Dear reader readers, how are you? Hopefully, your business will always run well.
As always, this newsletter will discuss risk management and insurance. This time it is about the risk of natural disasters, to be precise, earthquakes.
For us in Indonesia, a country in the ring of fire, earthquakes are disasters that often occur. Just a few months ago, on November 21, 2022, there was an earthquake in the Cianjur area, West Java, only about 100 km from Jakarta, the capital of the Republic of Indonesia.
As an impact of the earthquake, with a magnitude of 5.6 Richter, hundreds of people died, hundreds of injuries and thousands of houses were damaged.
Last week we were shocked to hear the news about the devastating earthquake that hit Turkey.
As a senior insurance broker and consultant, we want to review this disaster so that the general public understands earthquake risk management and insurance coverage.
If you are interested in this article, please share it with your colleagues so that they also understand like you.
A devastating magnitude 7.8 earthquake ruck Turkey’s Kahramanmaras province, about 23 kilometers east of Nurdagi in Gaziantep province near the Syrian border, at 4:17 a.m. local time on Monday, February 6, 2023, followed by a magnitude 7.5 aftershock nine hours later.
The latest update (12/02/23) reported the impact of the earthquake, ; security conditions in Turkey are getting more chaotic and uncontrollable. The death toll from the Turkish and Syrian earthquakes increased to 28,000 people as of February 12, 2023, morning WIB.
Istanbul Mayor Ekrem Imamoglu said in a recent interview that there are about 90,000 buildings that are particularly vulnerable to earthquakes in megalopolises with a population of about 20 million people.
Social conditions in the country are also rumored to be getting out of hand. Reporting from Al Arabiya, Turkish authorities have arrested 48 people for looting after a powerful earthquake struck Turkey.
In addition to looting, several groups in Turkey were also involved in clashes. The clashes that occurred frightened severally teams. As a result, the aid teams by Germany and Austria were withdrawn back to their respective countries because of the problem of clashes between groups.
Where did the earthquake epicenter occur?
The epicenter was just north of the Turkish border region in the town of Gaziantep, in Kahramanmaras province, but eight areas have also been affected. The ripples spread across the border into northwestern Syria. The quake occurred in the early hours of Monday morning.
The tremor lasted about a minute, destroying more than 6,000 buildings in Turkey alone, many occupied by sleeping residents.
The U.S. Geological Survey, which tracks seismic activity worldwide, said the earthquake struck at a depth of 17.9 km where the tectonic plates of Anatolia, Arabia, and Africa meet.
Turkey has a solid capacity to respond to crises. However, immediate and medium-term needs will cross the border in Syria, where residents grapple with wars and cholera outbreaks. This is a crisis on top of several crises in the affected region.
The magnitude 7.8 earthquake was also felt in Lebanon and Cyprus. In Beirut, the site of a chemical explosion that rocked the city two and a half years ago, the shaking of windows and walls sparked fears of another tragedy.
Records of the Last Earthquake that occurred in Turkey.
As in Indonesia, Turkey is no stranger to earthquake disasters.
In recent decades there have been several earthquakes that have caused casualties, and the following damage has been recorded:
- The last major gemba occurred in the area on January 24, 2020, in Elazıg. The magnitude 6.8 quake produced hundreds of aftershocks, disrupting rescue efforts.
- Previously, more than 17,000 people were killed in 1999 when a magnitude 7.6 earthquake struck Izmit, a city southeast of Istanbul. In 2011, an earthquake in the eastern city of Van killed more than 500 people.
Previously the areas between Turkey and Syria, which are now being hit by an earthquake disaster, have not been for the past 100 years.
Impact of the Turkey Earthquake on the World Insurance Market
According to the AM Best and Global Data reports, two powerful earthquakes, which hit southeastern Turkey on February 6, 2023, added a blow to the local re/insurance industry.
International reinsurance will undoubtedly be affected in proportion to the loss. The calamity comes at a time when reinsurance companies in Turkey have faced a very challenging operating environment, which significantly weakens their creditworthiness, rating agency AM Best said.
“Preliminary estimates of economic losses from catastrophic events are currently more than $1.0 billion, and it will take years for Turkish insurers to settle insured losses.
Economic losses are expected to be more than double the losses from similar earthquakes in 2020,” said Shabbir Ansari, senior insurance analyst at GlobalData.
The London-based platform provides data analytics and analysis of global industry experts. (Economic losses include insured losses, and the difference between the two is the insurance protection gap or the amount of insurance penetration).
The local government-owned disaster insurance pool – the Turkish Disaster Insurance Pool (TCIP, or DASK in Turkish) – is risk-bearing but does not have the right to make cash payments, says AM Best, explaining that it uses traditional international reinsurance and has previously plunged into alternative capital markets through the issuance of disaster bonds.
“Munich Re and Swiss Re have the highest-risk stocks above the loss program, with the remaining capacity understood to be provided by international reinsurers in Europe, the London market, and Bermuda,” AM Best continued.
Sejak tahun 2000, asuransi gempa bumi telah diwajibkan untuk tempat tinggal pribadi dalam batas-batas kota di Turki dan dilindungi oleh TCIP. Pool asuransi mencakup jumlah yang dijamin ke tingkat yang ditentukan, tetapi untuk jaminan asuransi di atas tingkat ini adalah opsional dan tidak tercakup oleh koleksi.
However, AM Best noted that there is no punishment for those who are not protected. As a result, insurance penetration rates vary widely across Turkey and are lower in the southeastern regions where earthquakes occur.
“The latest figures from TCIP show a mandatory earthquake insurance penetration of about 52% in the regions most affected by [earthquakes].”
“According to the GlobalData Global Insurance Database , property insurance gross written premium income (GWP) reached TRY 26.1 billion ($2.9 billion) in 2021 and accounted for 29.8% of turkey’s general insurance market.
The Turkish property insurance market recorded underwriting losses in 2021 as the combined ratio passed 100% for the first time in ten years and reached 107.2%,” Ansari said at GlobalData.
“The combined ratio, which is a combination of loss and cost ratio, is expected to deteriorate further over the next few years due to the current catastrophic events,” he added.
Impact on Insurance Business and Property
AM Best explains that TCIP does not cover commercial property, and earthquake insurance is not mandatory for businesses. “However, it has become a market practice for earthquake coverage to be included in policies issued by re/insurance companies.”
The report says that commercial insurance penetration has been driven through social marketing and the refusal of utility providers and mortgage lenders to provide unprotected services.
Current Business Conditions in Turkey
AM Best noted that the earthquake occurred when insurers in Turkey faced a highly challenging business environment characterized “by significant inflation and a weakening currency.”
Indeed, annual inflation increased dramatically in 2022 in Turkey, peaking at 86% in October, while the Turkish lira lost nearly 30% of its value against the U.S. dollar, according to the report.
Turkey’s deteriorating economy “meaningfully increases the asset and underwriting risks of many reinsurers,” which weighs on their risk-adjusted capitalization, AM Best estimates.
“In addition, the investment returns, which many market participants have relied on in the past, have become insufficient to compensate for poor underwriting experience, limiting internal capital gains.”
“As the company has not recovered from the impact of the 2020 earthquake, the recent earthquake will further impact the profitability of property insurers. As a result, Turkish property insurers are expected to record underwriting losses in 2023 and 2024,” Ansari said at GlobalData.
AM Best said the magnitude 7.0 earthquake that struck Turkey’s third-largest city, Izmir, on October 30, 2020, led TCIP to pay a claim of TRY435 million (US$52 million as of October 30, 2020), compared to an economic loss estimated by Aon of around US$400 million.
“Such an increase in the frequency of large-scale natural disasters will further create demand for natural disaster insurance in the country and support its growth. However, insurers’ profitability is expected to remain challenging over the next few years due to rising claims and rising inflation,” Ansari continued.
Understanding Insurance for Earthquakes
The risk of earthquakes is included in the risk group of catastrophic natural disasters with a significant impact.
In Indonesia, the insurance industry has grouped the territory of Indonesia into four zones. Zones 1 and 2 include low zones such as the island of Borneo and the east coast of Sumatra. Zone 3, the north coast of Java, the west coast of Sumatra, the island of Sulawesi, and zone 4 of the highest zone of the south coast of the islands of Java, Bali, Nusa Tenggara, Maluku, Papua, and Aceh.
Therefore, areas in zones 1 and 2 that are at high risk must be prepared for the risk of earthquakes, including Jakarta. Earthquake insurance coverage is a primary need in the region.
Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most regular homeowner insurance policies do not cover damage from earthquakes.
Most earthquake insurance policies have a high deductible, which makes this type of insurance worthwhile if the entire house is destroyed, but useless if the house is damaged. The rate depends on the location and the possibility of earthquake loss. Rates may be lower for wood homes, which withstand earthquakes better than bricks.
In the past, earthquake losses were assessed using mass inventory data and were mainly based on expert opinions. It is currently estimated to use the Damage Ratio (DR), the ratio of earthquake damage money to the total value of buildings. [1] Another method is the use of HAZUS, a computerized procedure for loss estimation.
What are the types of insurance that can cover the risk of earthquakes?
Here are some types of insurance that are well-known for their impact due to earthquakes:
- Life insurance
- Health Insurance
- Credit Insurance
- Property Insurance All Risks
- Earthquake Insurance
- Motor Vehicle Insurance
- Project Insurance
- Miscellaneous.
How to get earthquake insurance coverage in Indonesia?
The risk of earthquakes is not automatically guaranteed in every insurance policy. Therefore, you must ensure that every insurance policy you buy includes earthquake coverage.
Earthquake insurance cannot be purchased separately but as additional coverage on other insurance policies; for example, if you buy Property All Risks insurance, ask the insurer to include earthquake insurance coverage.
For the addition of earthquake insurance, it is necessary to pay an additional premium; the amount depends on the location and type of insurance.
To ensure that the guarantee of each of your insurance policies includes earthquake insurance, always use the services of an insurance brokerage company.
Insurance brokers are insurance experts and insurance consultants who are on your side. Insurance brokers design programs that suit their needs, placing these risks on several insurance companies while negotiating the premium rates.
The most important task of an insurance broker is to help you in the event of a claim, from the date of an accident to the occurrence of payments by the insurance company.
One of the leading insurance broker companies in Indonesia is L&G Insurance Broker.
For all your insurance needs, contact L&G today!
Sources:
- https://www.thenationalnews.com/mena/2023/02/06/turkey-syria-earthquake-where-when-map/
- https://earthobservatory.nasa.gov/images/150949/earthquake-damage-in-turkiye
- https://www.insurancejournal.com/news/international/2023/02/08/706657.htm
- https://kabar24.bisnis.com/read/20230212/19/1627123/turki-makin-chaos-korban-meninggal-bertambah-terjadi-penjarahan-2-negara-tarik-bantuan?utm_source=izooto&utm_medium=push_notifications
- https://en.wikipedia.org/wiki/Earthquake_insurance
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