According
to recent scientific
research, the Earth may be experiencing increased earthquake and volcanic
activity. While there is some debate that this may be a statistical
anomaly because of better recording, rather than a real increase, there is
no debate that earthquakes and volcanoes remain some of the scariest and least
predictable of natural catastrophes.
Interestingly,
there is now a belief that humans may be responsible for some of the increase
in seismic activity. There is data that suggests that fracking
and waste water injection into the subsurface of the earth have been
responsible for increased
seismic activity in the Central United States, and Oklahoma in particular. While there may
be no consensus on what is causing this increased activity, the fact remains
that Oklahoma can now expect to experience seismic activity on par with California.
While
standard homeowners and commercial property policies typically do not cover
direct damage from earthquakes, policies may cover some resulting damage from
causes of loss such as fire and carriers will often offer earthquake coverage
as an additional
coverage. For minor earthquakes the exposure for insured losses remains
small, but for major earthquakes there is the potential for large insured
losses. For example, major earthquakes in Japan and New Zealand in 2011
resulted in insured losses that have been reported as high as $40 billion and
$16 billion respectively. More recently, the April 2016 7.8 magnitude earthquake
that struck Ecuador had insured losses estimated between $325
million and $850 million.
Surprisingly,
in the face of this increased earthquake risk, it appears that many homeowners
may be foregoing earthquake insurance. In fact, since the 1994 Northridge
earthquake in California, the percentage of homeowners with earthquake coverage
has reportedly decreased from 30%
to about 12%. More than likely this is driven by the fading memories of the
damage caused by the Northridge earthquake and the high cost of earthquake
insurance. However, with increased seismic activity in the Central United
States and the projections of a major earthquake in California
increasing, those numbers may increase.
While coverage
for damage caused by volcanoes is more
common in insurance policies, volcanoes tend to be more remote and have
less direct impact on inhabited areas. For example, while the 2010 eruption of
Eyjafjallajökull volcano in Iceland caused a dramatic shutdown of air
travel in and out of much of Europe, the incidence of insured
loss was not great due to the limited direct physical damage caused by the
ash cloud. Typically, coverage for business interruption requires that the
interruption arise from direct physical loss to insured property or to a
dependent or contributing property for contingent business interruption
coverage. Therefore, the absence of direct physical damage from the eruption
meant that insured losses were minimal. However, as the population of the Earth
continues to grow and more development encroaches
on areas prone to volcanic activity, it can be expected that major eruptions
may bring more insured damage.
Posted by Jonathan MacBride
