Insured losses and fatalities following earthquakes will continue to increase despite relatively level seismic activity, according to a report issued by Swiss Re.
The study, released Tuesday, argues that a worldwide urban population explosion is leading to increased losses for insurers.
“[Many] of the rapidly growing urban areas with high population densities are located in seismically active areas (e.g. Istanbul, Mexico City, Jakarta, Manila, Tokyo). As a result, the probability of earthquakes with a high death toll continuously increases, although seismic activity itself remains the unchanged,” according to Swiss Re’s latest Sigma study released Tuesday.
The Sigma study says that earthquakes between a 7 and 7.9 magnitude have occurred an average 15 times per year since 1900, with many years falling within the “normal” range in terms of occurrence. Larger magnitude events, those 8 or higher, have occurred about once per year during the same time frame.
However, in terms of insured losses, two of the three costliest earthquakes happened last year: in Chile ($8 billion in losses) and New Zealand ($4.4 billion in losses). The costliest quake event, the 1994 Northridge earthquake, cost insurers $21 billion in terms of 2010 dollars.
“A significant trend has been noted on the exposure side: population growth and higher population density, especially in urban areas, exposes more people to a single damaging earthquake.”
In terms of models, the Sigma report argues that secondary loss agents are not “sufficiently considered in earthquake risk models.” The risks – which are not tied directly to ground shaking such as ground “liquidfication” – often increase insured losses but are not reflected in catastrophe models.
The report also argues that business interruption has become an increasingly large portion of post-earthquake claims but insurers have little experience modeling or anticipating their losses.
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