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Monday, 19 December 2016

Prepare for Disasters and Severe Weather

(Mazdak Moini, VP Commercial Lines & Reinsurance Aviva Canada Inc.)

Aviva Canada, one of the country’s leading property and casualty insurers, is honored to serve over three million customers across Canada and actively support the communities where we work and live.

As one of the leading insurers, we see the devastating impact of severe weather and natural disasters firsthand. According to the Insurance Bureau of Canada’s 2015 Fact Book (page 16), for the past six consecutive years, insured losses caused by large natural catastrophes have been around or over $1 billion. By comparison, insured losses averaged $400 million a year over the 25-year period from 1983 to 2008.

We are committed to preventing damage before it occurs and helping Canadians prepare for unforeseen weather events and natural disasters. That’s why we launched Plan & Protect, a free emergency preparedness app, in partnership with the Institute forCatastrophic Loss Reduction (ICLR).

The app is available to all Canadians, and for every download, we’re donating $5 to the Canadian Red Cross to help communities affected by disasters*

Plan & Protect app features

  • Free to download from the App Store and Google Play.
  • Available in English and French.
  • Access vital information about what to do before, during and after floods, earthquakes, wildfires, winter storms and severe wind.
  • Receive a personalized risk report specific to your location, and customized list of items to include in your 72-hour emergency kit.
  • Get notifications tailored to your emergency needs.
  • Securely store your home and auto insurance information at your fingertips.
  • All content is preloaded and accessible without internet connection. 
You can help us continue to be there for Canadians from coast to coast when they need it most by sharing the app with your colleagues, family and friends!

* For the first 10,000 downloads.

This blog post has been written by Mazdak Moini, who is vice president of Commercial Lines & Reinsurance at Aviva Canada IncMazdak is responsible for leading Canadian and Group-wide strategic initiatives relating to underwriting, pricing, product and capital management, and providing risk management oversight to these activities. 

Mazdak Moini is a panelist/moderator at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the Terrorism Risk: International & Canadian Perspectives and the Disaster Assistance sessions during the conference.

Friday, 9 December 2016

Canada’s $127-Billion-Dollar Disaster

Written by Joanne Kennell, CatIQ

Let’s set the scene: It’s a typical Thursday morning. The city of Vancouver is buzzing with morning commuters. People are lined up at their favourite coffee shop to get their morning caffeine fix, parents are dropping their children off at school, and on-route employees are busily weaving up and down sidewalks on their way to the daily grind. Then it strikes – a magnitude 9.0 earthquake ruptures 75 km from the city. The violently shaking earth crumbles buildings as if they are made of sand. It also cracks and breaks roads making them impassable, and knocks out power across the entire city. People are injured, and homes have been destroyed.

The societal impacts of such an event would be devastating, and the economic impact would be cataclysmic.

(United States Air Force/Wikimedia (Public Domain))

Catastrophic insured losses due to natural disasters, such as flooding, hail, wildfire, etc., have continued to increase in Canada over the past few years.  However, according to a study conducted by The Conference Board of Canada (McIntyre and Desormeaux, 2016), a large earthquake is likely the only event that could bring the industry down. And although such a dramatic event seems impossible here in Canada, according to Natural Resources Canada, there is a 30% chance a major earthquake will strike BC’s West Coast in the next 50 years – a statistic not to be sneezed at!

In order to determine the impact of a major B.C. earthquake, the IBC funded-study stress-tested for an earthquake that could result in more than $30-billion in insured losses – above the amount that the property and causality insurance industry could currently handle. This size of loss equates to a seismic event of magnitude 9 that occurs close to Vancouver. Following an earthquake of this magnitude, insurer failures would likely happen, and because insurance companies are required to back each other’s claims, this practice will collapse if the industry is overwhelmed by claims (Nelson, 2016).

The costs of a major earthquake off the coast of B.C. would not only impact the West Coast but “put the national economy in jeopardy” explains the report. The report considered the cost of destroyed property, deaths, lost jobs, and the struggles involved with rebuilding. Over a 10-year period, the total economic costs would be a mind-boggling $127.5-billion! Compare that to Canada’s costliest insured-loss catastrophe, the Fort McMurray wildfire, which cost nearly $3.6-billion (CatIQ).

The cost breakdown of a major B.C. magnitude 9 earthquake over the 10-year period is as follows:

·         $42-billion – the amount of losses that would be covered by property and causality   insurers
·         $96-billion – if the insurance industry failed as a result of the earthquake, this    
  would be the total loss in gross domestic product, adjusted for inflation
·         $133-billion – consumer spending would decrease by this much as people struggle
  to rebuild their lives
·         43,700 – the number of jobs lost

It is important to note that an earthquake generating losses above the insurance industry’s capacity would be extremely rare. In fact, according to the federal Office of the Superintendent for Financial Institutions, by 2022 there will be sufficient claims-paying capacity for a 1-in-500-year earthquake. However, as realized with Japan in 2011 and New Zealand just a few weeks ago, there is always the possibility that a larger than predicted earthquake could strike. This is why a report focusing on a worse-case scenario is important – it highlights gaps and areas in need of improvement within the Canadian insurance system. It also acts as a reminder that governments need to invest more in earthquake preparedness.

In Canada, there are roughly 4,000 recorded earthquakes each year. However, earthquake damage is not covered by a standard home insurance policy – it can be added on to an existing policy (IBC, 2016). Earthquake insurance covers contents caused by the shaking of the earth. If the shaking of the earth results in a fire (caused by a broken gas main, for example), only the loss or damage from the fire would be covered under a regular insurance policy.

According to IBC, approximately two-thirds of B.C. homeowners have earthquake insurance. However, B.C. is not Canada’s only major fault zone. There is one that lies on the Quebec City – Montreal – Ottawa corridor, and there is a 5-15% chance of a major earthquake impacting this area in the next 50 years. However, only 2% of residents in this zone have earthquake insurance (CBC News, 2016).

David Edington, who studies the rebuilding processes after the major earthquakes in Japan and New Zealand, explained to Metro News Vancouver (Li, 2016) that “[i]t’s a social problem for how you prepare for a low frequency but very high impact disaster.” Especially since B.C. does not experience earthquakes often, and even less occur in the Ontario/Quebec zone.

Pedro Antunes, deputy chief economist at The Conference Board of Canada hopes the results will serve as a wake-up call for policymakers. As the report explains, building codes need to be upgraded, and seismic regulations would save lives. People also need to be more aware of earthquake risks and should be encouraged to consider earthquake insurance coverage, especially in the Quebec City – Montreal – Ottawa corridor (CBC News, 2016).


CBC News. 2016. "Major quake could pose systemic risk to Canada’s financial sector, report says". CBC News Business. URL: http://www.cbc.ca/news/business/earthquake-insurance-report-1.3705332

Insurance Bureau of Canada. 2016. "Earthquake Insurance". URL: http://www.ibc.ca/on/home/types-of-coverage/optional-coverage/earthquake-insurance/

Li, Wanyee. 2016. "Major B.C. earthquake could cost Canadian economy $127.5 billion: report". Metro News Vancouver. URL: http://www.metronews.ca/news/vancouver/2016/11/23/bc-earthquake-to-cost-canada-economy-says-conference-board.html

McIntyre, Jane and Marc Desormeaux. 2016. "Canada’s Earthquake Risk: Macroeconomic Impacts and Systemic Financial Risk". The Conference Board of Canada.

Nelson, Jacqueline. 2016. "Major B.C. earthquake could put ‘national economy in jeopardy’". The Globe and Mail. URL: http://www.theglobeandmail.com/report-on-business/major-bc-earthquake-could-put-national-economy-in-jeopardy/article32969556/

Friday, 2 December 2016

Disaster-Proofing Canada: Learning from Floods and Fires

(Lapo Calamai, Director, Catastrophe Risk and Economic Analysis, Insurance Bureau of Canada (IBC))

Disaster-proofing Canada: Learning from floods and fires

Few Canadians will ever forget the images from May of this year of cars filled with families inching down Highway 63 away from Fort McMurray against a backdrop of flames.

At its peak, the Fort Mac wildfire covered 500,000 hectares – an area larger than Prince Edward Island. Firefighters dubbed it “The Beast.” In the two months before The Beast was brought under control, it destroyed 2,400 homes and buildings, and thousands of vehicles.

Within hours of the event, property and casualty (P&C) insurers activated emergency response plans, and the insurance industry is now responding to 44,000 claims totalling about $3.8 billion, making this the costliest insured disaster in Canadian history.

The wildfire that tore through northern Alberta stands as an important reminder that disaster can strike anywhere, with little warning. And Canada must be ready.

Canadians, governments and businesses can work together to prepare, so that when the worst hits, whether it’s a flood, a fire or an earthquake, those affected will get back on their feet quickly. Insurance Bureau of Canada (IBC) and its members are making it a priority to look ahead and anticipate ways to ensure Canadians are adequately protected. We call this “disaster-proofing Canada.”

Learning from past disasters – From Slave Lake to Fort McMurray

Every disaster holds lessons that can be applied to the next event. Before Fort Mac, Canada’s last large fire also happened in Alberta, in Slave Lake in 2011. Some 400 homes were destroyed – about one quarter of what was lost in Fort McMurray.

Back in Slave Lake, each insurer tackled the debris cleanup individually. But they quickly discovered that this “business-as-usual” approach simply couldn’t work given the scale of disaster: backhoes and bulldozers competing to access the same roads, properties and landfill sites. It wasn’t long before insurers realized that economies of scale and scope needed to be harnessed. The solution? Coordination and cooperation. Not an easy task for an industry made of over 200 highly competitive insurers – but essential nonetheless.

The scale of the task in Fort McMurray was even greater: not 400, but 2,400 homes – the largest number destroyed in any wildfire in Canada’s history. Building on their Slave Lake experience, however, insurers recognized that they needed a coordinated response. The municipality saw the value in coordination as well, but was very sensitive to the need to hire local, considering the tough economic times that the community was already facing before the fire.

IBC helped coordinate action, hiring a project manager to find a local contractor with the experience to handle the cleanup. The result? Today the vast majority of sites – some 98% – have been cleared, and the focus is now on getting ready for rebuilding and restoration come spring. An impressive result to achieve in just about three months given the unprecedented scale of the disaster.

Mitigating the cost of natural disasters through adaptation

While Fort Mac will forever mark the history of our country, it was hardly an isolated event. For several years now, insurers have been witnessing first-hand the growing impact of extreme weather events.

Evidence-based research clearly shows that climate change is contributing to an increase in wildfires, storms, flooding and severe weather activity – even in areas that were previously thought to be “risk-free”. And of all natural disasters, water is no doubt the long-term trend. Data unequivocally points to water-related damage having replaced fire as the number one cause of home insurance losses.

By taking preventive measures, Canadians and their governments can go a long way to protecting themselves, their communities and the national economy from the future impacts of disasters.

With flood being the country’s most frequent and costly disaster, IBC is currently in talks with federal and provincial governments to co-create a national flood strategy – in partnership with likeminded stakeholders in the academic and not-for-profit world.

Governments are well aware of the fiscal pressure generated by increased flooding. Average spending under the federal government’s Disaster Financial Assistance Arrangements (DFAA) – the program that provides reimbursement for large catastrophes – jumped from an average of about $40 million a year in the 1970s to more than $600 million a year in this decade. The Parliamentary Budget Officer (PBO) expects this to increase to over $900 million a year going forward. The vast majority of it – some 80% percent – is due to flood.

With the 2013 southern Alberta floods, DFAA costs reached a record $1.4 billion. This spending came directly out of the Canadian taxpayer’s pocket. In addition to that, the Alberta government incurred another $1.5 billion in disaster assistance costs, bringing the total cost to taxpayers for floods that year to about $3 billion. And this was of course on top of the $1.9 billion shouldered by the insurance industry, and the value of economic activity and production capacity that got wiped out in the process.

A key reason for the cost escalation experienced by governments across Canada is that there is currently no system in place to ensure that all victims of flooding events have adequate financial protection. And Canada is alone among G7 countries in this respect.

Insurance coverage for residential overland flooding has not historically been available in Canada, partially as a result of insufficient flood mapping data. With improvements in underwriting, modelling and risk assessment technology, however, this is now changing. Several insurers today offer residential flood insurance across the country.

Although flood coverage is still a relatively new product, we expect that ultimately it will be available for all but roughly 10% of Canadian homes. That 10% represents the properties at the highest risk of flooding. These homeowners have the greatest need for flood insurance but are unlikely to be able to obtain it without some form of public-private coordination. With risk-based premiums, which are critical for setting proper incentives and nudge consumers towards investment in risk-mitigation, high-risk properties would inevitably face an affordability problem.

As we witnessed this past Thanksgiving in Atlantic Canada, however, we are still a long way from ensuring that every Canadian has access to the financial protection they need to respond to floods. More needs to be done – and government has a critical role to play.

Along with this public-private coordination, IBC is advocating for new investments to make public assets more resilient to extreme weather, updated building codes, more stringent land use policies, individual and community-based home adaptation programs, and a host of flood mitigation initiatives based on both structural flood defences and natural infrastructure.

As Canadians will continue to face an ever increasing number of disasters, we must continue to focus on improving how we respond to help communities like Calgary, High-River or Fort McMurray get back on their feet. We must look forward to how we can adapt and reduce the impact of the next catastrophe. Disaster-proofing Canada demands we do both. 

Written November 30, 2016


This blog post has been written by Lapo Calamai, Director, Catastrophe Risk and Economic Analysis, Insurance Bureau of Canada (IBC). Having joined IBC in 2012, Lapo leads research, analytics and policy development to address some of the industry’s most pressing financial, regulatory and commercial challenges. He also leads IBC’s catastrophe risk management practice, working with governments and insurance executives across Canada to promote sound disaster risk management by leveraging risk transfer and catastrophe insurance and reinsurance solutions.

Lapo Calamai is a panelist at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the Perspectives in Flood Risk Assessment and Mitigation workshop during the conference.