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Dark clouds hang over the downtown skyline of Vancouver in 2009.

DARRYL DYCK/The Canadian Press

A massive earthquake off the British Columbia coast could plunge the Canadian economy into a deep financial crisis, Canada's former top financial regulator is warning in a new report that calls on Ottawa to do more to prepare.

While the province and country would first address the human toll in the aftermath of disaster, a chain of subsequent events with "potential grave systemic financial effects" could further devastate the economy, Nicholas Le Pan, former superintendent of financial institutions, said in a report released by the C.D. Howe Institute on Wednesday.

Read more: An in-depth examination of how Canada's financial sector and economy would be shaken by an earthquake, why we aren't prepared and what's being done to change that.

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Scientists predict a one-in-three chance that an earthquake strong enough to cause significant damage will hit the North American west coast in the next 50 years. Key ports and the Vancouver airport would face months of incapacitation, disrupting global supply chains and crippling Canada's gateway to Pacific markets. The value of land and many homes would crater, particularly in built-up areas expected to sustain the most damage on the Fraser River Delta. Insurers would be forced to stretch to cover billions in insured losses, while mortgage insurers and banks could be sideswiped by credit losses.

Another region at risk of a large quake is the Quebec City-Montreal-Ottawa corridor, where the magnitude of an event would be more muted, but damages to vulnerable buildings and aging infrastructure could be costly to repair.

The report is focused on reducing the financial risk of a large earthquake by better positioning the property and casualty insurance industry to weather a disaster of a magnitude and cost that exceeds the industry's current ability to pay claims.

Here are some highlights from the report:

-When it comes to earthquakes, much is unknown. The unexpected severity of several recent earthquakes around the world indicates that catastrophe risk models aren't always reliable, reinforcing a need to "plan and be prepared for extreme possibilities," the report states. There's also no public data on costs or pricing trends of earthquake insurance coverage, and consumer behaviour is not regularly tracked. The report notes that this opacity causes problems for policymakers and should be fixed.

- Mr. Le Pan writes that the federal government must ensure there is adequate financing in the case of a catastrophic earthquake. "Ottawa should satisfy itself, together with provincial regulators, that stress testing of banks and systemically important credit unions and exchanges adequately accounts for catastrophes," the report states.

-The insurance industry is able to tackle claims from a severe earthquake of up to $30-billion. Anything above that figure would likely cause at least one national insurer to become insolvent. The industry group Property and Casualty Insurance Compensation Corp. (PACICC), which ensures customers are paid when their insurer goes bankrupt, would call on other healthy insurance companies to help pay for the claims, which they might not reasonably be able to do. Right now, there is no federal backstop that caps industry losses the way there is for massive disasters in the offshore drilling or nuclear industries, the report notes.

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