Earthquakes will increase demand for insurance

Yesterday’s earthquakes were significant for a number of reasons. Certainly, the Virginia earthquake registering at 5.8 on the Richter scale and the Colorado temblor ranking 5.3 shook up citizens in a way that few from these areas can remember. While West Coasters may josh at upset populations in the Rockies and on the East Coast, these quakes may cost them something in the longer run, too.

In truth, most residents in both of the affected areas have not experienced the visceral feeling of fear and uncertainty caused by an earthquake. While the physical damage may be limited in both cases, the psychological reaction by insurance buyers is likely to be noticeable.

Earthquakes in the Northeast – are we insured?

Every time there is a huge earthquake in one part of the world, it is common and certainly appropriate for other parts of the world to consider the risk of earthquakes closer to home. The Northeast is home to infrequent but not insignificant earthquakes. During 2010, an earthquake in Bernardsville, New Jersey along the Ramapo fault clocked in at 2.6 on the Richter scale. Later that year, a 3.9 quake was registered off the New York and New Jersey coastline.

Larger quakes have occurred in historical time. A 5.2 magnitude quake along a fault that runs roughly along 125th Street in Manhattan caused great damage in 1737. Similarly, a 6.2 quake near Gloucester, Massachusetts caused damage in Boston, Salem and other colonial cities. A quake of the same strength and in the same place today is predicted to cause about $1.6 billion in damage and result in 10 deaths

Nuclear power comes under scrutiny in aftermath of Japan crisis

The devastating loss of life and damage to property in Japan continues to unfold. While the extent of the radioactive emergency at Japanese nuclear power plants remains to be seen, this situation highlights the concern for safety and will most likely increase the public resistance to nuclear power development, both in the U.S. and worldwide.

Japanese nuclear power plants are among the best-designed and protected in the world, but an unlikely series of events culminated in failure of the reactor cooling systems:

• Earthquake knocked out primary cooling systems
• Diesel backup generators which would have provided sufficient power to cool and shut down the reactors were destroyed by the tsunami

Japan earthquake could cost $35 billion and be 2nd highest cat loss behind Katrina

It was reported today that insured losses from last week’s Japan quake could hit as much as $35 billion. Though it is still a preliminary estimate, it could go down as the most expensive earthquake in modern history. It could also trigger higher premiums in the insurance market after years of soft market conditions.

AIR Worldwide reported the loss estimate range between $14.5 billion to $34.6 billion, based on a range of 1.2 trillion yen to 2.8 trillion yen, converted at 81.85 yen to the dollar. Of all the catastrophes since 1970, adjusted for inflation, it would rank as the second costliest behind Hurricane Katrina.

At the start of 2010, analysts said it would take a $50 billion event to stem the price declines in the market for just a year. Since then, the industry has seen at least $10 billion in losses from an earthquake in New Zealand, unknown losses from Australian flooding, and an estimated $8 billion to $10 billion in losses from unrest in the Middle East. The losses could cumulatively be enough to trigger the hard market.

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SoCal earthquakes happen more frequently and overdue for a big one

Reports from researchers at Arizona State and UC Irvine who have investigated earthquakes along the San Andreas fault over the past 700 years suggest that Southern California is overdue for a major shock.

These researchers, as reported by the Insurance Journal, outlined that major quakes take place along the Carrizo Plain which stretches 100 miles northwest of Los Angeles every 45 to 144 years. But, it has been since 1857 that the last major quake ranging from 6.5 to 7.9 on the Richter scale took place at Fort Tejon. The research is contrary to previous studies that suggested the frequency of such large earthquakes to be much lower.

If these academics are correct, they are being mostly ignored by the insurance industry. Availability and cost of Earthquake Insurance continues to improve for most buyers. Capacity is up by about 25%

Chile quake will be costly

It has been reported that Chile’s recent earthquake could result in up to $8 billion in claims, according to catastrophe modeling company EQECAT Inc. The report released this week says insured losses from the 8.8 quake that struck on Feb. 27 could have insurers paying from $3 billion to $8 billion. The range of potential loss is wide because the estimate is not yet supported by information from the scene of the earthquake, there remains uncertainty as to the extent of infrastructure damage, and business interruption costs depend on the speed at which transportation and utility networks are restored.