Major B.C. earthquake could cost Canadian economy $127.5 billion: report
Federal government backing for insurance companies would mitigate economic losses says Conference Board of Canada
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A large B.C. earthquake could trigger years of national economic loss, according to a new report from the Conference Board of Canada, but at least one earthquake expert is sceptical of the finding.
The total economic cost of a 9.0 magnitude earthquake would be a staggering $127.5 billion, according to the Conference Board, a not-for-profit research group. It says the federal government can mitigate this damage by backing insurance companies against this type of catastrophic natural disaster.
The Conference Board’s deputy chief economist hopes this report serves as a wakeup call for policymakers.
“The objective is not alarmist but really just to say there is a chance that something like this can happen sooner or later,” said Pedro Antunes.
“The issue is that the way the current [insurance] system is in place, it backstops itself. If you’ve got a situation where the total claims are greater than what the industry can handle, then that system actually causes the whole thing to unravel.”
Insurance companies are currently required to back each other’s claims so that if one goes bankrupt, its clients are still covered. But that model will fall through if the whole industry is overwhelmed by claims, which will happen if a 9.0 magnitude earthquake hits the Lower Mainland, said Antunes.
The insurance industry is currently able to cover $30 to $35 billion worth of damages, but a catastrophic earthquake could result in as much as $42 billion worth in claims, he said.
Putting that number in perspective, the Fort McMurray wildfire was worth about $3.6 billion in insurance claims, according to the Insurance Bureau of Canada.
The Conference Board report states there is a one-in-three chance a 9.0 magnitude earthquake could hit B.C. in the next 50 years.
Given current levels of preparedness, that earthquake could cause stock markets to tumble and lead to long-term economic downturn, warned Antunes. The report calls this phenomenon financial contagion.
A 9.0 earthquake would cause this:
- 43,700 jobs lost over a 10-year period
- $42 billion paid out by insurers for damages
- $96 billion cumulative loss in GDP after 10-years
- $122 billion federal and provincial government spending
Source: Conference Board of Canada
But at least one earthquake expert calls the Conference Board’s estimate “pessimistic.”
David Edgington studies the rebuilding process after major earthquakes in Japan and New Zealand, and says one earthquake, although deadly, would not affect Canada’s whole economy.
“I’ve been in Japan, looking at the reconstruction after the 2011 tsunami and the 1995 earthquake in Kobe. The markets thought just one part of the country going under wasn’t the end of the world,” said the UBC human geography professor.
But like Antunes, Edgington was quick to add the report is a good reminder that governments need to invest more in earthquake preparedness. It’s a problem B.C. – a region that does not experience earthquakes often – struggles with, he said.
“It’s a social problem for how you prepare for a low frequency but very high impact disaster.”
Basic things like upgrading building codes and seismic regulations would go a long way to saving lives, he said.
“We need to do much more seismic evaluation of our public infrastructure – electricity, sewage, hospitals, schools, other public institutions,” he said.
“We’re not doing okay.”