Many property owners worldwide are unprepared for earthquake damage, even in areas of the world facing an increased risk of seismic activity. In a new report from Swiss Re, the authors found that despite recent large scale earthquakes in Japan and New Zealand, most of the world is vastly under insured against earthquake risk.
“Overall, earthquake insurance coverage is still quite low, even in some industrialised countries with high seismic risk. Low insurance penetration attests to a population’s low perception of risk. Bevere adds: “The low frequency of earthquake events, compared to other natural catastrophes, tends to shape the perception that earthquake risk is much lower than it actually is, even in places where there have been very deadly and damaging occurrences, like California.” Without insurance coverage, post-disaster reparations come from government funds and ultimately must be borne by taxpayers.”
Table 2: Insurance penetration, premiums as % of GDP
Swiss Re attributes part of the underinsurance problem to low risk awareness in earthquake-prone areas. They also point out several lessons that the insurance industry can learn from the recent earthquakes in regards to certain types of losses from factors like ground liquefaction and business interruption.
“For underwriting as well, there are key lessons to be learnt from the recent earthquakes. Although earthquake models are quite accurate in predicting the immediate physical damage caused by tremors, Balz Grollimund, Head of Earthquake Perils at Swiss Re and co-author of the study, points out: “Secondary loss factors, such as liquefaction and particularly business interruption, add to the complexity of claims assessments for major earthquakes. These factors should be considered more comprehensively in earthquake models.”
The Swiss Re study can be found online at: http://www.swissre.com/media/news_releases/nr_20120117_low_earthquake_insurance.html.