Earthquakes - Deadly risk, devastating damage

• Half of all natural disaster fatalities worldwide since 1980 have been due to earthquakes – either as a result of powerful tremors or resulting tsunamis.

• The 2011 Tohoku Earthquake off the coast of Japan remains the costliest natural disaster of all time, with overall losses of US$ 210bn. As a result of the magnitude 9.0 earthquake, a tsunami destroyed numerous coastal towns and caused the Fukushima nuclear disaster.

• One of the most destructive earthquakes occurred along the Turkish-Syrian border in February 2023. On the East Anatolian Fault, devastating tremors occurred over an area half the size of Germany. According to the USGS (United States Geological Survey), the strongest tremors were magnitude 7.8 and 7.5. Tens of thousands of people were killed.

The most important loss prevention measure is the solid and robust construction of buildings and infrastructure, so that they can withstand the enormous forces of strong earthquakes. This is usually regulated by national building codes, which often only apply to new builds. The main aim of such building codes is to protect human life. They ensure structural stability whilst accepting that some property damage may occur. However the new generation of building codes, such as those in use in the United States, Japan and New Zealand, also endeavour to reduce property damage. Planning measures such as deliberately avoiding highly exposed areas are often ignored, though.

There are many areas with high concentrations of values and population that are also located in zones of very high seismic activity. For the insurance industry, the possible loss accumulation in such areas is proving to be a key challenge. This makes it all the more important to be able to assess the earthquake risk very accurately. Only on this basis can premiums for any insurance cover be calculated correctly and risks managed. Insurers also contribute to reducing losses when, for example, they insist on structural improvements or land-use restrictions before underwriting risks.

Earthquake insurance is usually sold as an add-on to traditional fire cover or as a component of an EC (extended coverage) policy. Substantial deductibles are intended to limit loss accumulations and are a prerequisite for covering earthquake risks. Compared with windstorm cover, the insurance density of earthquake cover is – much like flood cover – relatively low in global terms.

Poorer countries in particular require a massive increase in earthquake insurance in order to lessen the personal financial impact of quakes and speed up reconstruction. One model could be the Turkish Catastrophe Insurance Pool (TCIP), which, as compulsory homeowners’ insurance, ought to cover a considerable proportion of the damage to buildings caused by the most recent earthquake in Turkey. Since the TCIP was set up, the market penetration of homeowners’ insurance against earthquake damage in Turkey has increased nationwide to more than 50%.

Nevertheless, the aim of such insurance pools is to achieve an even higher insurance penetration through suitable provisions. With its expertise, the insurance industry can also help to ensure that loss mitigation measures are implemented and enforced.

Munich Re systematically records the risks from earthquakes and is working on initiatives to make buildings and infrastructure more robust. At the same time, people’s financial protection can be improved through the expansion of insurance, especially in exposed emerging and developing countries.

Benefit from our decades of experience in assessing geophysical risks. Munich Re can offer solutions to meet your specific challenges.