How much do earthquakes really cost?

A look at the biggest quakes in history is confirming key regions as most at-risk for catastrophic losses at the same time pointing to industry challenges

Insurance News

By

By Elise Linscott
 
Last year, the earthquake that hit South Napa, Calif., was the second largest in the world in 2014 in terms of total damages. It caused $700 million in total damage and $153 million in insured losses. It was just one of 15 catastrophic earthquakes worldwide in 2014, according to an article published by the Insurance Information Institute.

In 2014, insured losses from earthquakes and tsunamis totaled $313 million worldwide. In 2013, losses were just $45 million, but in 2011 totaled a record $54 billion.

Not surprisingly, eight out of the 10 costliest earthquakes (by inflation-adjusted insured losses) to hit the U.S. since 1950 were in California. Number four on the list was the Feb. 2001 earthquake that hit Washington (specifically Olympia, Seattle and Tacoma) and Oregon, which resulted in $2 billion in overall losses. Number five was the 1964 earthquake that hit Alaska, causing $540 million in overall losses when the quake hit.

And when it comes to earthquake insurance, the California Earthquake Authority is the top writer in the country by far in terms of direct premiums written. In 2014, it held 20.8% of the market and had written about $607 million in direct premiums. The number two writer was the Zurich Insurance Group, with $233 million and 8% of the market share, followed by State Farm Mutual Automobile Insurance, American International Group, Travelers Companies Inc., GeoVera Insurance Holdings Ltd., Liberty Mutual, ACE Ltd., Swiss Re Ltd., Chubb Corp., according to the Insurance Information Institute.

Earthquakes are a common occurrence in many parts of the world, but there are still aspects of earthquake insurance that companies can improve on, according to insurance company Swiss Re.

“From an insurance perspective, one of the key lessons learned (from recent major earthquakes) is that so-called secondary loss agents – such as liquefaction and tsunamis – are generally undervalued in loss modeling. Business interruption is another widely underestimated risk, especially for certain industries such as pulp manufacturers, breweries and refineries,” according to Swiss Re.
 
 

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