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Canada must prepare for a catastrophic earthquake

Canada must prepare for a catastrophic earthquake

A major earthquake could have devastating consequences – and unfortunately, we’re not ready

Earthquake risk in Canada is real and significant. The Pacific coast sits on the Cascadia Subduction Zone, one of the most volatile fault lines in the world, with scientists estimating a 30% chance of a magnitude 8 or greater earthquake within the next 50 years. Montreal, meanwhile, lies within Quebec's most active seismic zone, which has experienced significant earthquakes in the past.

Canada has a robust capital framework designed to ensure insurers can withstand severe earthquake losses, including a 1-in-500-year event. However, a major yet plausible earthquake could generate losses on a scale that overwhelms industry capacity and creates risks for the broader financial system.

Canada needs to proactively prepare for an event of this magnitude before it happens.

A national risk requires a national solution

IBC and Canada's property and casualty insurance industry are advocating for a national framework to help protect Canadians and Canada's economy from the financial consequences of a catastrophic earthquake.

IBC has proposed the Canadian Earthquake Risk Protection Act (CERPA), a public-private framework that would establish a predictable cost-sharing arrangement between the federal government and the insurance industry in the event of an extreme earthquake,

CERPA is modelled on the U.S. Terrorism Risk Insurance Act (TRIA), which has provided a framework for sharing extreme risk between government and the insurance industry for more than two decades. CERPA draws on the principles of that model while tailoring them to Canada's unique earthquake risk.

The proposed framework would:

  • Protect Canadians and support the continued availability of insurance after a catastrophic earthquake.

  • Strengthen financial stability by helping manage losses from an extreme event.

  • Protect taxpayers through a fiscally responsible approach to federal support.

  • Provide certainty before disaster strikes through a clear, rules-based framework.

Other G7 countries facing similar catastrophic risks already have cost-sharing mechanisms in place, and their experience points to a clear lesson: plan before disaster strikes. Canada is the only G7 country with material earthquake risk without such a cost-sharing mechanism.

The federal government has taken an important step by recognizing the systemic risk a major earthquake poses to Canadians and the economy. Now Canada needs to finish the job by putting a national framework in place that protects Canadians, the financial system and the broader economy before a catastrophic earthquake occurs.