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Underwriting aspects

There are many areas with high concentrations of values and population that are also located in zones of very high seismic activity. In highly exposed areas with, at the same time, a high concentration of values and high insurance penetration, the insurance industry is confronted with a major problem: the possible accumulation of losses which include the risk of financial ruin. This makes it all the more important to gain an objective impression of the exposure. Only with this as a basis can the most appropriate prevention measures be implemented, be they realistic premium calculations, accumulation controls, and the establishment of reserves, or structural improvements and land-use restrictions.

Earthquake insurance is generally taken out as a supplement to traditional fire insurance cover or as a component of an EC (extended coverage) policy. Substantial deductibles, preferably defined as a percentage of the sum insured, and strict indemnity limits in the form of policy and event limits to restrict loss accumulation are a precondition for the insurability of earthquake risk. Compared with windstorm, earthquake (like flood) has only attained a low level of insurance penetration in global terms. This is due above all to the fact that severe loss events are relatively rare even in areas with high seismic activity.

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