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How quickly can Canada rebuild after the “big one?”

Damages in New Zealand could reach $12 billion.

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Rebuilding following a quake like the one that hit Christchurch, New Zealand, last week, would involve more than one wildcard, including government decisions on funding, according to industry stakeholders and quake experts.

Initial damage assessments in Christchurch indicate that roughly one-quarter to one-third of the city’s downtown district will be demolished following last week’s 6.2 magnitude earthquake. After immediate response and recovery, rebuilding in a similar situation here would also be affected by Canada’s approach to earthquake insurance, says John Adams, a seismologist at the Geological Survey of Canada.

Varied risk, and high deductibles–ranging from 5 to 10% –for earthquake coverage here make take up uneven across Canada, compared to New Zealand, where it’s compulsory: over 60% of households in British Columbia have earthquake insurance, according to Insurance Bureau of Canada (IBC) statistics. In other, less risky parts of the country, that figure falls to approximately 2%, says Adams.

“The fiscal capacity to rebuild is important. If the money is there–from governments or insurance policies–it will be fast. If not, it can take years to decades,” he says.

Those without insurance must rely on government disaster funding, which isn’t guaranteed. When it comes to uninsured property, “theoretically, the government could say that a homeowner is out of luck because they had the opportunity to buy insurance and didn’t,” says Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (ICLR). “But practically, they may decide to help.”

Theory and practice

Government response to disasters varies–in some cases, damage is covered, and in other, similar cases, it isn’t, McGillivray notes. He points to the example of Halifax’s Public Garden, which was destroyed by Hurricane Juan in 2003, but denied disaster funding, although when Stanley Park sustained damage in 2008, “the government came through on that.”

Even those with earthquake coverage would be left with huge deductibles that could slow repair and rebuilding efforts–someone with $35,000 worth of damage to their home would have to bear most of that cost themselves, Adams notes.

But discussions on rebuilding and recovery here are difficult because they are speculative, McGillivary points out. “We know the theory, but not the practice.”

System pressure

The New Zealand insurance industry was still recovering from a September 2010 earthquake when last Tuesday’s quake hit. This week, Swiss Re estimated that insured damages will cost up to $12 billion.

The first wave of claims in  New Zealand “put an incredible amount of pressure on adjusters even before the new quake,” Adams says.”You can apply this to Canada–it will be quite a load on the system, in terms of how do you assess and clear claims?”

An ICLR report issued late last year suggests that further research is also needed into the  industry’s capacity to handle a major quake. “It would be useful to assess the financial and operational capacity of insurers to cope with a megathrust Cascadia earthquake given the potential for extensive damage,” the report, Reducing the Risk of Earthquake Damage in Canada, states.