By Barbara Shecter| Financial Post
The federal government needs to take action to shore up systemic risks in Canada’s insurance industry that could leave the sector vulnerable to collapse in the event of a mega-catastrophe, says the co-author of the latest research into potential fallout from major disasters such as earthquakes.
“Canada is the only G7 nation that doesn’t have any type of federal involvement to help the insurance industry as a whole deal with mega catastrophes,” said Anne Kleffner, a professor at the University of Calgary’s Haskayne School of Business.
“Without some type of intervention, such an event will result in serious economic consequences for Canadians,” she said.
Her report follows at least two others with similar dire warnings, one of them penned three years ago by a former head of Canada’s top banking and insurance regulator, the Office of the Superintendent of Financial Institutions (OSFI).
Since 2017, there have been “lots of conversations” with government officials but “no action,” Kleffner told the Financial Post.
Private insurers in this country are backed only by an industry-funded compensation body — the Property and Casualty Insurance Compensation Corporation — and a major earthquake in what scientists regard as hot zones around Vancouver and Montreal could lead to a domino-like financial collapse of Canada’s entire insurance industry, Kleffner and her co-authors warn in their study, which was published in August in the Geneva Papers on Risk and Insurance – Issues and Practice.
A mega-disaster in which total insured losses of policyholders exceeded $35 billion would cause small regional property and casualty insurers to fail, pushing their obligations onto larger insurers through payouts required under the industry-funded compensation body, according to study, which was co-authored by Mary Kelly, a professor and chair in insurance at Wilfrid Laurier University, and Grant Kelly, chief economist at PACICC. The levies would be so huge that they would cause the larger insurers to fail as well.