Insurance industry response to major quakes expedites recovery: report

How did the industry perform in aftermath of the most expensive insured quakes in history?

The global insurance industry’s response to major earthquakes in Chile, Japan, and New Zealand played a significant part in each nation’s recovery process, according to new research published today by Marsh.

The Marsh Risk Management Research briefing, “Comparing Claims from Catastrophic Earthquakes,” examines how the insurance industry performed in the aftermath of three of the four most expensive insured earthquakes in history, which occurred over 13 months between February 2010 and March 2011.

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Marsh reports that most claims filed by its clients in Chile were settled within 12 months, and the majority within 18 months in Japan. In New Zealand there are still many outstanding claims, due to practical issues, such as the closure of the central business district, on-going earthquake-related activity and practical difficulties in assessing the scope and nature of damage, which is reflected across the industry. However, 16% of claims were closed after 12 months, and 32% after 18 months.

While Chile achieved the quickest claim settlement rate, the country did not experience the same degree of urban impact and restriction zones as New Zealand or Japan. Although Japan is often associated with earthquake risk, even with its prior experience, the nation was not prepared for the full extent of the earthquake, tsunami, and radioactive contamination.

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“Marsh’s research reveals that there are reassuring similarities in how insurers interpreted and applied the policy language in each of the events, which offer clients added confidence in their insurance provision and its application in future losses,” said David Pigot, chairman of Marsh’s Global Claims Practice, in a press release.

“For those negotiating settlements on their clients’ behalf, the challenge is to get insurers to treat a client as a client, and not as part of their portfolio. There is some concern surrounding the strategic portfolio implications of insurers’ decision-making, which makes them mindful about setting a precedent on other claims resulting from the same earthquake or other earthquake-related claims.”

According to Marsh, clients can mitigate potential coverage problems in several ways, including: declaring values accurately to insurers; rigorously examining supply chains and effects on customers; and understanding how policies apply deductibles and sub-limits.

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Pigot added: “The total insured loss from the earthquakes in Chile, Japan, and New Zealand is currently estimated in the region of $60 billion. Regardless of how we measure these events, they were truly devastating for the communities and businesses involved. It is heartening to report that the insurance industry stepped up and played its role in enabling the recovery process.”

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Transcontinental Media G.P.