Public Accounts -- Fourth Report -- How can we mitigate . . .

Insurance has a role to play not only in terms of mitigation of the potential impacts of a major earthquake, but also with respect to the recovery element of earthquake preparedness. In British Columbia, earthquake insurance is generally marketed as a supplement to property insurance policies, and covers losses from earthquake-related damage. Earthquake insurance in British Columbia is currently relatively inexpensive, but despite this the Insurance Bureau of Canada notes that many British Columbians do not buy separate earthquake insurance policies.

Public apathy regarding the need for mitigation needs to be overcome through strength in partnership with business, industry, utilities and the insurance industry.

Stephen Stackhouse, Ministry of Attorney General, Hansard

Submissions made to the committee on behalf of the Insurance Bureau of Canada outlined the IBC’s four-point plan on earthquake preparedness.

In her submission to the committee, Lindsay Olson of the IBC informed members that insurers can play a role in encouraging policyholders to undertake mitigation measures. She informed committee members that because earthquake insurance is still relatively inexpensive in British Columbia, premium reductions will not provide a large incentive to policyholders to adopt mitigation measures. Instead, the IBC believes that other methods such as limiting coverage or raising deductibles will have to be adopted. None of these methods have been implemented to date, and the committee believes that insurers should review all methods by which policyholders could be encouraged to adopt cost-effective loss mitigation measures.

The IBC’s representative further informed committee members that while insurers can encourage policyholders to undertake mitigation measures, the role insurers can play in funding mitigation is limited. Funds in earthquake reserves and from reinsurance arrangements are not accessible to provide financial assistance with mitigation measures because they are only accessible once an earthquake actually occurs.

However, in terms of the development of an earthquake damage mitigation strategy, the committee was informed that the IBC has formed an "Institute for Catastrophic Loss Reduction", which reviews loss mitigation issues. The IBC urges governments and community groups to become partners in the Institute, in order to work with the IBC to develop loss mitigation strategies for high-risk communities and critical industries, as well as to help achieve the other goals laid out in the Auditor General's report on earthquake preparedness.

The Auditor General’s report recognizes that while insurance will not reduce the cost of earthquake recovery, it will spread the cost and thereby hopefully reduce the length of the recovery period and the financial burden on governments and individuals. However, it was clear from submissions heard by your committee that there are serious concerns about the ability of Canadian insurers to pay claims in the event of a major earthquake in British Columbia.

Many consumers do not know that they need earthquake insurance coverage for shake damage, and some homeowners refuse earthquake insurance because they believe that government compensation will be made available to them in the event of an earthquake. Sixty percent…of Vancouver and Victoria homeowners carry separate earthquake insurance for shake damage. The prospect of 40 percent of Vancouver and Victoria homeowners being caught without coverage in the event of an earthquake is very frightening.

The IBC’s representative tried to assure committee members that the Canadian insurance industry is prepared to deal with claims arising from a major earthquake in British Columbia. She advised that the industry is currently capable of paying all claims that would be associated with an earthquake of the magnitude that would occur once in 250 years. Committee members were also told that, in short measure, the industry will be capable of paying all claims resulting from an earthquake of the magnitude that would occur once every 500 years. Funds to pay these claims will be drawn from earthquake reserves, which are currently in excess of $6.5 billion, as well as from the general revenues of insurers, and from reinsurance arrangements. The IBC also informed committee members that an added measure of protection is afforded to consumers by PACIC, an organization which protects consumers in the event that an insurer is financially unable to pay claims. Apparently, PACIC is currently making arrangements for multiple layers of reinsurance to protect British Columbia consumers in the event that an insurer is unable to pay claims.

The IBC further advised the committee that it has taken steps to improve earthquake insurance products. For example, new regulations have been developed to ensure that any company issuing earthquake policies meet financial standards set by both the federal Superintendent of Financial Institutions and the British Columbia Financial Institutions Commission.

There were some concerns raised about the impact of catastrophes in other jurisdictions on the ability of international insurance companies writing insurance in Canada to respond to earthquake claims in British Columbia. It was submitted by the IBC's witness that the impact would be minimal, in that primary insuring companies in Canada typically do not have the ability to move funds from one jurisdiction to another. In addition, the witness noted that the Canadian Office of the Superintendent of Financial Institutions scrutinizes insurers' reinsurance arrangements to ensure the stability of reinsurers.

Furthermore, Dave Johnson of the Provincial Treasury, Risk Management Branch, advised your committee that the branch is currently participating with the Inter-Agency Emergency Preparedness Council and the Provincial Emergency Program in determining the role of insurance, and a regime that will best support earthquake recovery.

The IBC urged the provincial government to ensure that consumers understand the differences in coverage between standard homeowners' policies and earthquake policies, and to promote consistency in the levels of compensation paid by different insurers to claimants following an earthquake. The IBC is concerned that currently the Insurance Act does not distinguish between "fire following an earthquake", and standard fire coverage contained in homeowners' policies. The IBC believes that this is deterring the public from purchasing separate earthquake insurance policies, and is concerned that when a major earthquake does occur, many consumers will find themselves uninsured.

Accordingly, the IBC recommends that the following alternative amendments be made to the British Columbia Insurance Act, R.S.B.C. 1996, c. 226:

The committee believes that apathy about the risks of a major earthquake could be contributing to the decision by many consumers to not purchase earthquake insurance. Accordingly, if either of the IBC's proposed legislative amendments was made, there may not be a significant increase in the purchase of earthquake insurance.

Moreover, in the committee's view, the impact the proposed amendments could have on the earthquake insurance market in British Columbia is uncertain. If either amendment was made, many insurers may respond by increasing their premiums for earthquake insurance, which could result in many of the policyholders who currently purchase earthquake insurance ceasing to purchase that product. Other insurers may respond by ceasing to offer earthquake coverage altogether. If earthquake insurance became generally unaffordable and less available, more of the risk would shift to uninsured property owners, and ultimately to the Province.

Finally, if consumers generally misunderstand the differences in coverage between standard homeowners' policies and earthquake insurance, the committee believes that greater efforts should be made by insurers to better educate consumers respecting the differences.

Concerns were expressed by another witness, representing a condominium property management company, about earthquake insurance deductibles. The witness told committee members that, in the event of a minor earthquake, insurance deductibles will effectively leave strata corporations and others uninsured for minor to moderate damage. The witness urged committee members to recommend that the provincial government consider legislation requiring strata corporations to have reserve funds in place specifically for this purpose, and requiring that strata corporations built as airspace parcels over other properties have appropriate cross-liability insurance arrangements in place.

However, the committee is of the view that requiring strata corporations to have reserve funds to pay earthquake insurance deductibles could be considered to be inconsistent with the democratic manner in which decisions regarding the size of a strata corporation's reserve fund and payment of expenses from that fund are made.

IMPROVING THE SEISMIC CAPABILITY OF BRITISH COLUMBIA'S INFRASTRUCTURE:

In Canada, the National Building Code forms the basis of provincial and local building codes. The most recent provincial code was adopted in December 1998, based on the 1995 national code.

In his report, the Auditor General had noted that, currently, there is no structural upgrading requirement as seismic elements of the building code are updated. Rather, the code only applies to new construction, or if structural alterations are being made to existing structures.

Furthermore, as the Auditor General's report notes, the focus of both the national and the provincial building codes has been to prevent collapse, not damage. It was submitted by some witnesses appearing before the committee that due to this focus, many buildings are at risk of earthquake damage. Accordingly, many witnesses urged the provincial government to strengthen seismic design requirements in the building code, as well as to implement the Auditor General's recommendations regarding the upgrading of key public facilities.

In particular, various witnesses, including some professional engineers, urged the government to take steps to ensure that Part 9 of the provincial building code, which applies to residential buildings with less than three stories and 600 square metres, contains seismic engineering and design requirements. The Auditor General’s report had noted that many fire halls, ambulance and police stations fall within Part 9 of the code.

Furthermore, a representative of a national engineering firm recommended that the issue of financing seismic upgrading be addressed by providing funding for phased, partial upgrades, which he submitted would reduce costs while still providing a significant risk reduction. The same witness suggested that a provision be included in the provincial building code requiring seismic upgrading whenever a building has a change of use, major renovation or addition.

Submissions made on behalf of the Provincial Emergency Program stressed the PEP's commitment to facilitating revisions to the British Columbia Building Code as more earthquake data becomes available, and to ensuring province-wide application of the Code.

The number of submissions made to the committee with respect to seismic upgrading, retrofitting and building code issues was great. British Columbians obviously have tremendous concerns about the ability of the province's infrastructure to withstand a major earthquake. Many witnesses urged the government to implement the Auditor General's recommendation regarding application of the seismic capability requirements in the provincial building code to all provincial buildings, and in particular numerous witnesses wished to see this recommendation given top priority with respect to school buildings. Committee members also heard from numerous witnesses who believed that increased funding for upgrading and retrofitting programs would be appropriate.

The submissions made to the committee on behalf of the Provincial Emergency Program also indicated that Emergency Preparedness Canada has provided funding to the University of Victoria to study possible infrastructure damage in the province, in order to assist with the development of a provincial retrofitting program. As well, program staff plan to meet with Treasury Board staff to discuss funding for retrofitting buildings identified by the Ministry of Employment and Investment.

In particular, it is clear to the committee that many witnesses are concerned about the serious risks posed to British Columbia’s children by seismically unsound school buildings and portable classrooms. Committee members heard passionate submissions from 6 different groups representing concerned parents, teachers, school boards and others who felt that the Auditor General's report should have discussed this issue in greater detail.

"It is one thing to be caught unprepared by a disaster that no one can predict. In the case of earthquakes, however, we know that our location…dictate[s] its inevitability. To know that such a disaster will strike and to not protect our children from its wrath seems immoral. There must be a plan in place to ensure that all school buildings are upgraded to current seismic building codes, and the funding to enable this must be available."

Many witnesses speaking on this issue pointed to a provincial study commissioned by the Ministry of Education in 1991 with respect to the seismic capacities of schools located in the lower mainland and Vancouver Island. While the authors of the study did not appear before your committee, numerous concerned parents and school boards cited the study, which found that out of 22 school districts studied, as many as 30% of some districts' school buildings (such as the Vancouver district) would not withstand a major earthquake centred near the lower mainland and Vancouver Island. Moreover, a witness representing a school district on Vancouver Island noted that as a result of the study, the school his children attend was found unable to withstand an earthquake with a magnitude as low as 2.7 on the Richter scale. He further advised that all children in the school have been moved into portables.

However, your committee received alarming evidence regarding the danger presented by portable classrooms in the event of an earthquake. In particular, because most portable structures are not secured to foundations, when earthquakes occur they tend to slide off the foundations, causing injuries and serious natural gas hazards due to the fragility of gas line connections.

In this regard, your committee notes that in the provincial government’s budget for the 1999 fiscal year, the government has emphasized its commitment to the replacement of portables with new classrooms.

Furthermore, numerous witnesses told committee members that they wished to see the provincial government place top priority on ensuring the application of building code seismic requirements to school buildings. Many felt that this should be addressed separately from the application of seismic building code requirements to other types of provincial buildings. In fact, one group recommended that the building code's seismic safety requirements for school buildings should be more stringent than for other public buildings. Those expressing this view pointed out that schools differ from other public buildings, in that children are required by law to attend them and have no choice about which schools to attend. As well, it was felt that schools differ from other public buildings in the density of their occupancy and the tender age of their occupants.

It's our belief that the government must give schools priority in seismic upgrading, that it must separate the issue of seismic upgrading in schools from that of all public buildings. There are a number of reasons for that. The first and most important… is that children are required by law to attend school, and they have no choice as to which school they are to attend. Some are required by law to attend schools which are known to be unsafe… In requiring children to be at school, the government has a moral and legal duty to protect them and to provide them with a safe learning environment."

Barbara Armstrong, Kerrisdale

Committee members were also advised that governments in the City of Seattle and the state of California have replaced or renovated all school buildings receiving unsatisfactory seismic ratings.

Witnesses making submissions regarding the safety of B.C.'s schools were also unanimous in their call for increased provincial government funding of seismic upgrading programs in schools. It was pointed out that as a result of the 1991 provincial study finding many schools seismically unsound, a program was introduced by the provincial government which provided funding for stand-alone seismic upgrading of school buildings. However, many were concerned that in 1994 seismic deficiency was removed from the set of criteria used by the province in determining funding for capital projects. Witnesses told committee members that this has effectively frozen funding specifically for seismic upgrade programs, and that now funding is only provided for school upgrading in general, forcing school boards to choose between seismic upgrading and other types of capital improvements.

Witnesses representing the Vancouver School Board noted that in that district, eighty schools are at risk of serious damage in the event of an earthquake. Fifteen of those schools have been identified as high-risk, and the board has developed a five-year seismic upgrade plan to remedy the deficiencies. The board told committee members that they wished to see the provincial government reinstate seismic deficiency as a factor in determining funding for school upgrade projects, in order to allow completion of this plan. A few witnesses also pointed out that parents are unable to raise the required funds for seismic upgrading of schools, and that they have contacted the Minister of Education to make their concerns known to him.

Finally, your committee heard from witnesses promoting alternative methods to ensure seismic upgrading to school buildings is undertaken. In particular, witnesses representing the B.C. Confederation of Parent Advisory Councils recommended that the Ministry of Education be held accountable for all seismic upgrading of school buildings.

Other suggestions offered to promote seismic upgrading in schools included encouragement of creative fund-raising proposals for seismic upgrading, public-private funding partnerships, and legislation mandating seismic upgrading in all public schools.

Your committee also heard concerns expressed by British Columbians about the seismic capacity of residential and private business structures. A seismic engineering consultant told committee members that, despite popular belief, wood-frame residential buildings are vulnerable to earthquake damage. The witness advised that one-third of the $30 billion in damage resulting from the Northridge, California earthquake in 1991 was sustained by wood-frame buildings. He also noted that residential buildings are particularly susceptible to earthquake damage due to the common absence of effective shear walls, the use of fragile materials such as drywall, and improper connections between roof and walls in many structures.

This witness, along with others, told committee members that the provincial government must introduce financial assistance programs to homeowners and businesses for seismic upgrading projects. The committee also heard a suggestion that the government should encourage the professional involvement of architects and engineers in residential construction, in order to effect changes in current design and residential construction practices.

Concerns were expressed to the committee by a representative of the City of Victoria regarding the mitigation of earthquake damage to heritage buildings. The witness wished to emphasize the particular susceptibility that historic buildings have to earthquake damage, and noted that the British Columbia Heritage Trust heritage area revitalization program has been cancelled, even while seismic resistance requirements in the provincial building code have become more stringent. While this witness noted that the city of Victoria does have some funding in place for heritage building upgrading, he argued that the provincial government must restore its funding of heritage revitalization so that heritage buildings may be seismically upgraded.

The B.C. Association of Specialized Victim Assistance and Counselling Programs submitted to your committee that the government should place top priority on seismic upgrading of women’s services facilities, such as shelters and transition houses.

The committee also notes that, approximately one year ago, Treasury Board formed a "Capital Division". One of the responsibilities of this division is to consider seismic upgrading of the provincial infrastructure, and advise Treasury Board with respect to seismic upgrading policy and implementation time frames.

As part of its work in this area, the Capital Division has acted in cooperation with other provincial agencies such as the Provincial Emergency Program and the Ministry of Transportation and Highways to retain engineers to evaluate provincial infrastructure. This survey work is to form the basis for creating an inventory of provincial infrastructure requiring seismic upgrading, and to identify the associated costs. Part of this process will involve the prioritization of seismic upgrading projects in the province, including revisiting the issue of seismic upgrading of school buildings.

In an earthquake, a significant cause of injury and death is the failure to secure items such as lights, shelves and appliances.

A few submissions to the committee addressed the importance of non-structural damage mitigation. Committee members heard recommendations that the provincial government provide financial assistance to those wishing to purchase seismic restraint systems, in particular to schools. Seismic restraint systems secure items such as household appliances, furnaces, hot water tanks, and other heavy items which pose a threat during an earthquake.

Witnesses from the B.C. Confederation of Parent Advisory Councils were particularly concerned about non-structural mitigation in schools. They told the committee that the provincial government should undertake immediate retrofitting programs in school mechanical rooms, under the supervision of professional engineers, to ensure the security of heating equipment and the like during an earthquake.

Your committee takes note of the fact that, in the United States, encouragement of mitigation measures to decrease the costs of major disasters such as earthquakes has been given priority. For example, one approach taken by the Federal Emergency Management Agency (FEMA) has been to recognize the relationship between federal disaster assistance and the promotion of mitigation measures, through a National Hazards Mitigation Strategy and a Hazard Mitigation Grant Program.

As well, in 1997 FEMA commenced a pilot project entitled "Project Impact". Goals of the project include building safer, stronger buildings, strengthening infrastructure and enforcing building codes, and thus building "disaster-resistant communities" through public-private partnerships. As part of the pilot project, FEMA has been conducting an extensive public awareness campaign regarding the importance of mitigation measures, and has designated pilot communities to showcase the benefits of disaster mitigation. In the fiscal year 1999, the budget for this project has been set at $25 million.

Particulars of FEMA and its mitigation programs are discussed below in this report under "Funding Earthquake Recovery Costs".

Committee members also recognize the efforts made in the State of California in making critical facilities safer in the event of earthquake. For example, on March 25, 1998 regulations for the seismic retrofit of acute care hospitals in California came into effect. The regulations, passed pursuant to the Hospital Seismic Safety Act of California, include seismic retrofit building standards that hospitals must comply with when retrofitting older hospital buildings. The regulations also include provisions requiring hospital owners to submit seismic evaluation reports, compliance plans and retrofitting schedules for review and approval by a certain date.

As well, since 1985 California has had a California Earthquake Hazards Reduction Act, which requires the Seismic Safety Commission to prepare and administer a program setting out priorities, funding sources, amounts, schedules and other resources needed to reduce statewide earthquake hazards by the year 2001. The Commission’s plan, entitled "The California Earthquake Loss Reduction Plan", not only addresses earthquake response and recovery, but also emphasizes the importance of upgrading existing vulnerable structures, better design of new construction, and increased preparedness in all areas in order to improve earthquake preparedness.

Your committee is not aware of similar earthquake hazards reduction legislation existing in British Columbia, or elsewhere in Canada. For example, the "British Columbia Earthquake Response Plan" does not address planning for mitigation of earthquake damages, but rather focuses upon the responsibilities, organization and concept of operations necessary for emergency response to a major earthquake in British Columbia.

There were no recommendations in the Auditor General's Earthquake Preparedness report specifically addressing the risks posed by natural gas lines in the event of an earthquake, and your committee heard from a number of witnesses who expressed dissatisfaction with the Auditor General's failure to specifically address this issue.

We are confident that we're going to have our systems in pretty good shape; I can tell you that with no hesitation. But we cannot control everything. I cannot control what's going to happen at Westcoast; I cannot control what's going to happen at the producer. We are right now developing contingency plans just in case there's a problem, so that we will be able to keep everything running. But there are absolutely no guarantees there.

R. Nadeau, B.C. Gas, Hansard (45:762)

In particular, there were five witnesses who raised the issue of natural gas hazards. Most wished to emphasize to your committee the danger posed by natural gas lines from a major earthquake. One witness advised committee members that if natural gas were to escape into a building measuring 300 x 300 x 30 feet, and was subsequently ignited, the thermal explosion capacity would be 5% of the atomic explosions occurring at Nagasaki or Hiroshima. Another witness noted that the risk of natural gas fire following an earthquake is especially acute in the lower mainland, where there are 8,000 miles of natural gas pipeline.

Many witnesses endorsed the use of natural gas shut-off valves to prevent natural gas fires following an earthquake. Various models of the devices were endorsed, ranging from those which sense explosive concentrations of natural gas or propane, and automatically shut off the gas supply, to those which are tripped whenever an earthquake occurs. It was suggested by a few witnesses that the provincial government provide financial assistance to homeowners and businesses to encourage the installation of gas shut-off devices, and ensure that gas shut-off devices are installed in public buildings, schools in particular. One individual urged the government to consider amending the provincial building code to require the placement of automatic gas shut-off valves in all new buildings.

On the other hand, a representative of B.C. Gas told your committee that the threat of natural gas fire following an earthquake is not as great as public perception would have it, except as regards mobile homes and portables. B.C. Gas also wished to emphasize that many gas customers needlessly shut off their gas during an earthquake, resulting in an enormous and costly re-lighting effort on the part of gas companies. In fact, the 1997 "Fenn Report" commissioned by B.C. Gas concluded that gas shut-off valves are unnecessary, may cause damage to gas equipment and should not be promoted by this government . Instead of promoting such mechanisms, B.C. Gas is of the view that the provincial government should encourage less expensive preventive measures, such as gas safety public education programs (perhaps incorporated into the school curriculum), and tie-down programs for gas appliances and mobile homes. B.C. Gas also recommended to the committee revision of gas, electric, plumbing and building codes to require that appliances be strapped down. Also suggested was a disclosure form requirement for the sale of homes, whereby vendors are legally obligated to disclose whether appliances in the home have been strapped down.

Committee members were also advised that B.C. Gas has performed extensive seismic upgrading of all its facilities and pipelines. For example, cast-iron pipe has been replaced with stronger polyethylene pipe, and a valve-sectionalizing program has been implemented so that it will not be necessary, in the event of an earthquake, to shut down the entire system. Your committee also heard that B.C. Gas has undertaken an extensive public education campaign regarding the hazards presented by natural gas in the event of an earthquake.

The committee finds it notable that there were no submissions made on behalf of other gas companies in British Columbia with respect to earthquake preparedness. This is particularly alarming in light of the fact that this province has a complex, interconnected natural gas pipeline system, branches of which are controlled by more than one company.

How can we mitigate the potential impacts of a major eathquake?

INSURANCE

IMPROVING THE SEISMIC CAPABILITY OF BRITISH COLUMBIA'S INFRASTRUCTURE: