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07 Mar 17 12:17

The Swiss Seismological Service (SED) registered yesterday (Monday, 2017-03-06, 21:12 local time) an earthquake with magnitude M4.6. The epicenter occurred in Central Switzerland near Linthal in the Kanton of Glarus at a depth of 5 km in a rather unpopulated area. The SED cannot exclude that this quake was a precursor of a bigger one, however this is considered unlikely.

The quake was widely felt in Switzerland and also felt abroad. Nevertheless, the damage to houses will be limited and severe damages with even collapsed buildings, as we have seen last year in Italy, can be excluded. However, some people will report to their insurance company minor damages like cracks in walls or fallen roof tiles. And it will be at this point that some citizens will realize that their building is one of over 75% of private buildings in Switzerland, which have no earthquake coverage.

A recent Swiss Re study (english, german) shows that a magnitude 6.2 earthquake in central Switzerland can lead to a total loss of CHF 17.6 billion. This loss would occur in an area, where on average only 8.5% of private property is insured. Moreover, the study also estimates potential mortgage defaults banks would have to bear. And 80% of it will be borne by cantonal and local banks with a local footprint. The study highlights that an insurance protection gap – in this case earthquake protection gap – is as much an advanced as an emerging market problem. Switzerland, with its highly developed insurance culture, is unfortunately no exception.

Figure source: Swiss Seismological Service (SED)


Category: Climate/natural disasters: Disaster risk, Earthquakes, Resilience

Location: Switzerland


10 Comments

Martin Bertogg - 7 Mar 2017, 5:39 p.m.

Hi Oliver, thanks for highlighting.
In Switzerland, our property insurance penetration is very high, close to 100% for most risk factors, but ironically not for Earthquake, as you point out.
I wonder how we steer our personal insurance buying decisions:
We we are ready to spend significant money on automotive hull insurance, where our maximum liability might reach CHF 50 or 100k - and typically presents no risk of a private financial disaster. At the same time many of us have a mortgage of CHF 1m or more, and carry this risk in most cases unprotected...

Andreas Schraft - 8 Mar 2017, 5:08 p.m.

I am relieved to read that almost no damage was caused by this event. It is a reminder that Switzerland is an earthquake country too.

http://www.seismo.ethz.ch/en/knowledge/earthquake-country-switzerland/

Alicia Montoya - 9 Mar 2017, 6:15 a.m.

Hmmm... Maybe it's because you're not expressing the issue in personal terms. I hate to say it but "protection gap" doesn't speak to me, it doesn't relate to the individuals who are meant to respond to it. I personally deeply dislike the term.

Also, by addressing the issue on broad terms, you're failing to account for the Dunning Kruger effect (it won't happen to me).

My advice to you: Make your offering personal, your benefits tangible on an individual level and then maybe people will start rethinking their choices.

Oliver Kübler - 9 Mar 2017, 7:37 a.m.

Dear Alicia, thank you for your comment. I 100% agree that it is an uphill battle to reach consumers' heart with abstract numbers and an even more abstract concept of "protection gap". I feel that as a company with a strong B2B history we got aware of this and are getting better on this - but sure still far from perfect. The publication, which I refer to, specifically addressed institutional portfolio managers such as banks und pension fund, which are used to technical numbers and terms. There might be better words to descripe what "protection gap" wants to express, namely that in a big quake many will not be protected. But still it is the term used in our industry.

Alicia Montoya - 9 Mar 2017, 10:02 a.m.

And that's exactly my point... :)

Lucia Bevere - 14 Mar 2017, 10:01 a.m.

"Protection gap" is an accepted terminology among the insurance providers to help focus their strategic efforts for expansion of insurance solutions to individuals and businesses, where most needed. However, we, as industry, also need to translate this mission into messages that resonate with the affected individuals and businesses and continuously educate about the benefits of financial protection.

I felt the Swiss earthquake myself. I was still in office when a tremble started to shake the buildings in Zurich. It was not strong but still noticeable and, most of all, brought back many childhood memories. As an Italian, I know that earthquakes can strike at any time, and yet each time it surprises you. As they are rare occurrences, our memory of their impact tends to fade over time.

In fact, after any disaster there is also a window opportunity to further remind of the benefits of insurance cover, encourage home-owners and businesses to protect themselves against such risk and, last but not least, to also build back with enhanced resilience.

Francesca Tamma - 14 Mar 2017, 1:58 p.m.

Good article Oliver and good discussion. I agree that this is a good time to address the challenge of making the insurance messages more personal. There is evidence that the perception of earthquake risks and the willingness to pay for insurance increase after these events (Kamiya and Yanase, 2016). But as I understand in Switzelrand some customers are still unaware of their lack of insurance. As a behavioural economist for Swiss Re, I have reached out to the client market and the underwriting team in the Switzerland property line of business. My goal would be to identify suitable primary insurers whom we could work with, to use behavioural economics to probe their customers to make better decisions for their future selves and purchase suitable insurance cover.

Haseena Saran - 10 Mar 2017, 4:05 a.m.

Nice concise article Oliver. Didn't expect these numbers!

Michael Felder - 16 Mar 2017, 3:22 p.m.

Hi Oliver, I read this with interest as living in Zürich area and owning a house. I checked the EQ protection upon buying the property. Gebäudeversicherung Kanton Zürich provides an included layered EQ protection as part of the obligatory annual insurance fee (german only http://news.gvz.ch/GVZ/GVZHomepage.NSF/WebViewPages/Erdbebendeckung?OpenDocument) and this seemed adequate. It has an excess of 10% or at least 50'000 CHF. Total sum for canton Zürich capped at 1 billion CHF (which is estimated damage for an equivalent of the Basel 1356 quake). It is expected that an EQ will need to be VII+ to reach the insurance layer which at least in Zurich happened every couple of 1000 years only. I consciously considered to bear both risks (excess and the potential underinsurance for large EQ event) by myself. Do you consider my case as part of the 75% unprotected or not?

Oliver Kübler - 20 Mar 2017, 4:02 p.m.

Dear Michael, in our report we consider your risk as protected. And you report it correctly that this is not the case for all possible earthquakes scenarios. Hence our statement that "over three quarters of private buildings in Switzerland have no earthquake coverage" is slightly conservative.


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