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Earthquake Engineering and Insurance

A primary objective of earthquake engineering is to prevent or minimise earthquake damage to buildings and other structures. A primary objective of insurance is to protect individuals and organisations from financial losses arising from damage to buildings and other structures. Consequently it could be expected that there would be a close relationship between the earthquake engineering community and the insurance industry. In practice the relationship, with some exceptions, has not been strong historically, but the situation is now rapidly changing. This paper looks at the historical development of earthquake insurance, the role played by earthquake engineering, the changes that are currently occurring and the background to them, and the implications these changes have for the future relationship between the earthquake engineering fraternity and the insurance sector.

It is shown that major events, or the lack of them, during the 20th century have largely moulded the attitude to earthquake insurance in different parts of the world during this period, but that in most cases until relatively recently earthquake engineering has not played a very significant direct role in this process. This is largely because where earthquake insurance has been provided it has been provided on a reactive blanket basis - ie in reaction to a perception of risk based on past losses, and applied uniformly on a regional or national basis irrespective of individual property vulnerability. An exception has been New Zealand, where the Earthquake Commission has been a major sponsor of earthquake engineering research directed at mitigating earthquake losses through improved building codes and standards.

This situation is changing rapidly with the increasing use by the insurance industry of sophisticated computer based models which simulate the occurrence of earthquakes and the resulting losses. These models are a product of earthquake engineering, and incorporate a high level of earthquake engineering expertise. They are being used in two ways - to provide probabilistic information on future losses which can be used for designing catastrophe risk financing programs, and to enable insurers to rate individual properties. These developments are revolutionizing the approach to earthquake insurance, and leading to a much closer relationship between earthquake engineering and the insurance industry. Some of the implications of this for earthquake engineering are discussed.

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