The Earthquake Insurance Protection Gap: A Tale of Two Countries

In this paper, we examine reasons why take-up rates for earthquake insurance are significantly higher in the Lower Mainland of British Columbia than in western Washington state even though earthquake risk is largely the same. Achieving and maintaining high insurance take-up rates for catastrophic events matters because this can play an important role in improving the resiliency of communities. After exploring several factors known to influence the supply and demand of insurance for high-severity but low-frequency events, we find only two key differences: 1) disaster assistance is more readily available in the U.S.; and 2) Canadians are more willing to purchase earthquake insurance when they are told they should. We conjecture that many policy options to increase insurance take-up rates, such as product redesign or cross subsidization, are not likely to be effective in Washington. Making insurance mandatory—either via legislation, making earthquake coverage a prerequisite for a mortgage or embedding it into property taxes—might be the only viable way to increase take-up rates, although these options may be politically difficult to enact.