A new earthquake model accounts for lesser-known risks in eastern Canada along with the risks in the west, as well as potentially destructive secondary perils.
Developed by Aon’s Impact Forecasting team, the fully probabilistic catastrophe model aids insurers and reinsurers in quantifying loss potentials for earthquake risk.
Western Canada touches a tectonic boundary capable of producing some of the largest earthquakes on earth.
While earthquakes are not as common in Canada’s eastern regions, the risk is still significant, according to Peter Pazak (pictured right), catastrophe model developer at Aon Impact Forecasting.
Speaking to Insurance Business, he noted that strong earthquakes could occur along the St. Lawrence River, which traverses Ontario and Quebec, where the Canadian Shield meets the Appalachian range.
“There have been earthquakes of up to magnitude 7.5 in this area in the last 400 years. The hazard, although significantly lower than in the west, is long known to Canadian seismologists,” Pazak said.
The model could also potentially help eastern Canadians better understand their earthquake risk and prepare.
“In the west, people are aware of the risk [of earthquakes] and are insuring their properties, but not so much in the east. That’s something should be improved,” Pazak said.
Aon collaborated with the Global Earthquake Model (GEM) Foundation to develop the new earthquake model, which is based on the latest research from Natural Resources Canada.
The government agency published a sixth-generation seismic hazard model for Canada’s 2020 national building code.
The model provides “a robust stochastic catalogue of realistic earthquakes simulated across Canada,” said Jakub Aska (pictured left), business development executive at Aon Impact Forecasting.
“We leveraged the outcome of the collaboration [with GEM] and applied our expertise to build a robust insurance-ready model, which considers regulatory requirements and is suitable for both reinsurance pricing and primary underwriting.”
The model also accounts for secondary perils, such as liquefaction, landslides, fire, and tsunami risk.
Insurers or reinsurers can import their portfolios of properties into the model, including information specifying construction, financial conditions such as the value of the building and contents, and policy conditions like limits and deductibles.
Clients can also use high-resolution hazard and risk maps for detailed underwriting and risk assessment.
The model is unique in the market because it can be used on third-party platforms, promoting interoperability among insurance companies. It is available on Impact Forecasting’s ELEMENTS platform as well as on platforms that run Oasis, an open-source catastrophe modelling framework.
“It’s not a standard private-public sector collaboration. It brings a new, open, and transparent solution to insurers,” Aska told Insurance Business.
“Users can really see under the hood of the model, and if they have expertise, they can adjust it to tailor it to their own view of risk.”
Impact Forecasting data show that global cumulative earthquake damage since 2000 had exceeded $1 trillion by the end of 2022.
Earthquake damage in Canada has been relatively low, but Aska said it was important for the insurance industry to keep up with the latest data.
“We are committed to the region and will keep focused on developing the most up-to-date earthquake models,” Pazak said.
What’s your take on earthquake risk in Canada and Aon’s new earthquake model? Tell us in the comments below.
