As noted by my colleague, 2016 was a busy earthquake year; we've seen devastating events impact Japan, Ecuador, New Zealand and Italy. And although the December 2016 Mw 6.5 earthquake off the coast of California did not have an impact on the state, it served as an important reminder that many of our highly populated cities and states within the US are certainly at risk from earthquakes.
As a weather forecaster, the thing that always scared me about earthquakes was their unpredictability. I know when a hurricane is coming, or when severe thunderstorms that are capable of producing tornadoes, hail and strong winds will move through an area. Earthquakes can seemingly strike at any time, upending governments, businesses and lives in a matter of seconds. The effects of a devastating earthquake can persist for months to years, particularly in areas where those impacted are not financially prepared to address the aftermath. But the sooner cash pours into an affected area, the sooner the area can begin to recover, blunting long-term economic impacts. Therefore, given that federal funding can take months to receive, it is simply not sustainable for public sector entities to rely on the federal government as their sole source of funding post-disaster recovery efforts. Additionally, federal funds will not cover all losses sustained by a government in the wake of an earthquake: Overtime pay for emergency service personnel and debris removal, for example, will be borne at the local government level.
At Swiss Re, we are constantly striving to develop products that address these unique needs of the public sector post-disaster. Parametric insurance solutions are one such product; as recently highlighted by Risk and Insurance, the payout for these coverages are determined not by the incurred loss of a buyer, but the characteristics of the event itself, such as earthquake magnitude or the maximum wind speed of a hurricane. The use of publicly and readily available data allows parametric solutions to be settled efficiently and quickly, without a burdensome claims process, getting the money to the buyer at the time when it's needed the most. Nicaragua, a country that purchases parametric insurance through the CCRIF SPC, to whom Swiss Re provides reinsurance, received a payout of USD 500,000 from its earthquake policy after the Mw 6.1 earthquake that struck on June 9, 2016.
Our experience with parametric products allows us to constantly improve upon and expand our product offerings to our clients. In the coming weeks, we will be unveiling our newest parametric product available to clients in earthquake-exposed areas: Swiss Re QUAKE, which will use the client's portfolio and ShakeMap from United States Geologic Survey (USGS) to determine a payout. The ShakeMaps are available from the USGS immediately after an event, allowing for rapid settlement. Consideration of the client's distribution of assets throughout an earthquake exposed area allows us to structure a product which will produce payouts for earthquake events that will have an impact of their portfolio, reducing basis risk.
Swiss Re seeks to make the world more resilient. The introduction of QUAKE into our product offering supports our mission and will provide another tool available to our clients to increase their financial resiliency after an earthquake.
Category: Climate/natural disasters: Disaster risk, Earthquakes
Location: California, United States