Be Prepared

Insurers and reinsurers may have sufficient funds to absorb losses from Japan’s 9.1 magnitude earthquake, yet the impact of the quake and resulting tsunami and fires are a stark reminder that it’s important to adequately prepare for the quake, as well as for what happens after the shocks.

AIR Worldwide estimates the losses could reach $35 billion. That figure does not include losses from non-modeled perils, including tsunami and landslide; to automobiles; to uninsured properties; to land; to infrastructure; indirect business interruption losses; loss adjustment expenses; and demand surge. As the totals grow in the coming months, remember that these figures are based on a community that was “prepared.”

Japan was well-aware of its earthquake risks, with warnings that sounded before the earthquake struck. Only 14 percent to 17 percent of Japanese homes are covered for earthquake risk. Yet residents are somewhat fortunate that earthquake damage to property is covered under the existing Japanese state-backed Earthquake Insurance System, with the national government assuming up to $52.6 billion of residential earthquake losses. Additionally, some businesses had planned years in advance by issuing safety backpacks to employees. All some Tokyo workers had to do was pull out the backpack that included a hard hat and first aid kit, put on comfy shoes, and start walking home while public transportation was at a standstill.

It’s difficult to imagine how a community would recover from a massive quake if it weren’t as prepared as Japan and Christchurch, New Zealand, where nearly all homes damaged in the 6.3 quake are insured for earthquake losses. But that’s the position the United States is in.

Just 12 percent of California homes with fire insurance also have earthquake insurance, the state does not have an early warning system like Japan, and the number of individuals with earthquake preparedness kits is unknown. Furthermore, it’s likely that an even smaller percentage of residents in other states have earthquake insurance coverage — despite being at risks for earthquakes by being located on seismically active zones like the Midwest’s New Madrid fault that recorded an estimated 8.0 quake in 1811-1812.

The U.S. Federal Emergency Management Agency predicts that a serious earthquake on that fault would damage property in Alabama, Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee, and cause losses higher than $50 billion, according to Reuters.

“We must do more to prepare for the day when a massive earthquake will strike the U.S., whether in California or some other part of the country,” says Glenn Pomeroy, CEO of the California Earthquake Authority. Because whether your customers believe in the need for earthquake insurance, they should take steps to reduce their risk and ensure their safety.

Topics California Catastrophe Japan