Why was he death toll over 200,000 when an earthquake struck Haiti, while so far less than 1000 people have died from the one that struck Chile, which was approximately 500 times more powerful? One of the answers lies in the state of develoment of the local insurance market.
A bulletin from the Insurance Information Institute (I.I.I.) notes that although “billions of dollars in insured and economic losses are expected from the earthquake that struck central Chile on Saturday, February 27, the country’s “highly developed insurance market” would help the country recover.
I.I.I. President Robert P. Hartwig, CPCU, who is also an economist, pointed out that “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.” He contrasted the situation to that in Haiti, which “has virtually no private insurance market,” he stated.
“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,” Hartwig continued. “Insurance is the swiftest, most efficient means to affect recovery after catastrophic events.”
He also stressed that Chile’s “half-century commitment to strengthening building codes, ” as “having saved countless lives.” The country’s building codes are “among the most stringent in the world,” he added.
“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.” By contrast, the current number of lives lost in the Chilean quake is estimated at 795, according to government sources, with around 500 people still missing.
The bulletin noted that “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. $2.3 billion and life premiums U.S. $3.5 billion. By contrast, in Haiti, estimated total nonlife premium income written in 2008 was $19 million.”
In addition earthquake coverage in Chile 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.”
By contrast the I.I.I. noted that 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.”
However, the bulletin also indicated that only 12 percent of California homeowners “carry earthquake insurance today compared to about 30 percent in 1994 when the Northridge earthquake struck,” despite the fact that the state is more at risk than any other from violent quakes and huge losses. The I.I.I. noted that the Northridge earthquake “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. [See also IJ web site – https://www.insurancejournal.com/news/international/2010/03/02/107767.htm ].
Axco Insurance Information Services estimates that about 90 percent of property policies in Chile carry earthquake coverage, said the I.I.I. However, it also noted that, “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.”
Source: Insurance Information Institute – www.iii.org
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