There is a 30 percent chance that an earthquake strong enough to cause significant damage will strike southwestern British Columbia in the next 50 years, and a 5 to 15 percent chance that a major earthquake will strike southern Quebec or eastern Ontario. These quake zones encompass several population centers, including Vancouver, Victoria, Montreal, Ottawa, and Quebec City. If a major quake ever strikes one of these regions, renters, homeowners, and businesses will count on insurance to help them recover and rebuild. However, in addition to the hardships caused by property loss and injury, policyholders may face major impediments to recovery when insurance coverage from a natural disaster is split?a harsh lesson many Americans learned in 2005, after the US Gulf Coast was struck by a series of major hurricanes, including Hurricane Katrina.

The problems that occurred in the aftermath of Katrina demonstrate what can happen when distinctions are made in insurance coverage based on the cause of damage. Many of Katrina?s victims had insurance against wind damage, which was covered in standard insurance policies, but not flood damage, which was available only through a government program. The split in coverage resulted in costly payment delays and legal disputes.

Provincial legislation makes a similar distinction between damage caused by an earthquake and damage caused by subsequent quake-related fires. Fire following an earthquake is covered in standard home insurance packages, while earthquake coverage must be purchased separately. Alberta and BC have signaled their intention to maintain this distinction. The US experience shows that this approach could cause unnecessary hardships for insurers and policyholders alike.

The lesson from Hurricane Katrina is clear. Splitting natural disaster insurance coverage should be avoided wherever possible. Allowing insurers to offer comprehensive coverage against damage from a quake and any quake-related fires will prevent many of the problems policyholders faced following Katrina.