Insurers add heft to calls for infrastructure spending

Engineers, municipalities and others in the construction industry have long been pointing out that Canada’s infrastructure is aging, and have called for more government investment to rebuild it.

Now these groups have ammunition from the insurance industry. A report sponsored by Lloyds and written by the Institute for Catastrophic Loss Reduction found that weak infrastructure is an extremely high risk item — and therefore would be very costly for the insurers.

The report was published in November entitled “Reducing the risk of earthquake damage in Canada: Lessons from Haiti and Chile.” The author was Paul Kovacs, executive director of ICLR and an adjunct professor of economics at the University of Western Ontario.

After looking at Haiti and Chile, Kovacs’ report looked at various ways in which Canada is vulnerable to an earthquake. It states that “vulnerability of public infrastructure” was one of its main concerns.

The report by Kovacs points out that almost 60% of Canada’s infrastructure was put in place before 1960, and says,”Accordingly, it is likely that the majority of Canada’s public infrastructure included no modern seismic engineering knowledge during the design and construction. This vulnerability is likely to be higher in older communities like Montreal, and lower in communities with greater recent growth like Vancouver.”

While the federal government has been addressing the challenges in the past two years with the Economic Action Plan, says the report, “Unfortunately the deferred maintenance problem has been growing for decades and it will require many years to address.”

On page 18, the report says: “One of the greatest opportunities for Canada to reduce the adverse impact of a major earthquake would be through

increased investments to restore the health of its public infrastructure. The risk of tragic events, like the 2006 collapse of the de la Concorde Overpass in Laval, Quebec, can be reduced through remedial actions based on appropriate engineering audits to ensure the integrity of older systems.”

It says that while power supplies can be relatively quickly restored, transportation systems that are already overstressed in cities like Montreal, Ottawa and Vancouver could be severely disrupted for even months. And while most airports have been substantially modernized, “there are many older systems, particularly bridges or port facilities, where the vulnerability to seismic damage needs to be assessed and addressed.”

As for water and wastewater infrastructure, the report says on page 19:

“Perhaps the most neglected aspects of Canada’s public infrastructure are underground systems, including water and sewers. The alarming increase over the past two or three decades in sewer back-up damage claims paid by insurance companies warns that these systems are presently in severe difficulty. When a major earthquake strikes there is likely to be widespread failure and limited capacity for repair. City officials warn that it will take many months to inspect these systems after a major earthquake and even longer to repair.”

The report says “It is inevitable that a major earthquake will strike Canada.” It says there is a 30% chance that an earthquake causing significant damage will strike southwestern B.C. in the next 50 years, and a 5-15% chance that one will strike southern Quebec or eastern Ontario in that period.

According to the Globe and Mail, one insurer, Fairfax Financial Holdings, is so concerned by the state of infrastructure in Canada and the claims that they might receive if a major earthquake were to happen, that it has approached the Office of the Superintendent of Financial Institutions, the organization charged with protecting the solvency of banks and insurers.

To read the report, click here.