Today's Quake a Reminder of U.S. Vulnerability to These Disasters
NEW YORK, March 20, 2012 /PRNewswire-USNewswire/ --Reporters covering the insurance implications of the earthquake that shook Mexico on March 20 are encouraged to contact the Insurance Information Institute (I.I.I.). The I.I.I. can provide an overview of the Mexican insurance market as well as information on earthquake history in the U.S. and globally.
"While it is too soon to assess the extent of damage from today's 7.4-magnitude earthquake and its aftershocks, the temblor is a reminder that three of the most costly earthquakes worldwide have occurred within the past two years," said Robert Hartwig, president of the I.I.I. and an economist. "The potential cost of earthquakes has been growing in many parts of the world, including the U.S. because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may not have been built or upgraded to current building codes."
The Japan earthquake and tsunami in March 2011 produced insured losses currently estimated at $35 billion, a fraction of the total economic losses, which are now estimated at $210 billion. The earthquake that hit New Zealand in February 2011 caused economic losses of $15 billion but because of high earthquake insurance penetration the insurance industry will pay most of the losses, about $12 billion.
Mexico is more susceptible to earthquakes than most countries. It is said that tremors occur somewhere in the country every day. In recent years, the most noteworthy earthquake in Mexico was the one that hit Mexico City in 1985. On September 19 of that year an earthquake with an epicenter based at the intersection of the American and Cocos plates near Acapulco produced a shock measuring 8.1 on the Richter scale. This was followed by aftershocks that lasted for four hours, the greatest of which was recorded as 4.8 on the Richter scale. The next day a second shock of 7.5 on the Richter scale occurred with the epicenter about 250 miles south-west of Mexico City. A third shock occurred on September 21 that was 4.5 on the Richter scale.
Parts of Mexico City were severely damaged and serious damage also occurred in the states of Colima, Guerrero, Jalisco and Michoacan. Many government buildings, hospitals, hotels, schools, ministries, public housing and the like were badly affected, which in part must be attributed to the area in which they were situated, but inferior construction and workmanship were contributory factors. It is believed that more than 10,000 lives were lost and 350,000 made homeless. It is difficult to quantify the final cost because of the devaluation of the peso, but according to Cresta data the figure was in the region of $4 billion (U.S.), with insured losses in the region of 10 percent or $400 million (U.S.).
According to the Ministry of Finance, in the 20th century Mexico suffered 47 earthquakes of 7.0 on the Richter scale and 29 at 7.5 on the Richter scale. In 1996 it created the Natural Disaster Fund (Fondo de Desastres Naturales - FONDEN) as a form of self-insurance, the object of which was to fund emergency expenditure following natural disasters without affecting public finances. In January 2011, FONDEN announced that it would insure 32 states and 2,441 municipalities against natural disasters and that the affected areas would have immediate access to FONDEN funds following such disasters.
NOTABLE EARTHQUAKES IN MEXICO
($ U.S. dollars)
Date | Location | Richter scale | Fatalities | Loss (if known) |
1957 | Acapulco & Mexico City | 7.5 | 160 | $25 million |
1973 | Orizaba | 7.2 | 539 | N/A |
1985 | Mexico City | 8.1 | 10,000 | 4 billion |
1995 | Guerrero | 7.5 | 3 | 8 million |
1995 | Jalisco | 7.6 | 66 | N/A |
1997 | Artega/Michoacan | 6.8 | 1 | N/A |
1998 | Oaxaca | 6.3 | N/A | Light |
1999 | Puebla | 6.7 | 19 | Up to 45 million |
1999 | Oaxaca, Puebla | 7.5 | 14 | Up to 30 million |
2003 | Colima | 7.8 | 28 | Some property damage |
2004 | Oaxaca | 7.8 | N/A | Some property damage |
2010 | Mexico, California | 7.2 | 2 | 300 million insured; 1.1 billion total (1) |
2012 | Oaxaca | 7.4 | TBD | TBD |
N/A: Not available.
(1) Swiss Re.
Sources: AXCO, U.S. Geological Service, Insurance Information Institute
THE TEN COSTLIEST WORLD EARTHQUAKES/TSUNAMIS BY INSURED LOSSES, 1980-2011 (1)
($ millions)
Losses when occurred | |||||
Rank | Date | Location | Overall | Insured (2) | Fatalities |
1 | Mar. 11, 2011 | Japan: Honshu, Aomori, Tohoku; Miyagi, Sendai; | $210,000 | $35,000-$40,000 | 15,840 |
2 | Jan. 17, 1994 | USA: CA: Northridge, Los Angeles, San Fernando | 44,000 | 15,300 | 60 |
3 | Feb. 22, 2011 | New Zealand: South Island, Canterbury, Christchurch, Lyttelton (3) | 16,000 | 13,000 | 181 |
4 | Feb. 27, 2010 | Chile: Bio Bio, Concepcion, Talcahuano, Coronel, Dichato, | 30,000 | 8,000 | 520 |
5 | Sep. 3, 2010 | New Zealand: Canterbury, Christchurch, Avonside, Omihi, | 6,500 | 5,000 | NA |
6 | Jan. 17, 1995 | Japan: Prefecture Hyogo, Kobe, Osaka, Kyoto | 100,000 | 3,000 | 6,430 |
7 | Dec. 26, 2004 | Sri Lanka; Indonesia; Thailand; India; Bangladesh; | 10,000 | 1,000 | 220,000 |
8 | Oct. 17, 1989 | USA: CA: Loma Prieta, Santa Cruz, San Francisco, | 10,000 | 960 | 70 |
9 | Oct. 23, 2004 | Japan: Honshu, Niigata, Ojiya, Tokyo, | 28,000 | 760 | 45 |
10 | Sep. 21, 1999 | Taiwan: Nantou, Hsinchuang, Taichung, Puli, | 14,000 | 750 | 2,400 |
(1) As of July 2011.
(2) Based on property losses including, if applicable, agricultural, offshore, marine, aviation and National Flood Insurance Program losses in the United States and may differ from data shown elsewhere.
(3) As of January 2012.
(4) Multiple earthquakes.
In the United States about 5,000 quakes strike each year. Since 1900, earthquakes have occurred in 39 states and caused damage in all 50. One of the worst catastrophes in U.S. history, the San Francisco Earthquake of 1906, would have caused insured losses of $96 billion, were the quake to hit under current economic and demographic conditions, according to AIR Worldwide.
The United States was the site of two severe earthquakes in the second half of 2011. A 5.8-magnitude temblor had its epicenter in Virginia and was felt there, as well as in numerous other East Coast states, on August 23, 2011. Meanwhile, Oklahoma incurred on November 6, 2011, a 5.6-magnitude earthquake, one of the most intense in that state's history.
While there has not been a truly significant quake on the U.S. mainland since Northridge in 1994, it is only a matter of time.
EARTHQUAKES AND INSURANCE
Earthquake coverage in Mexico is given by special endorsement and is subject to a 72-hour clause. Excluded from the cover are foundations, garden walls, patios, swimming pools and the like but these may be included by special arrangement. Fire following earthquake is covered by the basic fire policy. The large multinational risks are covered against earthquake in almost all cases; the larger local industrial risks in some 70 percent to 80 percent of cases; and other risks take the cover in between 50 percent and 60 percent of property policies. It is said, however, that many people decline to buy earthquake cover not only because they consider the cost to be prohibitive, but also on the assumption that as "the big one" occurred in 1985 it should be many years before there is another such event. Sums insured are the same as for fire, although first loss policies are permitted. Self-insured percentages of between 10 percent and 30 percent are imposed, depending on the zone.
In the U.S., 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. Earthquake insurance provides protection from the shaking and cracking that can destroy buildings and personal possessions. Coverage for other kinds of damage that may result from earthquakes, such as fire and water damage due to burst gas and water pipes, is generally provided by standard homeowners and renters insurance policies.
Earthquake coverage is available in the U.S. from private insurance companies. In California, homeowners can also get coverage from the California Earthquake Authority (CEA), a privately funded, publicly managed organization. Only about 12 percent of California residents currently have earthquake coverage, down from about 30 percent in 1996, two years after the Northridge, California, earthquake. Nationwide 86 percent to 90 percent of U.S. homeowners lack earthquake coverage, according to A.M. Best.
Earthquake insurance policies in the U.S. often carry a deductible, generally in the form of a percentage rather than a dollar amount. Deductibles can range anywhere from 2 percent to 20 percent of the replacement value of the insured structure. This means that if it costs $100,000 to rebuild a home and the policy had a 2 percent deductible, the policyholder would be responsible for paying the first $2,000. Earthquake insurance premium rates are determined differently by each insurance company and can vary widely depending on several factors, such as the location of the building and the construction materials used. Cars and other vehicles are covered for earthquake damage under the optional comprehensive portion of an auto insurance policy.
RELATED LINKS
The insurance association, the Asociacion Mexicana de Instituciones de Seguros (AMIS), publishes statistics for earthquakes and other natural disasters.
U.S. Facts and Statistics: Earthquakes
Issues Update: Earthquakes: Risk and Insurance Issues
White Paper: California Earthquake Authority
Video: Protecting Your Home From an Earthquake
Preparing for an Earthquake
In Case of an Earthquake
Recovering from an Earthquake
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SOURCE Insurance Information Institute
