How do I know if an insurance company can pay in the event of a major catastrophe?

February 20th, 2016 in Insurance

How do I know if an insurance company can pay in the event of a major catastrophe?

This question is not an uncommon one especially when it comes to one of BC’s largest exposure – earthquakes. If a major quake hit the Lower mainland area the damages would be massive. Imagine the magnitude of damage in the destruction of major bridges and large buildings both office and institutions such as hospitals. Then there is the lengthy re-building process which would take years, assuming there were enough trades and professional people to get the jobs done.  The related costs, including loss of business incomes would be huge and in need of compensation from insurers.


In much the same way as insurer companies insure your assets, there are global reinsurance markets that insure the insurance companies’ assets. By spreading these risks across the world, the cost of actually insuring them becomes much more affordable, relatively speaking. Every year, insurance treaties are negotiated by reinsurers with insurance companies. These treaties describe the terms of how the insurance companies conduct will their business locally. Although it is a complex process, the approach is that if an insurance company wants to offer earthquake, for example, in BC then the reinsurance treaties dictate how much exposure the insurer can accept and also how much it must reserve in premium dollars for the coverage to be available. The insurers pay a premium for this coverage availability much like you pay for your own insurance.


Worldwide catastrophic events do occur. In fact, the 2013 floods in Alberta will exceed $1.7 billion in damage costs, the largest loss in Canadian history. However, by pooling funds through the reinsurance market, the ability for an insurer to respond in paying claims locally is achieved. By spreading the risk globally, the insurance companies can also increase their capital capacity which can enhance shareholders’ returns and add to the general economic well-being.

So, it is not a case of whether the insurer can pay your claim. There are also many other safeguards in place federally that limit the financial exposure of an insurance company has.

The most important thing to making your life as comfortable as possible in the event of a catastrophe is to have a plan now on how to deal with it so your worries can be reduced later.