Article Summary
Canada's insurance industry is responding positively to the 2026 federal budget's proposal to create a government-backed financial backstop for catastrophic earthquakes, positioning Ottawa as a payer of last resort when private insurance markets fail. This consultation addresses a critical gap, as Canada is the only G7 country with major earthquake exposure lacking such federal protection.
- Canada is the only G7 country with major earthquake exposure that lacks a federal financial backstop for catastrophic seismic events.
- The proposed backstop would function as a federally guaranteed pool absorbing tail risk that private insurers cannot carry on their balance sheets.
- The Insurance Bureau of Canada and Insurance Brokers Association of Canada both support the consultation, citing system-wide financial risk without such protection.
- The consultation will examine structure design, loss pricing, and liability sharing between government, insurers, and capital markets.
- Officials emphasize the policy design phase must produce a usable, credible mechanism for the proposal to succeed in practice.
Toronto, Ontario -- Canada's insurance sector is responding positively to a pledge to launch a formal consultation about the creation of a financial backstop to mitigate the risk of earthquakes.
Last week, Prime Minister Mark Carney tabled Canada’s 2026 federal budget. It set out a plan to concentrate more federal procurement spending inside Canada, encourage domestic capital formation and manage rising trade tension with the United States.
In introducing the bill to the House of Commons, François-Philippe Champagne added these measures would enable the country to save about $1 trillion in total investments over the next five years.
The budget also included plans to start consultations with the insurance sector about the earthquake backstop, a proposal that would see government-backed financial guarantees activate following catastrophic seismic events.
The consultations are meant to determine whether Ottawa should become the ultimate payer of last resort when the private insurance and reinsurance markets failed, so that claims could still be honoured and financial panic could be avoided.
In practice, such a backstop would have functioned like a federally guaranteed pool that absorbed the “tail risk” that private insurers could not carry on their balance sheets. The consultation was intended to examine how that structure would be built, how losses would be priced and how the liability would be shared between government, insurers and capital markets.
On November 4, Liam McGuinty, vice-president of federal affairs at the Insurance Bureau of Canada, praised the government for agreeing to hold the consultations. He also described the measure's inclusion in the budget as “a welcome development for the P&C insurance industry, the broader financial services sector and Canadians.”
McGuinty noted that Canada is the only G7 country with major earthquake exposure that lacks such a federal backstop, and that the absence of one introduces real system-wide risk.
The Insurance Brokers Association of Canada also supported this measure and stated that the decision to push the next Bank Act review to 2033 “extends the consumer protections provisions of the Bank Act for the foreseeable future.”
“A major earthquake isn’t hypothetical,” said the IBAC's chief executive officer Peter Braid. “We have been raising the alarm on earthquake risk and the potentially devastating impacts, not only on people in affected regions, but on all Canadians. We look forward to participating in these discussions and providing the perspective of insurance brokers who have on-the-ground experience and understand the challenges of the earthquake insurance product in their respective communities."
Officials from both organizations say the substantive test of the proposal will be whether the policy design phase actually produces a usable, credible mechanism.
