Insurer withdraws earthquake capacity

A major insurer has withdrawn earthquake capacity for limited sections of Vancouver and Victoria, B.C. Other insurers have reconsidered their earthquake exposures, leading to higher premiums and deductibles. Here's why...

Various factors have led to higher earthquake insurance premiums, deductibles and a withdrawal of earthquake capacity in limited areas of Victoria and Vancouver, although brokers in the area say these events have not led to any coverage availability issues thus far.

Most recently, Economical Insurance and subsidiary Family Insurance Solutions announced to brokers that they would be reducing capacity for earthquake coverage in very limited areas of eastern Victoria (FSAs V8R, V8S, V8T, V8V and V8W) and in the area of the Vancouver International Airport in Richmond (FSA V7B).

“Economical and Family will not accept new personal insurance business in these specific areas effective January 15, 2013,” Economical’s actuary, Linda Goss, confirmed in a statement to Insurance Business. “We will not be renewing personal insurance policies in these specific areas effective June 1, 2013 to give our broker partners a reasonable amount of time to find replacement markets for this business…

“These actions in B.C. do not impact the optional auto product offered by Family Insurance Solutions.”

Drawing attention to this announcement, Square One Insurance in Vancouver, B.C. issued a press release noting that competitors in the area, such as Aviva Canada, Intact Insurance and Wawanesa Insurance, had all increased earthquake insurance premiums and/or deductibles over the past 18 months.

To put this into context, earthquake premiums in B.C. have perhaps been on the low side to begin with, Stan Sauerwein notes in an article published in the December 2012 edition of B.C. Broker, ‘Distant Rumblings.’

“Compared to California, where quakes are more common, B.C. earthquake insurance rates are low,” Sauerwein wrote. “A B.C. house insured for $300,000 would have an annual earthquake premium ranging from $225 to $485. A California house insured for the same amount would have an annual premium of $865.”

Canadian insurers have had to review their earthquake insurance capacity based on a number of factors, as outlined in Sauerwein’s article. Among them:

(1) the increased cost of reinsurance, because there is less reinsurance capacity available after a spate of global storm and earth quake damage;

(2) a revised regulatory earthquake insurance guideline that has caused insurers to recalibrate their PML [probable maximum loss] estimates. These estimates “should properly reflect the total expected ultimate cost to the insurer, including considerations for data quality, non-modelled exposures, model uncertainty and exposures to multiple regions,” according to the Office of the Superintendent of Financial Institutions (OSFI), Canada’s solvency regulator in its updated earthquake insurance guidelines.

As a result, insurers have increased earthquake insurance premiums, deductibles and, in the case of Economical, a limited withdrawal of earthquake capacity in highly exposed areas of B.C.  

Thus far at least, this has not led to any noticeable availability issues. The Insurance Brokers Association of B.C. (IBABC) is not aware of any insurers withdrawing from the earthquake insurance market entirely, and said earthquake insurance rate increases have not been drastic in 2012.

“While we recognize that increases for earthquake rate and deductible are inevitable, we have urged insurers to maintain their market share and make changes in a gradual, incremental manner that assures availability for consumers,” the IBABC said in a statement.

Keep up with the latest news and events

Join our mailing list, it’s free!