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Many B.C. Homeowners Lack ‘Shock Protection’ Insurance

If a major earthquake strikes B.C., many insured homeowners could be hit hard financially due to damage caused by the ground shaking, including cracked foundations, collapsed walls or sunken roofs.

Roughly 50 per cent of insured homeowners in earthquake-prone areas of B.C. have purchased earthquake insurance on top of their standard home insurance, said Chuck Byrne, executive director and CEO of the Insurance Brokers Association of B.C.

Standard home coverage includes fires ignited after an earthquake, but does not cover damage caused by the ground shaking. Consumers who don’t purchase “shock protection” could suffer huge financial losses, Byrne said.

“You’d be looking at whether the damage is cosmetic or whether the livability of the home is compromised,” he said. “If you have to rebuild your home, and correct it to be livable, yes, that will cost many, many thousands of dollars.”

About half of homeowners have earthquake insurance in vulnerable B.C. regions, such as the Central Coast, Lower Mainland and Vancouver Island. Areas in the north and in the Interior have lower rates of homeowners purchasing earthquake insurance.

There is a 30-per-cent likelihood that a major earthquake will hit B.C. in the next 50 years, according to a 2010 report by the University of Western Ontario’s Institute for Catastrophic Loss Reduction.

Each province and territory other than Quebec has its own Insurance Act. All provinces maintain a distinction between fire coverage and earthquake coverage. However, a recent Fraser Institute report says the separation could lead to legal disputes and delays in claims processing.

Neil Mohindra, director of the Fraser Institute Centre for Financial Policy Studies and author of Preventing a Disaster: Lessons for Canada from U.S. Experience, says that fires should be part of a comprehensive package, so that homeowners who buy earthquake coverage can be confident they are fully protected.

“There’s a lack of clarity that leads to all kinds of problems,” he said. “Adjusters come in to review the situation, they bring in engineers to inspect damage, and when the consumer does not agree, they go to court and it sometimes takes months or years.

“In the meantime, the costs add up and the consumer isn’t getting his cheque.”

Mohindra studied the aftermath of Hurricane Katrina, where many home­owners had coverage for wind damage but not separate flood insurance. He said the separation in insurance multiplied the costs associated with the storm, including payment delays, court challenges and disaster relief.

Lindsay Olson, vice-president of the Insurance Bureau of Canada for B.C., Saskatchewan and Manitoba, said that her organization had advocated for comprehensive earthquake coverage including damage caused by fires and the ground shaking.

“It would be streamlined,” she said. “‘Do you have insurance for earthquakes, yes or no?’ We wouldn’t have to get into the fine detail of whether this is fire or this is shaking.”

Olson noted that B.C. has the highest rate of homeowners purchasing earthquake insurance of any province in Canada. However, Byrne said the cost of insurance would increase if fire protection was included under earthquake coverage. “Most insurance brokers in the province have lobbied the government for decades to make sure that won’t happen,” he said. “Changing the status quo is not the best option for B.C. consumers.”

A 2003 Supreme Court decision called for all provinces to examine their insurance acts. Alberta and B.C. were the first to initiate this process.

B.C. recently passed an Insurance Amendment Act and is developing regulations to implement the act.

A discussion paper released by the Ministry of Finance in 2010 did not reveal any plans to create comprehensive earthquake coverage, said Mohindra.

“The reviews have taken a couple of years, but we’re at the point where B.C. is going to release some regulations that maintain the status quo,” he said.

A spokesman for the Ministry of Finance said the regulations were still in development and it was too soon to confirm details.

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