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Many earthquake-prone countries are underinsured, according to a report published Tuesday by reinsurer Swiss Re Ltd.
According to the report, “Lessons from Recent Major Earthquakes,” the insurance industry will pay an estimated 80% of the about $15 billion economic cost of the February 2011 earthquake in New Zealand, but insurance will cover only about 17% of damage estimated as high as $300 billion in the March 2011 earthquake and tsunami in Japan.
According to the report, New Zealand is the country with the highest penetration of earthquake insurance while earthquake insurance coverage in Japan is very low, particularly for commercial properties.
Overall, according to the report, insurance coverage for earthquakes is “still quite low, even in some countries with high seismic risk.”
Earthquake insurance penetration for commercial property as a percentage of gross domestic product is the highest in Chile and New Zealand. It is considerably less in other earthquake-prone countries such as Italy, Japan and Turkey, according to the report.
In Chile, premiums for earthquake coverage for commercial property represent 0.46% of GDP compared with 0.35% in New Zealand, 0.44% in California, 0.16% in Mexico, 0.06% in Japan, 0.14% in Turkey and 0.18% in Italy.
Although California ranks second in terms of insurance penetration for earthquake risk, its “current level of insurance penetration is deemed insufficient for a region with such high seismic risk, high accumulation of valuable property and high economic activity,” according to Swiss Re.
Lessons learned from the recent earthquakes in Chile, New Zealand and Japan include the importance of losses from secondary events such as tsunamis, aftershocks, soil liquefaction, business interruption and contingent business interruption, the report notes.
Secondary losses contribute significantly to the overall cost of events, but they traditionally have been undervalued in loss models, according to the report.
The report can be found at www.swissre.com/sigma.