RMS Estimates Insured Losses for NZ Quake at $1.5 to $2.5 Billion

Following detailed analysis of property damage from the Darfield, New Zealand, earthquake, Risk Management Solutions said it “estimates that total insured losses will fall between NZD 2.1 billion (US$ 1.5 billion) and NZD 3.5 billion (US$ 2.5 billion).”

RMS said the estimate “covers damage to property – residential (including the losses covered by the Earthquake Commission and excess), commercial and industrial – as well as contents and motor. Impacts of post-event loss amplification and direct business interruption, as covered by the RMS® New Zealand Earthquake Model, are also included. Losses are mainly driven by damage from shaking to property in Christchurch, where most of the exposure is concentrated.”

RMS also estimated that around two-thirds of the total insured loss will fall to the Earthquake Commission (EQC), which automatically covers all residential property owners who have purchased fire insurance, up to a limit of NZD 100,000 [US$ 73,359] per building and NZD 20,000 [US$ 14,671] for contents.

“The residential losses in excess of the EQC limits will be covered by the private market, but this is expected to be less than 10 percent of the total. There is greater uncertainty over the commercial and industrial property losses due to the higher individual insured building values and the uncertainty in damage ratios.

“Given the Earthquake Commission’s reinsurance structure, with the first layer starting at NZD 1.5 billion (US$ 1.1 billion), private market losses are likely to range between NZD 600 million (US$ 400 million) and NZD 2.0 billion (US$ 1.4 billion). RMS’ estimate does not include losses resulting from damage to infrastructure and public buildings or to uninsured property.”

Dr. Robert Muir-Wood, chief research officer at RMS, explained that a “much clearer picture of the extent and severity of the earthquake damage has started to emerge, but uncertainty remains in estimating the total insured losses. Two key factors that contribute to this uncertainty are the possible under-reporting of insured property values by the market and the potential that claims will be assessed ‘generously’, in particular when older buildings get reconstructed to the latest building code.”

In Christchurch, over 6,000 buildings have now been evaluated, with 3 percent considered unsafe, 14 percent requiring further structural assessment and 83 percent assessed as safe for their intended use. According to the USGS, this event is the 18th earthquake of magnitude 7.0 or higher globally during 2010, the largest being the 27 February Mw8.8 Chile earthquake.

Source: Risk Management Solutions