Possibility of a “big shake” requires big moves by P&C industry: senator

Scott Tannas shared his ideas on how the industry can engage the federal government on the topic of financial help in the wake of a possible earthquake

The potential of a “big shake” in British Columbia or even Quebec requires drastic action from the insurance industry, even if that might ultimately mean not providing earthquake coverage, according to Senator Scott Tannas who spoke at the Canadian Insurance Financial Forum in Toronto on Thursday.

That would be an action of last resort if the insurance industry is unable to convince the federal government that it must be more active in ensuring that a major earthquake does not force the industry into insolvency, according to Tannas, who is a former broker as well as the founder and current vice chairman of High River, Alb.-based Western Financial Group.

Tannas suggested that the issue is the industry cannot afford the potential losses following a major earthquake. “In aggregate, the industry could likely handle a $20 billion-event,” said Tannas. “Recent catastrophe models have generated losses as high as $95 billion.”

Tannas’ belief that the government has a role to play echoes the thesis put forward by a C.D. Howe Institute paper published in August 2016. The study suggested the Canadian government should be willing to provide an emergency backstop arrangement, like a bail-out plan, for P&C insurers that would minimize the systemic financial impact resulting from a catastrophic natural disaster.

However, both the industry and the government are prone to procrastinating to making decisions about an event that is predicted to occur at some point within the next 50 years, said Tannas.

Steps for a plan

But there will never be a solution if the industry waits for the government to act and so it is up to P&C leaders to put forward a plan to produce a backstop arrangement, said Tannas who presented his recommendations for the development of such a plan.

The P&C industry must begin by declaring publicly that there is a problem and that they are willing to work with stakeholders to find a solution, said Tannas.

The industry should then convene a “360-degree” task force that would include P&C insurance leaders and individuals who could act as government representatives but who are not currently policy makers. Retired senior public servants from departments such as the federal finance ministry, Office of the Superintendent of Financial Institutions and the British Columbia and Quebec governments can use their professional experience to provide a policy perspective, according to Tannas.

The group should have six months to produce a detailed blueprint for a backstop financial mechanism.

The next step is for this committee to present that blueprint to the federal minister of finance and relevant parliamentary committees in addition to engaging the media and the opposition party in Parliament to discuss the issue. The committee has to be ready to discuss how its plan will work and the dangers surrounding the non-implementation of that plan, said Tannas.

The committee will also invite the government to meet with it within 90 days of the blueprint publication.

“The final step is that insurance leaders have to start moving from ‘we have a problem with no solution’ to ‘we’ve got a problem with a solution and if we don’t have a solution soon, we’re going to have to do something else,’” said Tannas.

Withdraw earthquake coverage?

One possible industry response if the government refuses to implement a backstop measure could be to withdraw hurricane coverage, said Tannas, who noted that when he entered the insurance industry more than 20 years ago, earthquake insurance was not available among many insurers.

“The answer could be that if we don’t get this [government assistance], we can’t offer earthquake insurance anymore. We can’t bet all of our shareholders’ money, all of our employees’ employment, all of our national policyholders’ coverage on 15% of the population,” Tannas said. “That sends a signal to the government.”

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