Major disaster could pose 'systemic' problem for insurance industry, warns OSFI head
Canada’s insurance industry is ahead of the pack when it comes to recognizing the risks from climate change but is still vulnerable to a massive disaster on the scale of the one that struck Japan in 2011, this country’s top financial watchdog said Tuesday.
Peter Routledge, head of the Office of the Superintendent of Financial Institutions, told an industry conference in Toronto on Feb. 6 that Canadian insurers have “experienced financially the consequences of climate change,” but that the industry remains at risk as the annual cost of weather-related wildfires, floods and storms climbs.
“The problem we have, and it’s a really big one where I was raised in Vancouver, (is that if there’s a major earthquake there it) has a $35- or $40-billion damage price tag attached to it,” Routledge said. “We could have and most likely would have very serious problems, systemic problems, in terms of capital to absorb the aftermath of such an event.”
Routledge later referred to research that suggests British Columbia faces a 30 per cent chance of a significant earthquake in the next 50 years.
Canada stands alone among G7 countries in lacking a built-in mechanism for government and financial regulators to intercede and stabilize the insurance industry in such a situation. The industry-funded Property and Casualty Insurance Compensation Corporation — the existing back-up fund — would only go so far.
Routledge has been pushing to avoid the financial ripple effect that would occur without a more extensive support mechanism, comparing the worst-case scenario to a plot point in a classic 1947 movie starring James Stewart.
“You have … the risk, when one institution gets in trouble and it spreads to a whole bunch of institutions that are
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