Canadian Underwriter April 2021

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RECOVERY

EARTHQUAKE INSURANCE

The fire next time What it would cost to prevent $10 billion in damage due to fires following a B.C. earthquake B Y D AV I D G A M B R I L L , Editor-in-Chief

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ire following a major earthquake in the Lower Mainland of B.C. could cost the Canadian property and casualty insurance industry a median of $10 billion in insured claims, according to a report commissioned by the Institute for Catastrophic Loss Reduction (ICLR).

The price tag could be significantly reduced if local public authorities made three investments that would cost only a fraction of the projected damage tally, the report’s author told Canadian Underwriter in an interview.

In its report, Fire Following Earthquake in the Vancouver Region, ICLR projected what might happen if five modelled earthquakes — all varying in magnitude from 6.8 to 9.0 — struck various regions in and around the Lower Mainland of B.C. “Earthquakes are sometimes followed by major fires, whose damage can greatly exceed the shaking damage,” the author of the study, Charles Scawthorn, wrote.

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April 2021 | Canadian Underwriter

Scawthorn is an internationally renowned authority on the mitigation of natural and technological disasters.

“Accounting for fire department response, water system damage, weather and other conditions, the growth and ultimate final burnt area of fires are estimated to result in losses from nil to $10 billion,” the report states, noting these are median estimates, which vary according to the specific details of the earthquake scenario.

This loss would be virtually fully insured and would have a very significant impact on the Canadian insurance industry.

“Fire losses would come on top of shaking and other losses, which would be insured to a lesser extent,” the report goes on to say. “A leading global reinsurer has stated that losses of this magnitude would likely result in failure of some insurers, would entail secondary and contingent losses, and could conceivably lead to financial contagion.”

These damage estimates could be reduced significantly if Vancouver follows three main recommendations contained in the report, Scawthorn said.

The first recommendation is to develop an integrated regional portable water supply system of hose tenders (basically fire trucks that can carry high-volume hoses) and hose reels, with compatible fittings, that can be used to access alternative water supply sources and relay water to the fireground.

Second, an automatic secondary onsite water supply should be established for sprinklers in high-rise buildings and buildings with floors higher than 75 feet above the lowest level of fire department vehicle access.

And third, there should be a review of the ability to control and isolate the gas transmission and distribution networks in the event of a major earthquake. Plus, the gas distribution operator should