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, fro ...

that causes damage to the property. Most ordinary homeowners insurance policies do not cover earthquake damage. Most earthquake insurance policies feature a high deductible, 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 with a roof and walls standing more or less permanently in one place, such as a house or factory (although there's also portable buildings). Buildings come in a variety of sizes, shapes, and fun ...

. 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 ...

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. Depe ...

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 thousa ...

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 seq ...

. 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 ...

. 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 approximate ...

, 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 ( 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 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. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government i ...

-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 Ac ...

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 ...

. 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 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 oft ...

s, hydrothermal activity, 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, 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