Canada will, at some point, experience a catastrophic earthquake in either the Montreal or Vancouver areas. This situation is not hypothetical: the Pacific coast sits on the Cascadia Subduction Zone, one of the most volatile fault lines in the world. Scientists estimate there is about a 30% chance of a magnitude 8 or greater earthquake (“the Big One”) striking within the next 50 years. Montreal lies within Quebec’s most active seismic zone, which has experienced past earthquakes including a magnitude 5.8 earthquake in 1732.
A major earthquake could cause over 11 times more insured losses than Canada’s costliest disaster. The financial fallout would cascade through the economy, immobilize businesses, hollow out communities and strain public finances.
Source: IBC Facts Book, PCS, CatIQ, Swiss Re, Munich Re & Deloitte.
Since 2008, only events that cost $30 million or more in insured losses ($25 million prior to March 2022) are included.
Values in 2024 Canadian dollars, 2024 value is preliminary.
While we can’t prevent an earthquake from happening, we don’t have to be caught off guard.
In its 2025 budget, the federal government committed to consulting the property and casualty (P&C) insurance industry on the risk an extreme earthquake poses to the industry and broader economy.
This was welcome news. The P&C insurance industry has long been calling for a national solution that prevents systemic fallout after a major earthquake. Without such a solution in place, Canadians face an unacceptable level of economic vulnerability to a catastrophic earthquake.
After extensive research and analysis, the P&C industry, through Insurance Bureau of Canada (IBC), has formalized a view on a solution that would protect Canadians, and ensure the resilience of Canada’s financial system and broader economy in the event of an extreme earthquake. In April 2026, IBC submitted the details of this solution through Finance Canada’s earthquake consultation.
The industry’s proposed solution is known as the Canadian Earthquake Risk Protection Act (CERPA), and is modelled on the U.S. Terrorism Risk Insurance Act (TRIA). TRIA has supported stability in the U.S. terrorism insurance market for more than two decades, by establishing a clear framework for sharing extreme tail risk between the government and the insurance industry. Although terrorism and earthquakes present different risk characteristics and market dynamics, TRIA demonstrates how a transparent, rules-based mechanism can reduce systemic risk and prevent market contagion after a catastrophic event. CERPA draws inspiration from these structural principles, while being tailored to the unique characteristics of earthquake risk in Canada.
CERPA would adapt TRIA’s structural principles to the Canadian earthquake context and provide a predictable, fiscally disciplined cost-sharing arrangement that would be triggered only in extreme circumstances. Like TRIA, it is designed to operate on a long-term, cost-neutral basis with no upfront public expenditure, while reinforcing insurer responsibility and preserving appropriate market incentives.
Benefits of the CERPA model include:
Protecting consumers and the broader economy by ensuring the system remains stable after a major earthquake, with a clear framework that enables a steady, predictable recovery and also safeguards access to insurance when it is needed most.
Supporting sound fiscal management through a defined funding cap and other safeguards that preserve the government’s flexibility to respond to competing fiscal pressures.
Achieving long-term cost recovery by requiring the industry to repay any federal support through a temporary post-event premium surcharge, ensuring no upfront cost to taxpayers or consumers at the outset.
Enabling provincial and territorial participation through an opt-in or equivalency approach, allowing provincially regulated insurers to access the framework while respecting provincial jurisdiction over underwriting, pricing, product design and market conduct.
Ensuring stability of the insurance industry by establishing a rules-based framework before a catastrophic event occurs, thus reducing uncertainty for insurers, rating agencies and capital markets.
All other G7 countries that face a similar catastrophic risk already have some form of cost-sharing mechanism in place. Some of these plans were implemented after a major event, and all of the countries that did so advise planning ahead.
The P&C industry has been calling for federal action on systemic earthquake risk for decades. The federal government deserves credit for doing what no previous government had done – acknowledging the risk that earthquake risk poses to Canadians and the Canadian economy, and beginning a formal process to address that risk.
But the work is not yet done. The federal government – equipped with input from the industry and other interested parties – must now determine the type of solution that would best address systemic earthquake risk. IBC and the P&C insurance industry have shared with the government their eagerness and support for a framework that would protect Canadians, the financial system, and the broader economy in the event of an extreme earthquake.
*Estimated earthquake risk from The Conference Board of Canada, Macroeconomic Impacts and Systemic Financial Risk (2016). Values in 2024 Canadian dollars
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