Entries tagged with “Earthquake”.
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Earthquake exposure is one of the biggest risks to workers compensation insurers, so it’s interesting to read that the California State Compensation Insurance Fund (SCIF) is once again looking to the capital markets to provide reinsurance protection for workers comp losses resulting from earthquakes.
This is a repeat of the first catastrophe bond sponsored by the SCIF in 2011 – Golden State Re Ltd sized at $200 million — which is due to expire in January 2015.
Artemis blog says:
The unique transaction, which has not been repeated by anyone else until now, links earthquake severity to workers compensation loss amounts demonstrating a new use of the catastrophe bond structure.”
The Golden State Re II catastrophe bond issuance is expected to be sized at $150 million or more, and will cover the SCIF until January 2019.
While the covered area is for earthquakes events across the United States, Artemis notes that as with the 2011 deal as much as 99.99 percent of the SCIF’s insurance portfolio is focused on California, so the risk is primarily focused on California-area earthquakes.
The new deal apparently carries a similar modeled loss trigger to the 2001 transaction, using the exposures of a notional portfolio of workers compensation risks in the SCIF portfolio, earthquake severity factors (ground motion), geographic distribution of the covered portfolio, types of buildings covered, time of day and the day of week an event occurs as some of the weighting factors.
An earthquake has to be magnitude 5.5 or greater to trigger the catastrophe bond, according to Artemis, and losses after an event will be modeled deterministically, so not related to actual injuries and fatalities, using the earthquake event parameters. This will be modeled against the notional portfolio using day/time weighting to determine an index value and notional modeled loss amount.
A 2007 report by EQECAT for the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) estimated California workers compensation insurers would pay annual losses of $180 million caused by earthquakes.
The report suggested that the losses would affect 15.6 million employees working during a major earthquake.
Check out I.I.I. facts and stats on workers compensation insurance.
Monday, August 25, 2014
Posted by Claire under Business Risk, Earthquakes
One day after a magnitude 6.0 earthquake struck the San Francisco/Napa area of California, the Northern California Seismic System (NCSS) says there is a 29 percent probability of a strong and possibly damaging aftershock in the next seven days and a small chance (5 to 10 percent probability) of an earthquake of equal or larger magnitude.
The NCSS, operated by UC Berkeley and USGS, added that approximately 12 to 40 small aftershocks are expected in the same seven-day period and may be felt locally.
As a rule of thumb, a magnitude 6.0 quake may have aftershocks up to 10 to 20 miles away, the NCSS added.
According to Dr. Robert Hartwig, president of the Insurance Information Institute (I.I.I.), this earthquake is the strongest to impact the area since the 1989 Loma Prieta quake which resulted in $1.8 billion in insured claims (in 2013 dollars) being paid to policyholders.
Initial reports suggest the greatest damage has been to historic buildings in the city of Napa, with the downtown area cordoned off to fully assess damage. There have also been reports of non-structural damage such as items falling off shelves, including wine bottles and barrels, and substantial sprinkler leakage to many buildings.
The Napa region is most known for its wine industry, but tourism draws visitors to the area year-round.
A report by catastrophe modelers CoreLogic EQECAT gave an initial estimate of $500 million to $1 billion in insured losses. Residential losses would account for about one half to one quarter of this loss estimate.
If the loss exceeds $1 billion it will be from uncertainty in commercial losses, CoreLogic EQECAT said, and losses to the wine industry could increase this estimate:
Business interruption (BI) losses are a major concern. As this is a very popular tourist area, many businesses – including wineries and restaurants – have sustained damage, both non-structural and structural.”
CoreLogic EQECAT noted that the Napa Valley wine harvest was already underway. Losses would have been less if this event had occurred pre-harvest.
According to the Napa Valley Vintners Association, while there have been reports of damage at some Napa Valley wineries and production and storage facilities, particularly those in the Napa and south Napa areas, vintners are still assessing their individual situations. More information is expected in the next 24 to 72 hours.
Standard homeowners, renters and business insurance policies do not cover damage from earthquakes. Coverage is available either in the form of an endorsement or as a separate policy.
I.I.I. earthquake facts and stats show California had the largest amount of earthquake premiums in 2013, at $1.6 billion, accounting for 61 percent of U.S. earthquake insurance premiums written.
This figure includes the state-run California Earthquake Authority, the largest provider of residential earthquake insurance in California. Only about 10 percent of California residents currently have earthquake coverage, down from about 30 percent in 1996, two years after the Northridge, California, earthquake.
The percentage of homeowners and renters who have earthquake insurance in the affected area is very low – in Napa less than 6 percent, and in Sonoma less than 10 percent, according to the California Earthquake Authority.
Check out key facts from the I.I.I. on the insurance industry’s contribution to the California economy here.
Thursday, April 3, 2014
Posted by Claire under Earthquakes, Insurers and the Economy
The second earthquakeÂ to strike the Los Angeles area on March 28 is a wake-up call and reminder of the risk to commercial and residential properties in Southern California, according to catastrophe modeling firm EQECAT.
(The M5.1 quake located 1 mile south of La Habre follows the M4.4 earthquake near Beverley Hills (30 miles to the northwest) on March 17.)
In its report on the latest quake, EQECAT notes that most homeowners do not carry earthquake insurance (only about 12 percent of Californians have earthquake coverage, according to I.I.I. stats), and those that do typically carry deductibles ranging from 10 percent to 15 percent of the replacement value of the home, and commercial insurance often carries large deductibles and strict limits on insurance coverage.
The remainder of the risk which is not insured is retained by property owners and frequently, their lenders. EQECAT reports:
CoreLogic regional studies have noted that a major earthquake in the Los Angeles Basin could easily produce damages to residential and commercial property exceeding $200 billion (Source: the EQECAT Insured Loss Database, 2013). The general lack of insurance coverage and high deductibles have led to concerns over the likelihood of widespread residential mortgage defaults arising from a large basin earthquake.â€
This raises an important point.
Concerns have been raised before (here) about how the lack of mandatory earthquake insurance in California would result in high levels of mortgage defaults should a major earthquake occur, with widespread economic implications.
The post-quake scenario envisioned is one in which homeowners walk away from their damaged homes without repairing them, leaving many homes in foreclosure and forcing banks to bear the brunt of the loss in capital.
The potential knock-on effect for insurers and reinsurers? The loss of home ownership could severely diminish incoming capital on homeowner insurance policies.
According to an Aon Benfield report, the 1994 Northridge earthquake cost the mortgage industry up to $400 million in mortgage defaults due to foreclosure expenses, property repair costs, lost interest income, write-downs of existing loan balances and other administrative costs.
Check out an informative I.I.I. background paper on earthquake risk and insurance issues here.
Twenty years on, the Northridge earthquake remains the costliest U.S. earthquake for insurers, causing $15.3 billion in insured damages when it occurred (about $24 billion in 2013 dollars), according to the Insurance Information Institute (I.I.I.).
The 6.7 magnitude quake, which hit Los Angeles on January 17, 1994, also still ranks as the fourth-costliest U.S. disaster, based on insured property losses (in 2013 dollars), topped only by Hurricane Katrina, the attacks on the World Trade Center and Hurricane Andrew.
On the global scale, the Northridge earthquake still ranks as the second costliest earthquake for insurers, after Japanâ€™s earthquake and tsunami of 2011, according to Munich Re.
While there has been no major earthquake on the U.S. mainland since Northridge, I.I.I. president Dr. Robert Hartwig notes that the potential cost of U.S. earthquakes has been growing because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may or may not have been built or upgraded to current building code.
Still many homeowners do not purchase earthquake insurance. A recent poll by the I.I.I. found that only one out of 10 American homeowners (10 percent) have earthquake insurance, compared with 13 percent in 2012.
In western states, 22 percent of homeowners said they have earthquake coverage, down from 27 percent.
Earthquakes are not covered under standard U.S. homeowners or business insurance policies. However, coverage is usually available in the form of an endorsement to a home or business insurance policy.
As Dr. Hartwig reminds us:
While the cost of insurance has increased since Northridge, itâ€™s important that home and business owners in California and other vulnerable areas consider purchasing earthquake coverage, which is the fastest and most efficient path to recovery.â€
Check out additional I.I.I. facts and statistics on earthquakes and tsunamis.
Wednesday, October 17, 2012
Posted by Claire under Earthquakes
Just as the second Presidential debate was about to kick off last night, a 4.0 magnitude earthquake struck southern Maine.
The epicenter of the quake was located some 3 miles west of Hollis Center, Maine, west of Portland, but it was felt throughout New England.
The United States Geological Survey (USGS) notes that earthquakes in the central and eastern U.S., although less frequent than in the western U.S., are typically felt over a much broader region:
A magnitude 4.0 eastern U.S. earthquake typically can be felt at many places as far as 100 km (60 miles) from where it occurred, and it infrequently causes damage near its source. A magnitude 5.5 eastern U.S. earthquake usually can be felt as far as 500 km (300 miles) from where it occurred, and sometimes causes damage as far away as 40 km (25 miles).â€
Moderately damaging earthquakes strike somewhere in New England every few decades, according to USGS. Smaller earthquakes are more common in the region and felt roughly twice a year.
The two largest known New England earthquakes occurred in 1638 (magnitude 6.5) in Vermont or New Hampshire, and in 1755 (magnitude 5.8) offshore from Cape Ann northeast of Boston. The Cape Ann quake caused severe damage to the Boston waterfront.
The most recent New England earthquake to cause moderate damage occurred in 1940 (magnitude 5.6) in central New Hampshire.
These numbers help put last nightâ€™s earthquake into perspective.
Remember earthquakes are not covered under standard homeowners and business insurance policies. However, coverage is available in the form of an endorsement to a home or business insurance policy.
Check out I.I.I. facts and stats on earthquake insurance.
Wednesday, March 21, 2012
Posted by Claire under Catastrophes
The magnitude 7.4 earthquake that hit Mexico yesterday may not have resulted in any tsunamis for the U.S., but this does not diminish the tsunami threat.
Major tsunamis are produced by large earthquakes (greater than magnitude 7 on the Richter scale) and those with shallow focus (<30km depth), according to NOAA.
Since 1850 tsunamis have been responsible for the loss of over 420,000 lives and billions of dollars of damage to coastal structures and habitats, NOAA says. Most of these casualties were caused by local tsunamis that occur about once per year somewhere in the world.
Tsunamis also result from distant earthquakes. Last yearâ€™s magnitude 9.0 Japan earthquake and the 2010 Chile earthquake caused tsunami strikes in Hawaii, Alaska, Washington, Oregon, and California, for example.
Next week is National Tsunami Preparedness Week, so now is a good time to remind ourselves of the risk and what to do if a tsunami happens.
By the way, catastrophe modeler EQECAT estimates that yesterdayâ€™s Mexico quake will result in insured losses of less than $100 million.
Check out this I.I.I. release for more information on earthquake insurance Mexico and a chart of the most costly world earthquake/tsunamis.
Friday, March 9, 2012
Posted by Claire under Catastrophes, Environment, Marine
March 11, 2012Â will mark the one-year anniversary of the Japan earthquake and tsunami. Together the quake and tsunami caused $210 billion in economic damage, an estimated $35 to $40 billion in insured losses, and 15,840 fatalities, according to Munich Re.
While the disaster hit Japan, its aftermath was felt well beyond that countryâ€™s borders. Concerns were raised worldwide over supply chain disruption, nuclear risks and tsunami damage.
Another ongoing issue of concern beyond Japanâ€™s shores is marine debris.
According to NOAA, itâ€™s possible that debris washed into the sea by the tsunami could arrive on shores in Alaska, Hawaii, the West Coast, and Canada over the next few years.
Over at the Marine Debris blog, a post by Nancy Wallace, Director of the NOAA Marine Debris Program, notes:
It is likely that beachgoers on the West Coast and Alaska will start noticing a gradual increase in marine debris items near-shore or on the beaches in 2013. Those on the main Hawaiian Islands might start noticing an increase closer to 2014.â€
Despite the alarming news headlines, NOAAâ€™s Wallace assures us there is no scientific estimate of how much debris the tsunami washed into the sea or how much is still floating. It is also highly unlikely any debris is radioactive, while the chance of human remains arriving with it is almost zero.
You can find out more about the Japan tsunami marine debris on the NOAA Marine Debris Program site. Resources include the informative tsunami debris FAQs and fact sheet.
Thereâ€™s also a marine debris tracker app that allows you to check in when you find trash on U.S. coastlines and waterways. Significant marine debris sightings can also be reported to NOAA via email at DisasterDebris@noaa.gov
A HuffPost piece offers further analysis on the tsunami marine debris story.
Friday, December 16, 2011
Posted by Claire under Catastrophes
As youâ€™ll see from the I.I.I. website today marks the 200th anniversary of the first of the New Madrid earthquakes.
This series of three earthquakes, the first of which occurred on December 16, 1811, with major temblors following in January and February of 1812, remain among the most powerful quakes in U.S. history (three of the earthquakes were above a magnitude 7, and there were up to 200 aftershocks of between magnitude 4 and 7).
According to the U.S. Geological Survey, a similar risk exists today in the New Madrid seismic zone, threatening eight states: Alabama, Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
That puts large cities such as Memphis, St. Louis and Nashville well within range of a large-scale New Madrid earthquake.
Recent projections by the USGS put the likelihood of a magnitude 6 or higher earthquake at about 25-50 percent over the next few decades, whereas a magnitude 7 or higher has a 10 percent chance of occurring.
As noted by the I.I.I. itâ€™s important to remember that earthquakes are not covered under standard homeowners or business insurance policies. However, coverage is available in the form of an endorsement to a home or business insurance policy.
A wealth of additional informationÂ is available atÂ the New Madrid Bicentennial website, but for residents sitting at home wondering how they can protect their home and property in the event of an earthquake, the Insurance Institute for BusinessÂ & Home Safety (IBHS) has some handy risk reduction tips.
For example, one of the most common sources of damage and injury during earthquakes in the U.S. are falling objects.
The IBHS guide â€œReduce Six Common Earthquake Risks for Under $70â€ identifies affordable ways to secure five items commonly found in homes so that they are not shaken loose, including water heaters, wall-mounted flat panel TVs, and bookcases. Worth a read!
Monday, November 7, 2011
Posted by Claire under Catastrophes
A series of earthquakes in Oklahoma over the weekend demonstrates that even if you donâ€™t live in earthquake-prone California, earthquake insurance may be worth checking out.
The New York Times reports that a quake late Saturday night centered near Sparks, about 44 miles northeast of Oklahoma City, had a preliminary magnitude of 5.6, and is the strongest earthquake ever recorded in the state.
No serious injuries were reported, but it appears there was some minor damage to roads and buildings.
The quake was preceded by smaller tremors earlier in the day, including one with a preliminary magnitude of 4.7, centered in Prague, about 50 miles east of Oklahoma City, according to USGS.
Oklahomaâ€™s earth-moving activity has scientists puzzled, according to the NYT. It citesÂ a research seismologist with the Oklahoma Geological Survey whoÂ notesÂ that since mid-2009 the state has had 10 times more earthquakes than normal:
Unlike earthquake-prone California and Japan, Oklahoma does not rest atop the fractious areas where two tectonic plates rub against each other. But the stateâ€™s geophysical activity has only been surveyed in earnest for about 50 years, Mr. Holland said, making it difficult to draw conclusions or put the recent activity into context.
But the state does have faults that are buried deep, like the Wizetta Fault, also known as the Seminole Uplift, east of Oklahoma City, where pressure can build.â€
Coming in the wake of a 5.8 magnitude earthquake in Virginia that shook the East Coast in August, the latest seismic activity in Oklahoma is a reminder that many parts of the U.S. face risks from earthquakes and that home- and business owners should reassess their need for earthquake insurance.
Earthquakes are not covered under standard U.S. homeowners or business insurance policies, but coverage is available for earthquake damage in the form of a supplemental policy.
Earthquake insurance provides protection from the shaking and cracking that can destroy buildings and personal possessions.
I.I.I. facts and statistics show that California had the highest amount of earthquake premiums in 2009, at $1.6 billion. Virginia, at 23 on the list had $10 million in earthquake premiums, while Oklahoma ranked even lower at 34 with just $4.8 million in earthquake insurance.
Wednesday, October 26, 2011
Posted by Claire under Catastrophes
Earthquakes continue to make their mark on 2011 with the damaging 7.2 magnitude quake in eastern Turkey on Sunday that has left hundreds dead and more than 1,300 injured.
The cities of Van, where the quake was centered, and Ercis, 45km to the north, felt the brunt of the quake and hundreds of building collapses have been reported.
As PC360 reports, the insurance losses from this catastrophe should be minimal due to low insurance penetration and take-up in the impacted area.
A report from catastrophe modeling firm Eqecat puts the preliminary estimate of insured losses from this event is in the range of $100 million to $200 million. Total economic damage is estimated in the low single-digit billions of dollars.
Total economic damage is estimated at approximately one-tenth that from the 1999 M7.6 Izmit earthquake in western Turkey and 10 times the damage from the 2010 M6.1 earthquake in eastern Turkey.â€
Eqecat goes on to note that insured losses will be incurred primarily by the Turkish Catastrophe Insurance Pool (TCIP), a national program of compulsory earthquake insurance for residential buildings.
The TCIP, started in 2000, is intended to minimize the rebuilding cost to the central government, and is backed by international reinsurers. Limits per policy are around $30,000, with deductibles commonly 2 percent.
However, Eqecat adds that estimates of TCIP penetration hover around 20 percent, and take-up rates in the east are less than this national average.
Eqecatâ€™s insured loss estimate is based on much of the damage having struck residential buildings.
Damaged buildings will number in their thousands, it adds, as aftershocksÂ cause furtherÂ damage or collapse. Buildings in the region are a mixture of vulnerable and resistant construction.
Check out I.I.I. facts and stats on earthquakes and tsunamis.