Many people living in earthquake-prone regions manage a delicate balance between resilience and risk, carrying on with daily life while knowing that a major earthquake is not a matter of “if” but “when.” This mindset enables communities to thrive, economies to grow and lives to be built with purpose rather than fear. This outlook is essential, but it must also come with a diligent focus on preparation.
To meet this need, Canada must urgently coordinate a response plan that involves both government and the private sector. More on that below.
The Reality of the “Big One”
In modern history, Canada has yet to experience a truly devastating earthquake, but we have a clear idea of what it could look like. Recent earthquakes in Christchurch, New Zealand, and Tōhoku, Japan, have given us a vivid and grim preview, as have various exercises that have modelled a catastrophic earthquake for Canada. An IBC-commissioned study by data analytics and risk modelling firm AIR Worldwide modelled the effects of a 9.0-magnitude earthquake 75 kilometres off the coast of Vancouver. The results of such an earthquake would be staggering: $95.6 billion in total economic losses, including $26.1 billion in insured losses. In a Quebec-based scenario, a smaller earthquake in that region would still produce losses in the tens of billions of dollars.
A major earthquake near either of these major Canadian cities would result in significant loss of life and reduce neighbourhoods and businesses to rubble. Roads and bridges would become impassable, and people would be stranded, making emergency response extremely difficult. Power grids, water systems and communication networks would shut down, cutting off thousands of people from essential services. Fires sparked by ruptured gas lines would add to the destruction, while liquefaction and landslides would further destabilize the ground. The landscape would be transformed overnight, leaving scars that linger for years and possibly generations.
Beyond the Epicentre: Nationwide Fallout
The devastation wouldn’t end at the quake zone. As the crisis unfolded, the economic and social repercussions would extend across the country. With ports, railways and highways damaged, supply chains would be severed, hampering the delivery of essential goods across the country and stalling international trade. Businesses nationwide would feel the shock.
Furthermore, with entire communities left uninhabitable, thousands of people would be displaced. This displacement would strain neighbouring regions, which would struggle to accommodate the influx of people needing shelter, food and medical care. Depending on where the earthquake struck, government buildings may also be taken down, requiring decision-makers to relocate and adding further destabilization. In short: the rebuilding process would be a monumental task requiring time, funding and resources on a scale rarely seen.
The Financial Toll of a Major Earthquake: Testing the Limits of Resilience
The financial toll of a major earthquake in Canada would be immense, and the question of how to cover the costs of recovery looms large; and it is a question for which Canadian governments don’t currently have an answer. Canada’s property and casualty insurers are among the most well-capitalized in the world, with rigorous regulatory standards. Under ordinary disaster conditions, the industry is more than prepared to support its policyholders. However, an earthquake of catastrophic proportions – such as the 1-in-600-year event that struck Japan in 2011 – could overwhelm even the most prepared insurers. In such an event, claims could exhaust the capital and reinsurance reserves of individual companies, pushing them beyond their financial limits.
Beyond individual insurance company failures, the earthquake’s impact could trigger a cascading effect throughout the industry. Canada’s Property and Casualty Insurance Compensation Corporation (PACICC) provides a safety net by ensuring policyholders are protected even if their insurer fails. However, PACICC’s survivor-pay mechanism requires remaining insurers to cover the unpaid claims of those that fail, a responsibility that could push more insurers into insolvency. This chain reaction could spread beyond the earthquake zone, affecting even small, regional insurers in other provinces, and jeopardizing the property and casualty insurance industry’s overall stability.
For individuals and businesses, these systemic risks are more than financial abstractions. If an earthquake disrupted the insurance industry to this degree, affected claimants would face years-long delays in compensation, and Canadians more widely would experience challenges with insurance availability and pricing. In addition, there are the homeowners in the quake zone who lack insurance coverage; some estimates suggest more than 50% of homeowners in BC and as many as 96% in Quebec. These households would have to rely on their personal savings, pushing many into long-term financial hardship.
Inevitably, in this worst-case scenario, governments would be forced to step in. They would have to bear a financial burden they have not prepared for that would significantly drain public coffers.
The bottom line: No single entity – governments, insurers or consumers – can bear this cost independently.
The Case for a National Solution
Given the scale of the risk, Canada urgently needs a coordinated response plan, and the time to establish it is now. This includes developing a federal backstop —a program designed to support both the insurance industry and individual policyholders in the wake of a disaster—to provide a vital financial safety net, enabling rapid recovery without placing the full burden on any one group. This effort should build off the federal government’s national flood insurance program for high-risk households, which will establish a reinsurance entity housed at a subsidiary of the Canada Mortgage and Housing Corporation, and be delivered through public-private partnership with Canada’s property and casualty insurers. Similar frameworks in countries like Japan and New Zealand show that such solutions can work effectively, distributing costs and ensuring a quicker, more equitable recovery.
A national solution, with federal support, would allow Canada to be proactive rather than reactive, ready to respond to the inevitable with resilience. Preparedness is not about immediate disaster response; it’s about creating a foundation for recovery ahead of time that doesn’t leave Canadians shouldering impossible losses in the future. By acting now, we can ensure that when the ground moves, Canada stands ready to rebuild, together.
In the meantime, homeowners are encouraged to take steps to help secure their homes and update their insurance. Consumers can also review and share our earthquake protection tips and watch the Stay Protected: Earthquake Safety video.
