This HuffPost Canada page is maintained as part of an online archive.

Major Earthquake In Canada Could Plunge Economy Into Crisis: Report

Government, homeowners need to prepare, report says.

A major earthquake in British Columbia or central Canada would not only risk significant loss of life — it could plunge the country into a financial crisis on a scale similar to a bank meltdown, a new report warns.

In the event of an extreme earthquake, one where financial losses amounted to more than $30 billion, “one or more national insurers would fail,” the report from the C.D. Howe Institute predicts.

That would lead to a cascade of problems at other insurers and financial institutions, says the report written by Nicholas Le Pan, a former head of Canada’s banking watchdog, the Office of the Superintendent of Financial Institutions (OSFI).

The banks would get hit hardest by the destruction of uninsured commercial and residential properties, the report predicted.

“Since the 2007/08 financial crisis, policymakers have paid much attention to the buildup of risk in the banking system,” Le Pan said in a statement. “However, no equivalent discussion exists for the impacts of natural disasters to Canada’s economy.”

Some four in 10 Canadians live in an area classified as having a “moderate” or “high” risk of an earthquake, according to the report. British Columbia has a 30-per-cent chance of a “significant” earthquake over the next 50 years, while the Quebec City-Montreal-Ottawa corridor has a 15-per-cent risk.

Major earthquakes along the British Columbia coast happen once every 300 to 600 years. The last one — a 9.2-magnitude quake — took place on Jan. 26, 1700.

The report urges the federal and provincial governments to come up with a “backstop arrangement” that would finance banks and insurers in the event of a catastrophic earthquake. It suggests that the mechanism be designed so that the financial industry and governments share the costs.

Sharing the costs would reduce the "moral hazard" of a government bailout, the report says. Financial institutions would not be able to forego earthquake preparedness by assuming the government would pay for it.

The report also urges Canadians to take out earthquake insurance, noting that losses from uninsured properties are one of the largest risks from an earthquake.

“While insurance coverage seems favourable on the Canadian West Coast, only about two per cent of other Canadians have earthquake coverage — and that includes those in the Quebec-Montreal-Ottawa corridor,” the report said.

Also on HuffPost

Vancouver Sea Level

Vancouver Sea Levels Rising

Close
This HuffPost Canada page is maintained as part of an online archive. If you have questions or concerns, please check our FAQ or contact support@huffpost.com.