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 protect ...

that pays the policyholder in the event of an

earthquake An earthquakealso called a quake, tremor, or tembloris the shaking of the Earth's surface resulting from a sudden release of energy in the lithosphere that creates seismic waves. Earthquakes can range in intensity, from those so weak they ...

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 insur ...

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 expenses, out of pocket by the policy holder before an insurance provider will pay any expenses. In general usage, the term ''deductible'' m ...

, 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 A building or edifice is an enclosed Structure#Load-bearing, structure with a roof, walls and window, windows, usually standing permanently in one place, such as a house or factory. Buildings come in a variety of sizes, shapes, and functions, a ...

. Another method is the use of HAZUS, 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 th ...

or insurance on damage from a

hurricane A tropical cyclone is a rapidly rotating storm system with a low-pressure area, a closed low-level atmospheric circulation, strong winds, and a spiral arrangement of thunderstorms that produce heavy rain and squalls. Depending on its ...

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 Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...

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 aftershocks can occur after the initial quake, and rarely, it may be

foreshock A foreshock is an earthquake that occurs before a larger seismic eventthe mainshockand 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 sequenc ...

. 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. Determination The primary purpose of a ...

. 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. New Zealand Daylight Time, local time (23:51 Coordinated Universal Time, UTC, 21 February). The () earthquake struck the Canterbury Region ...

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 affected Greater Los Angeles, California, on January 17, 1994, at 04:30:55 PST. The epicenter of the moment 6.7 () blind thrust earthquake was beneath the San Fernando Valley. Lasting approximately 8 seconds ...

, 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. 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. 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 is an island country in East Asia. Located in the Pacific Ocean off the northeast coast of the Asia, Asian mainland, it is bordered on the west by the Sea of Japan and extends from the Sea of Okhotsk in the north to the East China Sea ...

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 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 (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 (polity), state. In the case of its broad associative definition, government normally consists of legislature, executive (government), execu ...

-owned

Crown entity A Crown entity (from the Commonwealth term ''The Crown, Crown'') is an organisation that forms part of New Zealand's public sector organisations in New Zealand, state sector established under the Crown Entities Act 2004, a unique umbrella governa ...

which provides primary natural disaster insurance to the owners of residential properties in

New Zealand New Zealand () is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and List of islands of New Zealand, over 600 smaller islands. It is the List of isla ...

. In addition to its insurance role, EQC also undertakes research and provides training and information on

disaster recovery IT disaster recovery (also, simply disaster recovery (DR)) is the process of maintaining or reestablishing vital infrastructure and systems following a natural or human-induced disaster, such as a storm or battle. DR employs policies, tools, ...

. 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

and war damage to include other natural disasters such as natural landslips,

volcanic eruption A volcanic eruption occurs when material is expelled from a volcanic vent or fissure. Several types of volcanic eruptions have been distinguished by volcanologists. These are often named after famous volcanoes where that type of behavior h ...

s, hydrothermal activity, and

tsunami A tsunami ( ; from , ) 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 underwater explosions (including detonations, ...

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

The National Disaster Insurance Institution (DASK) is a Turkish government agency which provides compulsory earthquake and natural disaster insurance to the owners of almost all buildings in

Turkey Turkey, officially the Republic of Türkiye, is a country mainly located in Anatolia in West Asia, with a relatively small part called East Thrace in Southeast Europe. It borders the Black Sea to the north; Georgia (country), Georgia, Armen ...

. DASK is currently managed by Türk Reasürans, which is wholly owned by the Ministry of Treasury and Finance. DASK was established in 1999 as the Turkish Compulsory Insurance Pool (TCIP) in the aftermath of 1999 İzmit earthquake, and was primarily intended to provide coverage for earthquakes. TCIP was managed by the , a subsidiary of İşbank, until 2005.

Industry

Earthquake insurers use simulations to estimate the risk of an earthquake; companies which do that work include CoreLogic, which acquired earthquake modeler Eqecat in 2013 and AIR Worldwide, which is owned by the insurance analytics firm Verisk Analytics.

References

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