Earthquake insurance premiums soar for Greater Victoria homeowners

Greater Victoria homeowners will be digging deeper to protect their homes from earthquake damage. And insurance experts say we had better get used to it.

“It’s the new normal,” said Eric Hartley, principal of Bill Hartley Insurance.

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The cost of earthquake insurance is likely to increase anywhere between 10 and 25 per cent because scientific modelling of earthquake damage has improved considerably and the cost associated with recent quakes in New Zealand, Japan and Chile were more than expected.

“It means the consumer will have to investigate carefully, but there’s no doubt it will mean revised terms and conditions and deductible and premium increases,” said Rick Parent, president of Coast Capital Savings Insurance.

The consensus among insurance providers is the typical cost for earthquake insurance in the region — which is separate from standard home insurance — has hovered between 5.5 cents and seven cents per $100 of rebuilding cost.

That is expected to go up to between eight and 11 cents per $100 for a typical home, and as high as 13 cents in some areas of Greater Victoria that could be hard hit by an earthquake.

The earthquake insurance deductible for homeowners typically has been either five or 10 per cent, but that is expected to increase to 10 or 15 per cent.

“And we may see insurance companies looking at 15 and 20 per cent deductibles for homeowners to create options for them,” said Parent, noting the higher the deductible the lower the premium.

Hartley said increased premiums have little to do with the smaller quakes that have been experienced in this region over the last several months.

“The root cause is the cost of what we call re-insurance,” Hartley said. “That’s what insurance companies have purchased to protect themselves from a catastrophic loss like an earthquake and that cost has escalated phenomenally in the Victoria area.”

That’s because re-insurance firms have had to shell out small fortunes to cover the costs of recent major catastrophes. Scientific modelling that lays out how devastating a major quake can be has improved and shows this region poses the highest risk of serious damage from an earthquake in Canada.

“Seeing that, reinsurance companies see they have way more exposure than they want so they have cut back the amount of coverage they are willing to provide and at the same time they are charging more for it,” said Hartley.

Some companies are trying to limit exposure by no longer offering earthquake insurance in some areas.

“They are often breaking it down to postal codes. In some of them, where there is a higher expectation of serious damage, they have too much exposure. And that puts pressure on other companies, who are also trying to limit their exposure, to pick that up,” Hartley said. It all translates into added cost for the homeowner.

Parent said homeowners who want earthquake insurance could be looking at costs more in line with California, where a homeowner can pay more than $850 a year for earthquake insurance for a house worth $200,000.

Both Hartley and Parent said their clients have been willing to pay for peace of mind despite higher fees.

Coast Capital says 90 per cent of policy holders carry earthquake insurance. Hartley estimates its number at 80 per cent. The provincial average is about 65 per cent.

“Because we live in an earthquake exposed area we have always encouraged our policy holders to carry the insurance,” Parent said.

And make no mistake, the big one is coming, said federal seismologist John Cassidy.

“We live in a very active earthquake zone,” he said, noting between 400 and 500 small earthquakes are recorded around the Island every year.

But it’s the big one, with a magnitude around 9.0, that everyone is worried about. Cassidy said it’s just a matter of time.

“We can see the energy being stored for future earthquakes. We know the plates are moving, we see buckling on Vancouver Island. The west coast of the Island is rising and Victoria is moving slowly to the east with the incoming ocean plate,” Cassidy said.

“Everything happening is consistent with an active subduction zone, it’s the kind of observation seen in Japan and Chile before their big earthquakes.”

Cassidy said what’s not known is when a major earthquake will hit, though they tend to occur between 250 and 850 years apart. “And it’s been 315 years since the last one, we are definitely in the window,” he said.

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