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Earthquake insurance is a form of property
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
that pays the policyholder in the event of an
earthquake An earthquake (also known as a quake, tremor or temblor) is the shaking of the surface of the Earth resulting from a sudden release of energy in the Earth's lithosphere that creates seismic waves. Earthquakes can range in intensity, from ...
that causes damage to the property. Most ordinary
homeowners insurance Home insurance, also commonly called homeowner's insurance (often abbreviated in the US real estate industry as HOI), is a type of property insurance that covers a private residence. It is an insurance policy that combines various personal insura ...
policies do not cover earthquake damage. Most earthquake insurance policies feature a high
deductible In an insurance policy, the deductible (in British English, the excess) is the amount paid out of pocket by the policy holder before an insurance provider will pay any expenses. In general usage, the term ''deductible'' may be used to describe o ...
, which makes this type of insurance useful if the entire home is destroyed, but not useful if the home is merely damaged. Rates depend on location and the probability of an earthquake loss. Rates may be lower for homes made of wood, which withstand earthquakes better than homes made of brick. In the past, earthquake loss was assessed using a collection of mass inventory data and was based mostly on experts' opinions. Today it is estimated using a ''Damage Ratio'' (DR), a ratio of the earthquake damage money amount to the total value of a building. Another method is the use of
HAZUS Hazus is a geographic information system-based natural hazard analysis tool developed anfreely distributedby the Federal Emergency Management Agency (FEMA). In 1997 FEMA released its first edition of a commercial off-the-shelf Catastrophe modeling ...
, a computerized procedure for loss estimation. As with
flood insurance Flood insurance is the specific insurance coverage issued against property loss from flooding. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands, floodplains and other areas tha ...
or insurance on damage from a
hurricane A tropical cyclone is a rapidly rotating storm system characterized by a low-pressure center, a closed low-level atmospheric circulation, strong winds, and a spiral arrangement of thunderstorms that produce heavy rain and squalls. Depend ...
or other large-scale disasters, insurance companies must be careful when assigning this type of insurance, because an earthquake strong enough to destroy one home will probably destroy dozens of homes in the same area. If one company has written insurance policies on numerous homes in a particular city, then a devastating earthquake will quickly drain all the company's resources. Insurance companies devote much study and effort toward risk management to avoid such cases. In the United States, insurance companies stop selling coverage for a few weeks after a sizeable earthquake has occurred. This is because damaging
aftershock In seismology, an aftershock is a smaller earthquake that follows a larger earthquake, in the same area of the main shock, caused as the displaced crust adjusts to the effects of the main shock. Large earthquakes can have hundreds to thousand ...
s can occur after the initial quake, and rarely, it may be
foreshock A foreshock is an earthquake that occurs before a larger seismic event (the mainshock) and is related to it in both time and space. The designation of an earthquake as ''foreshock'', ''mainshock'' or aftershock is only possible after the full sequ ...
. Although aftershocks are smaller in magnitude, they deviate from the original
epicenter The epicenter, epicentre () or epicentrum in seismology is the point on the Earth's surface directly above a hypocenter or focus, the point where an earthquake or an underground explosion originates. Surface damage Before the instrumental pe ...
. If an aftershock is significantly closer to a populated area, it can cause much more damage than the initial quake. One such example is the
2011 Christchurch earthquake A major earthquake occurred in Christchurch on Tuesday 22 February 2011 at 12:51 p.m. local time (23:51 UTC, 21 February). The () earthquake struck the entire of the Canterbury region in the South Island, centred south-east ...
in New Zealand which killed 185 people following a much larger and more distant quake with no fatalities at all.


California

After the
1994 Northridge earthquake The 1994 Northridge earthquake was a moment 6.7 (), blind thrust earthquake that occurred on January 17, 1994, at 4:30:55 a.m. PST in the San Fernando Valley region of the City of Los Angeles. The quake had a duration of approximately ...
, nearly all insurance companies completely stopped writing homeowners' insurance policies altogether in the state, because under California law (the "mandatory offer law"), companies offering homeowners' insurance must also offer earthquake insurance. Eventually the legislature created a "mini policy" that could be sold by any insurer to comply with the mandatory offer law: only earthquake loss due to structural damage need be covered, with a 15% deductible. Claims on personal property losses and "loss of use" are limited. The legislature also created a quasi-public (privately funded, publicly managed) agency called the CEA
California Earthquake Authority The California Earthquake Authority is a privately funded, publicly managed organization that sells California earthquake insurance policies through participating insurance companies. Established in September 1996 by the California Legislature, ...
. Membership in the CEA by insurers is voluntary and member companies satisfy the mandatory offer law by selling the CEA mini policy. Premiums are paid to the insurer, and then pooled in the CEA to cover claims from homeowners with a CEA policy from member
insurers Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
. The state of California specifically states that it does not back up CEA earthquake insurance, in the event that claims from a major earthquake were to drain all CEA funds, nor will it cover claims from non-CEA insurers if they were to become insolvent due to earthquake losses


Canada

There are 4,000 recorded earthquakes in Canada each year. Earthquake damage is not covered by a standard home insurance policy. In the next 50 years, there is a 30% chance of a significant earthquake in British Columbia.


Japan

The government of
Japan Japan ( ja, 日本, or , and formally , ''Nihonkoku'') is an island country in East Asia. It is situated in the northwest Pacific Ocean, and is bordered on the west by the Sea of Japan, while extending from the Sea of Okhotsk in the north ...
created the "Japanese Earthquake Reinsurance" scheme in 1966, and the scheme has been revised several times since. Homeowners may buy earthquake insurance from an insurance company as an optional rider to a
fire insurance Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or ...
policy. Insurers enrolled in the JER scheme who have to pay earthquake claims to homeowners share the risk among themselves and also the government, through the JER. The government pays a much larger proportion of the claims if a single earthquake causes aggregate damage of over about 1 trillion
yen The is the official currency of Japan. It is the third-most traded currency in the foreign exchange market, after the United States dollar (US$) and the euro. It is also widely used as a third reserve currency after the US dollar and the e ...
(about US$8.75 billion). The maximum payout in a single year to all JER insurance claim filers is 5.5 trillion yen (about US$39.4 billion); if claims exceed this amount, then the claims are pro-rated among all claimants.


New Zealand

New Zealand's Earthquake Commission (EQC) is a
Government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...
-owned
Crown entity A Crown entity (from the Commonwealth term ''Crown'') is an organisation that forms part of New Zealand's state sector established under the Crown Entities Act 2004, a unique umbrella governance and accountability statute. The Crown Entities Act ...
which provides primary natural disaster insurance to the owners of residential properties in
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island country ...
. In addition to its insurance role, EQC also undertakes research and provides training and information on
disaster recovery Disaster recovery is the process of maintaining or reestablishing vital infrastructure and systems following a natural or human-induced disaster, such as a storm or battle.It employs policies, tools, and procedures. Disaster recovery focuses on t ...
. EQC was established in 1945 as the Earthquake and War Damage Commission, as part of the New Zealand Government, and was originally intended to provide coverage for earthquakes as well as war damage. Coverage was eventually extended from solely
earthquake An earthquake (also known as a quake, tremor or temblor) is the shaking of the surface of the Earth resulting from a sudden release of energy in the Earth's lithosphere that creates seismic waves. Earthquakes can range in intensity, from ...
and war damage to include other natural disasters such as natural landslips,
volcanic eruption Several types of volcanic eruptions—during which lava, tephra ( ash, lapilli, volcanic bombs and volcanic blocks), and assorted gases are expelled from a volcanic vent or fissure—have been distinguished by volcanologists. These are of ...
s,
hydrothermal activity Hydrothermal circulation in its most general sense is the circulation of hot water (Ancient Greek ὕδωρ, ''water'',Liddell, H.G. & Scott, R. (1940). ''A Greek-English Lexicon. revised and augmented throughout by Sir Henry Stuart Jones. with th ...
, and
tsunami A tsunami ( ; from ja, 津波, lit=harbour wave, ) is a series of waves in a water body caused by the displacement of a large volume of water, generally in an ocean or a large lake. Earthquakes, volcanic eruptions and other underwater explo ...
s, with coverage for war damage later being removed. For residential land, storm and flood damage is covered. Cover extends over fire damage caused by any of these natural disasters.


Turkey

Earthquake insurance is compulsory.


Industry

Earthquake insurers use simulations to estimate the risk of an earthquake; companies which do that work include
CoreLogic CoreLogic, Inc. is an Irvine, CA-based corporation providing financial, property, and consumer information, analytics, and business intelligence. The company analyzes information assets and data to provide clients with analytics and customized ...
, which acquired earthquake modeler Eqecat in 2013 and
AIR Worldwide Verisk Extreme Event Solutions (formerly AIR Worldwide) is an American risk modeling and data analytics company headquartered in Boston, Massachusetts, with customers in insurance, reinsurance, financial services, and government markets. Verisk E ...
, which is owned by the insurance analytics firm
Verisk Analytics Verisk Analytics, Inc. is an American multinational data analytics and risk assessment firm based in Jersey City, New Jersey, with customers in insurance, natural resources, financial services, government, and risk management sectors. The company ...
.


See also

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Earthquake Commission The Earthquake Commission, ( mi, Kōmihana Rūwhenua), is a New Zealand Crown entity that invests in natural disaster research and education as well as providing natural disaster insurance to residential property owners. In March 2022, a bill ...
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Earthquake engineering Earthquake engineering is an interdisciplinary branch of engineering that designs and analyzes structures, such as buildings and bridges, with earthquakes in mind. Its overall goal is to make such structures more resistant to earthquakes. An earth ...
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Earthquake simulation Earthquake simulation applies a real or simulated vibrational input to a structure that possesses the essential features of a real seismic event. Earthquake simulations are generally performed to study the effects of earthquakes on man-made engin ...
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Global Earthquake Model The Global Earthquake Model (GEM) is a public–private partnership initiated in 2006 by the Global Science Forum of the OECD to develop global, open-source software, open-source risk assessment software and tools. With committed backing from acad ...
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Seismic retrofit Seismic retrofitting is the modification of existing built environment, structures to make them more resistant to seismology, seismic activity, ground motion, or soil failure due to earthquakes. With better understanding of seismic demand on stru ...


References

{{DEFAULTSORT:Earthquake Insurance Types of insurance Earthquake and seismic risk mitigation Earthquake engineering