Corporate Earthquake Risk: The Potential for Building-Specific Risk Transfer

Key Takeaways

• Corporations can face costly losses associated with earthquake damage to their buildings including structural damage, damage to internal systems or contents and business interruption.

• In recent years, more corporates have chosen parametric insurance, which pays out predefined amounts based on event triggers, to cover natural catastrophe risks. Parametric insurance is often combined with traditional indemnity-based insurance coverage.

• Existing parametric earthquake insurance products use magnitude and ground-shaking estimates from public agencies to trigger pay-outs. These estimates are useful to understand regional impacts but do not provide a building-specific representation of how a quake affected specific buildings, which can create basis risk, depending on the intent of the parametric policy.

• In parametric hail and flood insurance, on-site sensors are often used to reduce basis risk, expedite pay-outs and provide a location-specific view on how a catastrophe affected a business’ location.

• Companies such as Safehub already provide sensor-based solutions for remote damage estimates to corporations and government organizations. For the first time, data from building-specific sensors can be used to trigger a parametric earthquake insurance product with reduced basis risk and faster payout times.