Category: Category 1

Technology continues to revolutionize various aspects of the insurance industry, ranging from underwriting practices to claims processing. One area that has seen notable progress is the development and refinement of parametric insurance structures, particularly in the context of earthquake coverage.

Earthquake insurance has historically presented significant challenges. The rarity of damage-causing events and the inherent uncertainty surrounding ground shaking and building vulnerability make quantifying the risk difficult. Traditional earthquake insurance products have been both costly and difficult to obtain, with protracted claims processes exacerbating the burden on policyholders.

Parametric earthquake insurance offers a compelling solution by shifting the payout trigger from loss assessment to predefined indices, typically provided by third-party sources. This approach significantly reduces uncertainty, particularly concerning how buildings or homes respond to seismic activity. Moreover, the claims process is streamlined as the policy’s primary aim is not indemnification but rather prompt payout, often within days or weeks and sometimes even hours. Parametric insurance is often best when complementing a traditional insurance product by filling-in coverage gaps: supplementing existing limits, filling-in the deductible layer, and providing partial pay-out on a traditional policy. 

The efficacy, however, of earthquake parametric insurance, like all parametric insurance, hinges on addressing the concept of basis risk—the disparity between payout and actual loss. To structure parametric earthquake insurance contracts, insurers commonly employ two approaches: the “cat in the box” and “ground shaking at location” methodologies. The US Geological Survey (USGS) and other governmental organizations provide estimates of magnitude and ground shaking after events, which serve as the trigger for the parametric earthquake insurance product. These valuable ground-shaking estimates, however, need to be considered in the context of the inherent limitations of ground sensor networks, volunteer reports, and seismic attenuation relationships. These ground shaking estimates are approximate, and the uncertainty, varying greatly by region, needs to be understood by the policyholder. 

The extent of these challenges depends on policyholder need and how the parametric coverage is being used. If addressing losses at a specific asset, then basis-risk associated with uncertainty in ground-shaking at the site is important. If the parametric coverage is being used to cover losses from business interruption associated with the disruption to an entire region, then basis risk will be viewed differently than if the coverage is being used for building-specific losses. A regional trigger would be needed for regional disruption, while a building-specific trigger will be needed for building-specific losses.

In recent years, the proliferation of sensor technologies has expanded the scope and efficacy of parametric insurance, particularly in monitoring weather-related perils such as hail and floods. By capturing real-time data on the impact of natural disasters at policyholders’ locations, on-site sensors reduce reliance on model-based estimations, mitigate basis risk, and expedite claims processing, ultimately enhancing the overall effectiveness of parametric insurance solutions.

This trend is now extending to earthquake coverage, with on-site sensors offering a more granular approach to assessing catastrophe events. Earthquake damage is building-specific, as anyone who has been on the ground following a major earthquake can attest. This variability is of course partly due to variability in construction and associated vulnerability of the structure. However, a large portion of damage variability from building to building is due to localized soil effects, seismic wave directivity, and localized seismic wave propagation. Capturing the actual shaking at the site will be a greater predictor of damage to the building, thereby reducing basis-risk in the parametric insurance policy. 

For more information, please view the InsTech & Safehub white paper: Corporate Earthquake Risk – The Potential for Building-Specific Risk Transfer

Our Co-Founder and CEO, Andy Thompson, recently sat down with John Schneider, Secretary General of the Global Earthquake Model Foundation (GEM), to discuss the partnership between our two organizations.

We wanted to take some time to share highlights from that conversation.

Andy: For those who aren’t familiar, can you explain GEM’s mission?

John: The Global Earthquake Model Foundation (GEM) was established in 2009 in Pavia, Italy to create a partnership between public and private sectors to develop global hazard and risk assessment tools and software.

Today, GEM provides datasets and software, like OpenQuake, as well as hazard and risk models, openly and freely to organizations and countries around the world to help assess earthquake hazard and risk and to inform risk reduction efforts.

We receive most of our funding from sponsorships in support of our mission, which is to develop and distribute earthquake hazard and risk information and make it available to reduce earthquake risk worldwide. Our vision is a world that is free of earthquake risk.

Andy: How would you describe the partnership between Safehub and GEM?

John: Well as you know, Safehub currently serves as an Advisor sponsor for GEM; and we’re pleased to have you as a representative to the governing board, helping facilitate a mutually beneficial partnership for our two organizations.

Our partnership allows Safehub to work with a community of scientists, engineers, and representatives from countries all over the world who share GEM’s mission—offering valuable opportunities for professional collaboration and innovation. But it’s more than that.

GEM provides a consistent view of hazard and vulnerability across countries and industries, and Safehub provides real-time, building-specific damage data after earthquakes. GEM models and Safehub data are complementary, in that GEM models can be used to estimate the potential for damage, while Safehub’s recordings can be used to improve the models for future risk or impact estimates.

Andy: Exactly. To provide that damage information, Safehub needs to have a good understanding of the vulnerability of specific buildings, and we achieve this by leveraging GEM’s data to inform our insights and projections.

Andy: When we talk about hazard and vulnerability, it can get confusing. How do you define them?

John: That’s true; when we talk about hazard versus risk, or versus vulnerability, the words roll off our tongues, but they don’t necessarily mean the same thing to everyone. Here’s how we define them: 

• Hazard is the likelihood of an earthquake happening in a location and the shaking that results from that earthquake. Hazard serves as the basis for building codes around the world.
• Vulnerability is the strength of the building and the potential for structural damage or mortality of the people inside.
• Exposure includes all the assets or people in a building—basically anything of value that is at risk during an earthquake.
• Risk is the combination of hazard, vulnerability, and exposure, and is expressed as probability vs damage or economic loss.

So, when we put data from GEM and Safehub together, our insights become even greater.

Andy: Agreed. With Safehub’s sensor technology, we can provide information related to risk and exposure. Without this type of data, GEM is only able to make estimates of the likelihood of damage, but Safehub’s technology delivers actual, real-time metrics that we will be aggregating for public use in the near future. Combining GEM’s vulnerability information with Safehub’s building-specific data helps fill in gaps in both of our models.

Andy: Speaking of which, we recently donated a Safehub sensor to GEM; how does the organization plan to use it?

John: We plan to install the sensor in CAR College, a former monastery building in the center of Pavia that is the residence building for many GEM staff. It’s an old stone structure built on Roman ruins, but the building itself is between 300 and 400 years old.

Around fifteen years ago, the building was refurbished, but cracks have already started to appear, so we’re concerned that the building may be compromised. There’s this question running through our minds about how much that building might actually be compromised already if there were a shake. We’re hoping to use the sensor to monitor any changes in the integrity of the building over time.

Additionally, GEM’s offices are adjacent to a building that houses a large earthquake shake table, and when it’s activated, it also shakes our building. We’re very curious whether the building is sufficiently isolated or whether it may actually be being gradually compromised as a result of this shaking testing. So, we also plan to install the donated sensor in this building some of the time.

We’re eager to try the sensor technology in our own buildings to see it in action and gain further insight into the safety of our facilities. 

Andy: Thank you so much for talking with me today, John.

A Future of Possibilities

At Safehub, we’re incredibly excited about the future possibilities of this partnership. GEM is currently working on understanding the relationship between physical damage and financial loss, and that’s where we can help fill the gaps. Safehub’s platform uses the building-specific damage information from its sensors to help our clients calculate estimated losses. In the future, we hope to be able to share aggregated data with GEM to help improve the risk information they provide globally to their partners and the public. Contact us today if you’re interested in learning more about Safehub’s technology.

Earthquakes can be catastrophic for building owners and operators. Thankfully, there are steps you can take to mitigate and manage your earthquake risk.

We recently sat down with our client, the California Joint Powers Insurance Authority (the Authority) in a joint webinar, where the Authority discussed some actionable tips for protecting your assets during an earthquake. Let’s take a look at some takeaways from that discussion:

5 Earthquake Risk Management Tips for Building Owners

While earthquakes are unavoidable, there are several things you can do to mitigate and manage your risk.

1. Create a Comprehensive Business Continuity Plan (BCP)

Comprehensive business continuity plans are essential for getting your property back up and running quickly and safely after an earthquake. There are several frameworks for BCPs. Here are three elements that were discussed:

• Avoidance – Avoidance is all about avoiding the risk: fixing or moving a building to make it more resistant to natural disasters in the first place.
• Assignment – This involves transferring off some of your risk to an insurance company.
• Adaptation – You can’t completely remove all your risks, so adaptation is all about mitigating residual risk. One aspect of this is the ability to be prepared and gain situational awareness more rapidly in the event of an earthquake and then use that information to understand the impact and make swift decisions.

If you include these three components in your BCP, you’ll be much more equipped to manage your earthquake risk.

2. Check on Earthquake Coverage

Our discussion also included the importance of taking time to check your earthquake insurance coverage. You might find that you only have certain buildings covered or that you don’t have earthquake coverage at all. It’s best practice to evaluate your property schedules annually and make sure you’re updating them with new properties you’ve purchased or sold.

Even if you have coverage, be sure to understand the limits and deductibles. Take the time to read your coverage documents to ensure you have adequate coverage for your needs.

3. Update Your Emergency Action Plans

How long has it been since you’ve looked at your emergency earthquake action plan? Too often, businesses aren’t conducting consistent drills, and more than likely, they don’t have viable business resumption plans, either.

Generally, this isn’t the facility or business manager’s fault. These sorts of things require manpower, money, and resources that many companies don’t have, but it’s a critical component for any organization (public or private) to prioritize.

4. Know the Building Shut-Off Locations

There’s always a considerable risk of gas and water leaks after an earthquake, particularly in older buildings. That’s why it’s important to install gas seismic shut-off valves and ensure critical staff knows where the main electrical and water shut-offs are (and how they work).

Knowing this key information can prevent fires and flooding after an earthquake, which both tend to do more damage than the earthquake itself.

5. Install the Safehub Sensor System

The Safehub sensor system is installed within a building to provide real-time damage information to facility managers and property owners to aid them in their emergency response decisions after an earthquake. It provides critical in-depth information about the building to help prioritize where a professional inspection is needed onsite and supports structural engineers in their inspections.

Additionally, the sensors allow you to run simulations of likely impacts to help you plan and be more prepared for an earthquake. Installing the Safehub sensor technology is one of the best ways to quickly (and cost-effectively) improve your earthquake risk management strategy.

Gain Critical Situational Awareness and Improve Earthquake Risk Management

Risk management is all about being proactive and aware. By using the tips above, you can help improve your earthquake risk management to be better prepared for an earthquake.

Watch the entire webinar:

If you’d like more information about the Safehub system, schedule your demo today.