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).

References

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/

Looking at Natural Ecosystems for Disaster Risk Reduction

(Dr. Liette Vasseur, UNESCO Chair in Community Sustainability: from Local to Global

Brock University)

Disaster risk reduction includes diverse practices that aim to reduce impacts on social-ecological systems. These practices are not only linked to reducing the risks of natural hazards occurring but they also focus on planning and acting on social and ecological systems in order for societies to withstand hazards. The current unsustainable planning and development in many systems have led to degraded ecosystems that have increased vulnerabilities of communities across the world. At stated in the Millennium Ecosystem Assessment report (2005, p. 46): “Changes to ecosystems have contributed to a significant rise in the number of floods and major wild fires on all continents since the 1940s”. Canada is no exception. Developed and developing countries are all vulnerable when ecosystems are too degraded to contribute to protection against natural disasters.

It is increasingly recognized that the protection of natural ecosystems with appropriate ecosystem-based management can greatly contribute to reducing disaster risks. Indeed, the 2009 and 2011 Global Assessment Reports on Disaster Reduction (UNISDR) state that one of the major drivers of risk is the degradation of natural ecosystems. In their reports and furthermore in the IPCC Special Report on Extreme Events (IPCC 2012), they call for enhancing protection of natural ecosystems to improve ecosystems regulating services. 

In a coupled human-environment system, concepts of vulnerability, resilience, and adaptation are closely linked to how the ecosystem is working in terms of functions and services. This is also true for DRR where healthy ecosystems can improve the capacity of a community to respond and recover from a disaster in a short period of time (Zhou et al. 2010). What it implies is that a system where resilience is improved and vulnerability reduced, communities are also more resilient to disasters.  

The International Union for Conservation of Nature (IUCN) has been promoting the use of ecosystem-based DRR (Eco-DRR) and this approach can be coupled with ecosystem-based adaptation (EbA). Both approaches have been useful to provide increased sustainable ecosystem services through the use of appropriate ecosystem management. Such strategies have been the promotion of protected areas (from national parks to small urban parks) to help reduce risks.  Both Eco-DRR and EbA have been shown to reduce vulnerability of communities and enhance resilience (Colls et al. 2009). Japan, for example, has learned from the 2011 earthquake and tsunami by initiating the Sanriku Fukko Reconstruction Park where existing national parks along the Pacific coast where the tsunami occurred are being linked (Ministry of Environment, Japan 2014) as a strategy to protect for future similar events.

Many examples can be found where protection of natural ecosystems has been effective Eco-DRR and EbA. In Southern Ontario, projections are the droughts may become more frequent. A combined approach to this natural disaster and an adaptation to conditions that farmers will have to increasingly experience has been the restoration of pasture land into tall grass prairies. The Alternative Land Use Services (ALUS) is a group that has been promoting such a strategy. It is a community-based, farmer-delivered program that enhances ecosystem services that in turn ensures clean water, erosion, and flood control among others. Such approaches demonstrate the need for communities to better understand their natural ecosystems and define which ecosystem management strategies can contribute to Eco-DRR and EbA. They are generally less costly than engineered solutions and more sustainable in the long term.

References

Colls, N. Ash, and N. Ikkala (2009) Ecosystem-based Adaptation: a natural response to climate change. Gland, Switzerland: IUCN. 16 pp.

IPCC (2012) Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation. A Special Report of Working Groups I and II of the Intergovernmental Panel on Climate Change [Field, C., Barros, V., Stocker T., Qin, D., Dokken, D., Ebi, K. Mastrandrea, M., Mach, K., Plattner G-K., Allen, S., Tignor, M and Midgley, P (eds)], Cambridge University Press, Cambridge, UK, and New York, 582 pp.

Millenium Ecosystem Assessment. (2005) Ecosystems and Human Well-being: Synthesis. Island Press, Washington DC. 155 pp.

Ministry of Environment, Japan (2014)  http://www.iucn.org/knowledge/focus/asiaparkscongress/?13969/

New-park-rises-from-the-ashes-of-the-Great-Eastern-Japan-Earthquake-and-tsunami

UNISDR (2009) – Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: United Nations International Strategy for Disaster Reduction. http://www.preventionweb.net/english/hyogo/gar/report/index.php?id=9413

UNISDR (2011) - Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: United Nations International Strategy for Disaster Reduction. http://www.preventionweb.net/english/hyogo/gar/2011/en/home/index.html

Zhou H, Wang J, Wan J et al (2010) Resilience to natural hazards: a geographic perspective. Nat Hazards 53: 21–41.

This blog post has been written by Dr. Liette Vasseur, who holds the UNESCO Chair in Community Sustainability: from Local to Global at Brock University. She currently leads the thematic group on Climate Change Adaptation of the Commission for Ecosystem Management of the International Union for Conservationof Nature.

Dr. Liette Vasseur is a panelist at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the Societal Impacts session during the conference.