Presented by: Insurance Impact of Earthquakes

The Japan and New Zealand earthquakes, in conjunction with flooding in Australia, have caused reinsurers to take losses significantly larger than their annual catastrophe budgets. The ultimate fallout will be much greater when contingent business interruption losses are tallied.

The one coverage that’s currently of great debate in the industry is Contingent Business Interruption. Sanjay Godhwani, Chartis U.S. and Canada Region

While each of the earthquakes produced large losses, it’s the aggregation of events in one region – New Zealand and Japan earthquakes, along with the Australia floods – that is having the greatest impact on the insurance market. In the aggregate, conservative estimates put insured losses from those events at $45 billion to $50 billion, but contingent business interruption (CBI) losses are still being calculated.

These disasters highlight the problem that occurs when insurers quantify risk for a three-, five-, or even 10-year period. Insurance prices for catastrophe-prone property risks in that part of the word had been very depressed. As a result, there’s been a very sharp increase in post-event pricing in that region. Earthquake insurance prices in California and the Pacific Northwest are also rising.

The earthquakes in Japan and New Zealand also caused a reassessment of CBI coverage. It’s still unclear what the ultimate losses will be, as companies dependent on vendors in Japan may not experience supply chain problems until many months after the disaster. Brokers,

insurers and clients are much more aware of their CBI exposure. As a result, risk managers are considering buying higher earthquake limits to ensure they have adequate CBI coverage.

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