake Insurance in Canada In Canada, consumers have access to two types of earthquake coverage: 1. Fire following earthquake Part of home and business property policies 2. Shake Endorsement Typically covers damage due to earth movement including landslide, lid volcanic eruption and liquefaction 7 Public Attitude Toward Earthquake Insurance in B.C. In 2000, the British Columbia Ministry of Finance and Corporate Relations commissioned a survey of public attitudes towards earthquake insurance. Earthquake Insurance Coverage Approximately 50% of households had earthquake insurance coverage Homeowners were over three times as likely as tenants to have purchased earthquake insurance Earthquake Proofing 15% of households in high-risk areas had earthquake-proofed their home Role of Provincial Governments 50% of home insurance decision-makers believed that the provincial government had at least some role to play in compensating for earthquake damage to private homes 8 4
Estimates of Earthquake Losses in B.C. 1992 Munich RE Earthquake Study Lower Mainland of British Columbia Scenario earthquake event with a return period in the range of 500 years located in the Strait of Georgia Estimated total direct and indirect losses of $14.3- $32.1 billion 2007 Fire Following Earthquake Study Comprehensive assessment of the risk to properties, buildings and structures for fire following earthquake Estimated $2.8 billion in total property losses due to fire following earthquake 9 Recent Natural Disasters Overall Losses, US$ billions 30 25 20 15 10 5 0 Costliest Natural Catastrophes (2010 & Q1 2011), Ranked by Cost of Economic Losses Earthquake Other 3.9 3.9 co e Karl Mexic Hurricane Ch hina Flo ods e torm 6.1 6.5 a Europ Winter St Xynthi New Zeala and Quake 20 010 8.0 8.0 Ch hina Flo ods ti uake Hait Earthqu *M unich Re estimate as of M arch 2011 **M idpoint of RM S estimated insured loss range of $200 b to $300 b as of April 2011. Source: IBC with data from Geo Risks Research, NatCatService, M unich Re 9.5 stan ods Pakis Floo 20.0 land 011* New Zeal Quake 20 30.0 e uake Chil Earthqu 250 Japan Earthqua ake** 10 5
Earthquake Costs Costliest Earthquakes (1994 2011): Ranked by Cost of Insured Losses 250 100 in US$ billion, at original estimat tes 40 35 30 25 20 15 10 Insured Economic 44 5 0 Taiwan (1999) Japan (2004) South Asia (2004) Japan (1995) New Zealand (2010) Chile (2010) New Zealand (2011)* USA (1994) Japan (2011)** Source: IBC with data from Munich Re *Munich Re estimate as of March 2011 **Midpoint of RMS estimated insured loss range of $200 b to $300 b as of April 2011. 11 Factors Influencing Earthquake Costs Increased population density and urbanisation in or near seismically active regions Greater concentration of insured properties in earthquake zones Vulnerable infrastructure, inadequate building codes and older buildings 12 6
Management of Earthquake Risk in Canada IBC and the federal regulator (OSFI) worked together to develop the 1998 Earthquake Guideline B-9 Earthquake Guideline B-9 assess the industry s capacity to handle insurance losses from a major earthquake 2009 results indicate that Earthquake Guideline B-9 has in fact increased insurer earthquake capacity Most insurers are prepared for a 380-year earthquake Many are prepared for a 500-year earthquake IBC and OSFI are currently updating the earthquake Guideline to reflect changing context 13 Haiti vs. Chile 14 7
Haiti 7.0 magnitude earthquake Over 200,000 killed and thousands injured Lessons Learned Prevention, building standards and disaster management remain a challenge Very low private insurance penetration Chile 8.8 magnitude earthquake Modern and strict building codes help prevent more fatalities For the most part losses from property resulted from non- structural elements Following tsunami resulted in increased losses Soil conditions where a factor Large business interruption claims 15 New Zealand vs. Japan; Lessons Learned New Zealand (2010 & 2011) Earthquake occurred along previously unknown fault system Non-structural damage played a major part Historic buildings of unreinforced masonry in the city centre suffered significant damage Widespread soil liquefaction Japan 9.0 magnitude earthquake Liquefaction and landsliding ld was widely reported Destructive tsunami Nuclear disaster International impacts 16 8
The Best Lesson: Surprises Will Happen The strength and location of the earthquakes in Haiti and Chile were predicted but not when the earthquake would strike Seismologists in New Zealand were surprised by the location of the earthquake that hit Christchurch In Japan, a magnitude of 9.0 was not anticipated: 8.2 was predicted d 17 January 2011 Great B.C. Shake Out First year of The Great British Columbia ShakeOut A drill designed to educate the public about how to protect themselves during a large earthquake, and how to get prepared Modelled after The Great California ShakeOut Drop, Cover, and Hold On IBC was a gold sponsor Extremely successful Over 470,000 participants Schools, workplaces Next event October 20, 2011 18 9
Going Forward Shared Responsibility Strengthen building codes and retrofit measures Build on existing emergency preparedness programs (e.g. B.C. Shake Out) Promote uptake of earthquake insurance Continue to ensure industry has the capacity to cover earthquake insurance exposure Ensure governments are prepared to meet economic costs / disaster response 19 Questions? 20 10