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Effective Earthquake Insurance Risk Management Strategies

Effective Earthquake Insurance Risk Management Strategies

April 24, 2024

Effective Earthquake Insurance Risk Management Strategies

The 2023 revision of the U.S. Geological Survey’s National Seismic Hazard Model (NSHM) indicates increased earthquake risk in California, Alaska, and surprisingly, the East Coast. Recent seismic events, like the magnitude 4.8 earthquake in the New York City area, underscore the potential risk.

Both U.S. coasts, densely populated and vital for global commerce, face immense economic risk from major earthquakes. To mitigate this, an article from Risk Management Magazine suggests businesses and governments in seismic zones should utilize insurance products, like parametric insurance, for financial protection. Parametric insurance offers transparency, rapid payouts, and flexibility, using objective data like earthquake intensity to determine claims.

This insurance relies on metrics recorded by the U.S. Geological Survey (USGS), ensuring impartiality in claims assessment. With USGS data available shortly after an earthquake, claims can be processed within 30 days. Unlike traditional insurance, parametric coverage isn’t contingent on physical asset damage, allowing funds to address broader losses.

Parametric insurance can fill gaps in coverage for underinsured assets, compensate for lost revenue due to area disruption, and provide support to affected employees. It’s essential to recognize ongoing seismic risk, as indicated by the National Seismic Hazard Model (NSHM), despite recent quiet periods. While complete earthquake-proofing is impossible, parametric insurance offers a crucial tool for managing potential financial and physical damage.

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