Of course, these events caused three fatalities, but a curious conclusion was the number of demolished dwellings, where human injuries were minimized. The minimal deaths made it hard for officials to accept that 2000 structures had been destroyed.
Modern earthquakes cause too much structure damage and little casualties. “Risk transfer” with insurance is possible.
Iranian earthquakes are not covered by ordinary house or business insurance. Standard house and business insurance plans cover earthquake damage like fire and ruptured gas and water pipes.
Earthquake insurance deductibles are usually percentages. Premiums vary by area, insurer, and structure insured.
In general, older structures cost more to insure. Due of their greater stress tolerance, wood frame constructions have lower rates than brick buildings.
Insurance prices may reflect earthquake likelihood zones 1 to 3 or 1 to 5. Effective financial management of earthquake risk requires the capacity to estimate exposure to seismic risk and evaluate the costs and benefits of alternative risk reduction techniques and risk transfer to insurance and reinsurance capital markets.
Earthquake risk maps and models, including secondary loss variables, should be encouraged to enhance exposure assessment.
Government investment in enhancing access to data on structures and soil conditions, historical events, and earthquake processes can improve map and model accuracy and earthquake risk assessment. Earthquakes are extremely devastating for underdeveloped nations like Iran.
Government-sponsored insurance and reinsurance arrangements increase earthquake insurance, especially in high-risk nations.
Using limited public resources and a variety of policy instruments, the government should develop an integrated earthquake risk finance management strategy.
To address financial vulnerabilities caused by seismic risk, comprehensive financial management of earthquake risk needs government-wide collaboration.
By decreasing state financial assistance and insurance (re)arrangements, boosting risk transfer to the private sector, and carefully reviewing risk management methods, public funds can be protected from earthquake liabilities.
Normal homeowners’ insurance does not cover earthquake damage. Since a big earthquake may bankrupt them, several multinational insurance firms withdrew earthquake insurance in the 1990s.
Most properties experience earthquake damage that does not surpass their insurance deductible, therefore even with high insurance rates, insured homeowners will not get money from their policy to pay the damage.
With insurance, the insured must pay a portion of the harm, called the deductible. Several significant international insurance companies, like “Munich Re,” take the risk into consideration and engage in efforts to fortify structures against earthquakes and increase people’s financial stability through insurance.
Following the March 11, 2011 earthquake and tsunami in Japan, the Fukushima nuclear accident was the costliest natural disaster ever.
Losses from earthquakes depend on earthquake parameters (large, distance, duration of movement) and the characteristics of damaged buildings: type of design, type of building, height, asymmetry in floor plan and height, seismic wave intensification due to soft soils, location near the fault or on the active fault.
Landslides, sinkholes, and earthquakes can kill many people. Engineering design aspects to safeguard structures from earthquake forces are the most significant precautions.
Iran’s national construction laws and the Iranian Seismic Building Code (Standard No.2800) govern this subject. Human life is the main goal of most earthquake legislation.
Although accepting financial loss, they secure the building’s stability and durability to save lives.
Nevertheless, modern construction rules like those in the US, Japan, and New Zealand aim to decrease property damage.
Regulations and recommendations sometimes overlook planning steps like avoiding dangerous sites.
High population concentrations indicate significant seismic activity in many places. Tehran, Istanbul, Tokyo, Osaka, Mexico City, and Beijing are examples of such cities.
In locations with high population and asset exposure, the insurance business has a huge problem, making it even more vital to acquire an objective exposure picture.
Accurately evaluating exposure allows for the best preventative actions, such as capital accumulation regulations, insurance premium calculations, and construction and land use restrictions.
Fire insurance usually includes earthquake coverage. To prevent compensation and damage accumulation, earthquake risk insurance requires large deductibles.
Like floods, earthquakes have poor worldwide insurance penetration compared to windstorms. To lower earthquake costs and speed up restoration, poorer nations require more earthquake insurance. Munich Re has been developing a worldwide seismic risk model since 2007.
A countrywide risk model can estimate loss potentials and damage avoidance advantages, improving insurance coverage. In undeveloped nations, such an endeavor has never occurred.
Insurance by parameters
In recent decades, natural catastrophes have had a greater influence on economies, especially in vulnerable regions, prompting stakeholders to advocate risk transfer options.
Calculating the greatest probable earthquake losses in locations with high seismicity potential is crucial, especially in the metropolitan area with the largest population concentration and exposure.
In the insurance sector, parametric insurance might be utilized to innovate. Active insurance cannot generally address the growing vulnerability of human societies and their assets to natural disasters.
Parametric insurance can strengthen disadvantaged communities’ natural catastrophe resilience (or index-based insurance).
When an earthquake exceeds the insured ground shaking at a specific place and damages the insured, parametric insurance pays out.
After an occurrence, this insurance is paid. During a disaster, parametric insurance can cover property replacement, repair costs, company expenditures, lost revenue, employee benefits, and other expenses.
The insured’s agent must sign a basic damage confirmation after agreeing to the terms and price to establish the damage.
This insurance’s key benefits are speedy compensation and cash payment. In addition, payment is assured.
This sort of insurance covers earthquake risk in Turkey, Mexico, Chile, and Greece, which has a long history of earthquake devastation and measures to lessen society’s susceptibility.
In 2011, the World Bank launched the “Global Parametric Insurance Facility” as a financial instrument to promote parametric insurance.
The Caribbean Disaster Risk Insurance Fund created parametric insurance policies in 2007 to help Caribbean nations reduce natural catastrophe costs.
Since 2015, China’s first parametric flight delay insurance has paid up to 300 Yuan (40 USD). The reinsurer “Swiss Re” introduced parametric insurance in 2017 as “the first hurricane warning insurance product for enterprises operating in Hong Kong.”
By forming a global parameters section, AXA protects consumers from growing climate risks. Private sector engagement is especially crucial for poor nations with limited resources that struggle to finance natural catastrophe response.
Notwithstanding its benefits, parametric insurance solutions are largely underutilized. The parametric insurance product’s poor demand may be due to these hazards’ low likelihood and complexity.
Most natural catastrophes have low likelihood and large impact, hence disaster risk management focuses on regional and national risk coordination and novel insurance products.
This is possible with parametric insurance. Parametric insurance is increasingly needed to cover natural disaster damages.
Seismic insurance’s future
The insurance sector paid out more than it received in January 1994’s M6.7 Northridge earthquake, which caused $26.4 billion in damage in Southern California.
In the previous 30 years, no insurance business has gone bankrupt, but several have come close. Most insurers reduced their seismic risk to recover financially and prepare for the next earthquake.
Most insurers also requested rate hikes and deductible increases from 10% to 15% or more.
In mid-1996, this caused a crisis that jeopardized the state’s housing market and delayed its return from recession. Remember that earthquake insurance is a new product.