INSURANCE INFORMATION INSTITUTE
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NEW YORK, March 2, 2010 — Billions of dollars in insured and economic losses are expected from the earthquake that struck
central Chile on Saturday, February 27. Fortunately, Chile has a highly developed insurance market, according to the Insurance Information Institute (I.I.I.).
“In addition to a number of Chilean insurers, many
large international insurers and reinsurers—mainly American and European—compete for business in that country, and will provide the financial resources for Chile’s reconstruction,” said Robert P. Hartwig, CPCU, president of the I.I.I. and an economist. “This is very different from Haiti, which has virtually no private insurance market,” he added. “The billions that insurers will pay to rebuild Chile will be a critical factor in stabilizing the Chilean economy in the wake of the worst disaster that country has ever faced. Insurance is the swiftest, most efficient means to affect recovery after catastrophic events.”
Dr. Hartwig noted that Chile’s half-century commitment to strengthening building codes saved countless lives. “Chile’s building codes are among the most stringent in the world. Had Chile not heeded the lessons of another devastating earthquake in 1960 and invested in earthquake resistant building designs, the country’s situation would resemble that of Haiti, where an earthquake on January 12 killed more than 200,000 people,” he said. The current death toll in Chile is estimated at 723, according to government sources.
Direct premiums written in Chile in 2008 totaled U.S. $5.8 billion, according to Swiss Re. Of that, nonlife (i.e., coverage on homes, businesses and vehicles) insurance premiums accounted for U.S. $2.3billion and life premiums U.S. $3.5 billion. By contrast, in Haiti, estimated total nonlife premium income written in 2008 was $19 million.
In Chile, earthquake coverage is sold as part of the additional perils policy issued in conjunction with the standard fire policy. Separate earthquake policies are not normally issued to homeowners and businesses, though there may be some as part of an international program or if excess layer coverage is required. Damage from fires that occur as a result of earthquakes is also covered.
Earthquakes in the United States are not
covered under standard homeowners or business insurance policies. Coverage is usually available for earthquake damage in the form of an endorsement to a home or business insurance policy. Residents of California can buy insurance from the California Earthquake Authority
(CEA) through participating insurance companies. The CEA is a state-sponsored private-public partnership providing earthquake insurance to California homeowners, renters and condominium owners.
In California, the state most at risk for earthquake, only 12 percent of the state’s homeowners carry earthquake insurance today compared to about 30 percent in 1994 when the Northridge earthquake struck. Northridge caused approximately $22 billion in insured losses (in today’s dollars) and remains by far the most expensive earthquake in United States and global history (in terms of insured losses).
Catastrophe risk modeling firm AIR Worldwide estimates that insured losses from the February 27 Chilean earthquake will likely exceed US $2 billion. Total economic losses may exceed US $15 billion- $30 billion, according to AIR and EQECAT. EQECAT estimates that insured losses in Chile could total as high as $8 billion.
In Chile, it is estimated that about 90 percent of property policies carry earthquake coverage, accoding to Axco Insurance Information Services. However, only about 10 percent of residential properties and 60 percent of commercial properties are insured at all, according to AIR Worldwide. In Chile, there is no insurance pool or catastrophe fund for earthquake risks such as the CEA.
Earthquake Loss History
Chile is located in a high risk seismic area, with a recorded history of earthquakes going back to 1570. In the 20th century Chile registered over 50 severe earthquakes, according to Axco Insurance Information Services. The 10 largest earthquakes prior to the magnitude 8.8 temblor on February 27 are listed below.
MAJOR EARTHQUAKES IN CHILE
||Santiago/Valparaiso and San Antonio
NA=Data not available.
THE TEN MOST COSTLY WORLD EARTHQUAKES SINCE 1900 (1)
||Jan. 17, 1994
||U.S.: California: Northridge, Los Angeles, San Fernando Valley, Ventura, Orange
||Feb. 27, 2010
||Chile: Central; South. Includes tsunami.
||more than 20,000
||more than 4,000
||more than 4,000 (3)
||Jan. 17, 1995
||Japan: Prefecture Hyogo, Kobe, Osaka, Kyoto
||Dec. 26, 2004
||Indonesia; Sri Lanka; India; Thailand; Bangladesh; Myanmar; Maldives; Malaysia. Includes tsunami (3)
||Oct. 17, 1989
||U.S.: California: Loma Prieta, Santa Cruz, San Francisco, Oakland, Berkeley, Silicon Valley
||Oct. 23-24, 27, 2004
||Japan: Honshu, Niigata, Ojiya, Tokyo, Nagaoka, Yamakoshi (4)
||Sep. 21, 1999
||Taiwan: Nantou, Hsinchuang, Taichung, Puli, Touliu, Yun-lin, Chunghwa
||Dec. 28, 1989
||Australia: New South Wales, Newcastle, Sydney
||Aug. 17, 1999
||Turkey: Izmit, Istanbul, Gölcük, Kocaeli, Sakarya, Yalova
||Sep. 1, 1923
||Japan: Tokyo, Yokohama
(1) Costliest earthquakes occurring from 1900 to 2009, based on insured losses when occurred.
(2) Adjusted to 2009 dollars by Munich Re.
(3) 2010 dollars.
(4) Includes multiple earthquakes.
Source: © 2010 Munich Re, Geo Risks Research, NatCatSERVICE.
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