Canada’s property and casualty insurance industry should discuss whether it makes sense to make earthquake coverage mandatory for homeowners or strata corporations, the executive director of the Insurance Brokers Association of B.C. (IBABC) has suggested.
“Despite the current industry-wide (earthquake) EQ accumulation rebalancing, does a greater uptake of EQ coverage – perhaps in some instances a mandatory requirement and therefore greater premiums generated – bring greater stability to the market?” IBABC CEO Chuck Byrne asked in his article published in the December 2012 edition of B.C. Broker.
“Or is there truly an upper ceiling of available capacity?”
Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), has issued guidance recently that caused insurers to reassess their earthquake exposures. OSFI wants insurers and reinsurers to reconsider whether or not they have sufficient capital available to pay claims arising in the event of an earthquake catastrophe.
Byrne noted that until the last catastrophic insurance renewal season, “the general view was, yes, let’s encourage more consumers to buy the coverage.”
In its study of insurance consumers in 2012, J.D. Power & Associates found that only 31% of insurance customers in both the Quebec and Western regions purchase earthquake coverage, while only 10% do so in the Atlantic/Ontario Region.
“Specifically, insurance customers in the province of British Columbia have the highest penetration of earthquake coverage, primarily due to the region's susceptibility to earthquakes,” J.D. Power noted in its study. “However, only 56% of customers in this province state they purchase earthquake insurance.”
Byrne said the industry should discuss the value of requiring mandatory earthquake coverage for both homeowners and strata corporation owners in B.C.
“Many, if not all, credit unions in the province of B.C. require EQ cover to secure and maintain a mortgage,” Byrne wrote. “Should all mortgage lenders make that a requirement?”
Similarly, should there be a requirement for all strata corporations to carry earthquake coverage on their buildings? Byrne asked. The B.C. Strata Property Act regulations include minimum requirements for the building’s insurance policy, but earthquake coverage is not among them.
“In the absence of such a requirement, how many strata unit owners understand the wisdom of having a building bylaw that makes EQ mandatory, so that future strata councils don’t jettison the EQ coverage to save a few dollars?” Byrne wrote. “How many strata owners ensure their unit policy has sufficient deductible coverage for EQ?
“Should strata unit owners be required to carry unit coverage with EQ?”
