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Gaps opening in earthquake insurance market


MIAMI — Insurers and reinsurers must work toward closing the protection gap for earthquake exposures, including tailoring or creating new product offerings to fit the needs of smaller businesses and mobile millennials.

There is a major protection gap — the divide between economic and insured losses — for earthquake coverage, even in high-risk areas such as California, where the takeup rate is only 10% statewide, and states such as Oklahoma and those affected by the New Madrid earthquake zone, where takeup rates are roughly 20%, said Andrew Castaldi, New York-based senior vice president and head of catastrophe perils in the Americas for Swiss Re Ltd. 

“If there is a major event, I don’t know how we’re going to answer the problem that 90% of the people in California do not buy earthquake insurance,” Mr. Castaldi said at the National Association of Insurance Commissioners’ fall meeting in Miami on Saturday. “That should really fall on us, because perhaps we’re not delivering the products that we should.” 

“Far too many individuals fail to buy coverage,” said Craig Tillman, president of WeatherPredict Consulting Inc. and RenaissanceRe Risk Sciences Foundation in Raleigh, North Carolina. “Possibly they are operating under the false assumption that federal or state governments will cover those losses. And the lack of protection is echoed in the business community, particularly in the small business community.”

RenaissanceRe has tried to address this coverage gap through transparent risk quantification and communication of that risk quantification and continuing to support and inform individual policyholders on the risk reduction steps they can take, Mr. Tillman said. 

“In many parts of the country, there’s little in the way of seismic codes, so high-efficacy retrofits make a lot of sense,” he said. “They can be inexpensive and they can make a dramatic difference in the performance of individual structures. Mitigation could also be encouraged by government assistance in combination with insurance company-provided incentives. It also might be possible through third parties to finance resiliency improvements and spread that cost over a number of years and basically pay down that bill at least partially through the use of insurance cost savings.”

Millennials often do not hold jobs for more than a few years and are quick to relocate, Mr. Castaldi said. They also have different buying patterns, with the data showing home ownership declining, and home insurance policies have failed to evolve with that trend, he said. 

“The existing coverage that we offer may not be attractive to them and it may be too limited for their assets and what they view as being valuable,” he said. For example, a person may not own a home, but may lose their job because their work facility was damaged during an earthquake and cannot reopen, Mr. Castaldi said. 

“There’s no protection currently available for these individuals that might have secondary, indirect type of damages,” he said, adding that product offerings with lower limits can be designed to cover some of these risks.