Toolkit: earthquake – on firmer ground

The difficulty of modelling earthquake exposures makes sound risk mitigation plans critical. Earthquake risk reduction requires a multi-disciplinary approach. It cannot be restricted to improving accuracy of seismic hazard prediction but should extend to updated understanding of the exposure and vulnerability of the built environment in vulnerable regions.

The extent of economic loss covered by insurance varies greatly based on local regulation and custom. For the 10 most expensive insured-loss earthquakes, insured losses as a percentage of economic losses were only around 20%, representing a significant uninsured sum for people, businesses and governments to bear.

As earthquake damage coverage is not always included in homeowner policies, consumer awareness about the need for a policy rider or stand-alone earthquake coverage is important to help communities recover following a seismic event.

In addition to traditional insurance coverages, governments can consider public-private partnerships that can provide innovative solutions. These include incentivising individual purchase of insurance or government-backed programs to help whole regions recover more quickly than if coverage were absent.

Earthquakes cannot be prevented. Still, with knowledge gained from past events, businesses and governments are now better able to take more informed risk preparedness measures. Improved building codes and code enforcement are two areas that have the biggest impact on reducing deaths, injuries and property losses in seismic zones.

For corporates, specific actions will vary by business but in all cases, identifying site-specific exposures and areas of vulnerability is critical. As risk knowledge evolves, it may be necessary to reconsider past planning decisions to account for risks not initially considered at the time of construction. Asset readiness, or investing in actions to reduce exposure and vulnerabilities, and hence the scale of potential losses suffered by businesses, should be the guiding principle behind such actions.

Reinsurers have an important role to play as a “shock absorber” for large risks such as earthquakes, but in today’s constantly evolving world, we are much more than that. Beyond financial support, reinsurers contribute expertise in risk identification, assessment and modelling to help insurers understand accumulation threats and enhance resilience, which then trickles down to the consumer.

Today, insurers need granular data, advanced modelling, and the next level of risk knowledge to build a 360-degree view of their portfolio to better understand their exposure to earthquake risk. With CatNet®, Swiss Re’s tool for assessing global catastrophic risks, our clients can access high-resolution, accurate datasets, which span the entire planet, and the ability to view multiple earthquake-risk models on a single platform, leading to more comprehensive risk assessments.

Find out more about our offerings across risk transfer and technology solutions:

Our Risk & Data Services platform helps companies build a digital twin of their assets to get an accurate overview of their exposure. The RDS Property Exposure Management solution gives risk managers insight into their property portfolio exposure to earthquake.

The world must learn from the past and anticipate the future as it continues to prepare for earthquake occurrences. Future-proofing society against the impact of earthquakes requires a multi-stakeholder approach, as no single entity can address these complex issues alone. Insurers and reinsurers’ expertise can be a catalyst for conversation and change, helping the public sector better understand exposure, allocate resources effectively, and develop proactive mitigation strategies.