Earthquake insurance

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 ordinaryhomeowners insurance policies do not cover earthquake damage.

Most earthquake insurance policies feature a high deductible, which makes this type of insurance useful if the entire home is destroyed, but not useful if the home is merely damaged. Rates depend on location and the probability of an earthquake loss. Rates may be cheaper for homes made of wood, which withstand earthquakes better than homes made of brick.

In the past, earthquake loss was assessed using a collection of mass inventory data and was based mostly on experts' opinions. Today it is estimated using a Damage Ratio (DR), a ratio of the earthquake damage money amount to the total value of a building.^[1] Another method is the use ofHAZUS, a computerized procedure for loss estimation.

As with flood insurance or insurance on damage from a hurricane or other large-scale disasters, insurance companies must be careful when assigning this type of insurance, because an earthquake strong enough to destroy one home will probably destroy dozens of homes in the same area. If one company has written insurance policies on a large number of homes in a particular city, then a devastating earthquake will quickly drain all the company's resources. Insurance companies devote much study and effort toward risk management to avoid such cases.

In the United States, insurance companies stop selling coverage for a few weeks after a sizeable earthquake has occurred. This is because damaging aftershocks can occur after the initial quake, and rarely, it may be foreshock. Although aftershocks are smaller in magnitude, they deviate from the original epicenter. If an aftershock is significantly closer to a populated area, it can cause much more damage than the initial quake. One such example is the 2011 Christchurch earthquake in New Zealand which killed 185 people following a much larger and more distant quake with no fatalities at all.

Contents

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• 1California
• 2Canada
• 3Japan
• 4New Zealand
• 5Turkey
• 6See also
• 7References

California[edit]

Earthquake insurance has become a political issue in California, whose residents purchase more earthquake insurance than residents of any other state in the U.S.^{[citation needed]} After the 1994 Northridge earthquake, nearly all insurance companies completely stopped writing homeowners' insurance policies altogether in the state, because under California law (the "mandatory offer law"), companies offering homeowners' insurance must also offer earthquake insurance. Eventually the legislature created a "mini policy" that could be sold by any insurer to comply with the mandatory offer law: only earthquake loss due to structural damage need be covered, with a 15% deductible. Claims on personal property losses and "loss of use" are limited. The legislature also created a quasi-public (privately funded, publicly managed) agency called the CEA California Earthquake Authority. Membership in the CEA by insurers is voluntary and member companies satisfy the mandatory offer law by selling the CEA mini policy. Premiums are paid to the insurer, and then pooled in the CEA to cover claims from homeowners with a CEA policy from member insurers. The state of California specifically states that it does not back up CEA earthquake insurance, in the event that claims from a major earthquake were to drain all CEA funds, nor will it cover claims from non-CEA insurers if they were to become insolvent due to earthquake losses. [1]

Canada[edit]

There are 4,000 recorded earthquakes in Canada each year. Earthquake damage is not be covered by a standard home insurance policy. In the next 50 years, there is a 30% chance of a significant earthquake in British Columbia.^[2][3]

Japan[edit]

The government of Japan created the "Japanese Earthquake Reinsurance" scheme in 1966, and the scheme has been revised several times since.^[4][5] Homeowners may buy earthquake insurance from an insurance company as an optional rider to a fire insurance policy.^[6] Insurers enrolled in the JER scheme who have to pay earthquake claims to homeowners share the risk among themselves and also the government, through the JER. The government pays a much larger proportion of the claims if a single earthquake causes aggregate damage of over about 1 trillion yen (about US $8.75 billion). The maximum payout in a single year to all JER insurance claim filers is 5.5 trillion yen (about US $39.4 billion); if claims exceed this amount, then the claims are pro-rated among all claimants.^[7]

New Zealand[edit]

Main article: Earthquake Commission

New Zealand's Earthquake Commission (EQC) is a Government-owned Crown entity which provides primary natural disaster insurance to the owners of residential properties in New Zealand.^[8] In addition to its insurance role, EQC also undertakes research and provides training and information on disaster recovery.^[9][10]

EQC was established in 1945 as the Earthquake and War Damage Commission, as part of the New Zealand Government, and was originally intended to provide coverage for earthquakes as well as war damage. Coverage was eventually extended from solely earthquake and war damage to include other natural disasters such as natural landslips, volcanic eruptions, hydrothermal activity, and tsunamis with coverage for war damage later being removed. For residential land, storm and flood damage is covered. Cover extends over fire damage caused by any of these natural disasters.

Turkey[edit]

Earthquake insurance is compulsory. ^[11]

Crop insurance

Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities. The two general categories of crop insurance are called crop-yield insurance and crop-revenue insurance.

Specialty crops[edit]

A farmer or grower may desire to grow a crop associated with a particular defined attribute that potentially qualifies for a premium over similar commodity crops, agricultural products, or derivatives thereof. The particular attribute may be associated with the genetic composition of the crop, certain management practices of the grower, or both. However, many standard crop insurance policies do not differentiate between commodity crops and crops associated with particular attributes. Accordingly, farmers have a need for crop insurance to cover the risk of growing crops associated with particular attributes.^[1]

United States[edit]

Main article: Federal Crop Insurance

In the United States, a subsidized multi-peril federal insurance program, administered by the Risk Management Agency, is available to most farmers. The program is authorized by the Federal Crop Insurance Act (which is actually title V of theAgricultural Adjustment Act of 1938, P.L. 75-430), as amended. Federal crop insurance is available for more than 100 different crops, although not all insurable crops are covered in every county. With the amendments to the Federal Crop Insurance Act made by the Federal Crop Insurance Reform Act of 1994 (P.L. 103-354, Title I) and the Agriculture Risk Protection Act of 2000 (P.L. 106-224), USDA is authorized to offer basically free catastrophic (CAT) coverage to producers who grow an insurable crop. For a premium, farmers can buy additional coverage beyond the CAT level. Crops for which insurance is not available are protected under the Noninsured Assistance Program (NAP). Federal crop insurance is sold and serviced through private insurance companies. A portion of the premium, as well as the administrative and operating expenses of the private companies, is subsidized by the federal government. The Federal Crop Insurance Corporationreinsures the companies by absorbing some of the losses of the program when indemnities exceed total premiums. Several revenue insurance products are available on major crops as a form of additional coverage.^[2]

History of crop insurance in the U.S.[edit]

In 1938, Congress passed the Federal Crop Insurance Act, which established the first Federal Crop Insurance Program. These early efforts were not particularly successful due to high program costs and low participation rates among farmers. The program had difficulty amassing sufficient reserves to pay claims and was not financially viable.^[3]

In 1980, Congress passed legislation to increase participation in the Federal Crop Insurance Program and make it more affordable and accessible. This modern era of crop insurance was marked by the introduction of a public-private partnership between the U.S. government and private insurance companies.^[3]

The Federal Crop Insurance Reform Act of 1994 dramatically restructured the program. And in 1996, the Risk Management Agency (RMA) was created in the U.S. Department of Agriculture to administer the Federal Crop Insurance Program. Through subsidies built into the new program guidelines, participation increased dramatically. By 1998, more than 180 million acres of farmland were insured under the program, representing a three-fold increase over 1988.^[3]

In 2011, farmers purchased over two million crop insurance policies, protecting over 265 million acres of farmland, with new liabilities in excess of $114 billion. These policies covered roughly 83 percent of eligible acres. Record indemnities were paid out to farmers and ranchers in 2011, totaling nearly $11 billion. (4)

Today,^[when?] the Federal Crop Insurance Program is the primary risk management program available to U.S. agricultural producers and a vital component of the farm safety net, addressing both the risks associated with price volatility and with unexpected disasters.(5)^{[citation needed]}

Crop insurance is a risk-based program that currently^[when?] covers 128 crops (6) and does not make annual subsidy payments to farmers. When crop insurance does supply monetary payments to farmers, the payments come in the form of indemnity checks that restore a portion of an actual loss. Many farmers pay crop insurance premium costs for a number of years without receiving indemnity payments because they have not experienced an actual loss. (7)

• Crop-yield insurance: There are two main classes of crop-yield insurance:
  • Crop-hail insurance is generally available from private insurers (in countries with private sectors) because hail is a narrow peril that occurs in a limited place and its accumulated losses tend not to overwhelm the capital reserves of private insurers. In early 1820s, crop-hail insurance were available to farmers in France and Germany. That is among the earliest forms of hail insurance from an actuarial perspective. It is possible to implement the hail risk into financial instruments since the risk is isolated.
  • Multi-peril crop insurance (MPCI): Coverage in this type of insurance is not limited to just one risk. Usually multi-peril crop insurance offers hail, excessive rain and drought in a combined package. Sometimes, additional risks such as insect or bacteria-related diseases are also offered. The problem with the multi-peril crop insurance is the possibility of a large scale event. Such an event can cause significant losses beyond the insurer's financial capacity. To make this class of insurance, the perils are often bundled together in a single policy, called a multi-peril crop insurance (MPCI) policy. MPCI coverage is usually offered by a government insurer and premiums are usually partiallysubsidized by the government. U.S. Department of Agriculture is known to implement the earliest multi-peril crop insurance program in 1938. Federal Crop Insurance Corporation managed this multi-peril insurance program since then. The Risk Management Agency (RMA) is active in calculating the premiums based on individual risk factors since 1996.
• Crop-revenue insurance: Crop-yield times the crop price gives the crop-revenues. Based on farmer's revenues, crop-revenue insurance is based on deviation from the mean revenue. RMA uses the futures prices on harvest-times listed in the commodity exchange markets, to determine the prices. Combining the future price with farmer's average production gives the estimated revenue of the farmer. Accessing the futures market offers enables revenue protection even before the crop planted. There is a single guarantee for a certain number of dollars. The policy pays an indemnity if the combination of the actual yield and the cash settlement price in the futures market is less than the guarantee. In the United States, the program is called Crop Revenue Coverage. Crop-revenue insurance covers the decline in price that occurs during the crop's growing season. It does not cover declines that may occur from one growing season to another.

Canada[edit]

In Canada, the history of CI (Crop Insurance) begins in 1939 with the introduction of the Prairie Farm Assistance Act by the Canadian Government. This act provided permanent crop loss disaster assistance for grain producers in the Prairies and the Peace River area. In 1959, the CI Act was passed to replace the Prairie Farm Assistance Act and provide more adequate protection to farmers in all provinces. CI has been a key federal support program since 1959 aimed at helping to stabilize farm incomes against production related risks. The reason governments got involved in CI was because the market failed to provide risk management tools for farmers to deal appropriately with production risk. CI has varied little over the years in that it was designed on the basis of participation by both levels of government (federal and provincial) and producers, shared program costs, voluntary participation, provincial administration, and actuarial soundness in the long run.^{[citation needed]}

The CI Act of 1959 enabled the federal government to assist provinces in making CI available to producers at a 60% coverage level. Originally the federal government's share of total premiums was 20%, with a 50% share of administrative expenses. In 1964, the Act was amended to incorporate general provisions for a reinsurance agreement between the provinces and the federal government. Further amendments were made in 1966 and 1970 concerning coverage levels and the federal government contribution to total premiums. The next amendment to the Act, in 1973, provided two options for the federal-provincial-producer cost-sharing arrangements. In one option, the federal and provincial governments each contributed 25% of total premiums and 50% of administrative costs. In the other option, the federal government contributed a total of 50% of premiums and the provinces paid all administrative costs. In the 1990 amendment, the maximum coverage was increased to 90% for low risk crops. Furthermore, the single cost-sharing formula was adopted, where the federal government and provinces each pay 25% of total premiums and 50% of administration costs. Other changes included waterfowl crop damage compensation, and regulations concerning self-sustainability and actuarial soundness requirements.

Although federal legislation establishes the national framework, much flexibility exists for provinces to modify the program to meet the needs of their producers. Provincial plans are developed through consultations with all three parties on a commodity basis. CI is available in all provinces for a wide variety of crops but coverage is not universal, nor are participation rates necessarily high although the cost of the program is subsidized by government. AAFC allocates approximately $200 million per year to CI from its total safety net envelope of $600 million. In 1996–97 it is estimated that the federal government's expenditures reached $207 million compared to an average of $166 million over the three previous years (AAFC 1997b). Provincial governments spent $251 million in 1996-97 which compares to an average of $175 million over the previous three crop years. By far the largest component of the program covers grain and oilseed production on the Prairies, but even here participation has fallen below 60% of seeded area.^[4]

India[edit]

Main article: Agricultural insurance in India

In India a multiperil crop insurance called National Agriculture Insurance Scheme (NAIS) was implemented. This scheme is being implemented by Agriculture Insurance Company of India, an Indian government owned company. The scheme is compulsory for all farmers who take agricultural loans from any financial institution. It is voluntary for all other farmers. The premium is subsidized for farmers who own less than two hectares of land. This insurance follows the area approach. This means that instead of individual farmers, a specific area is insured. The area may vary from gram panchayat (an administrative unit containing 8-10 villages) or block or district from crop to crop or state to state. The claim is calculated on the basis of crop cutting experiments carried out by agricultural departments of respective states. Any shortfall in yield compared to past 5 years average yield is compensated.^[5]

Builder's risk insurance

Builder's risk insurance is a special type of property insurance which indemnifies against damage to buildings while they are under construction.^[1] Builder's risk insurance is "coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause."^[2]

Necessity[edit]

Buildings are subject to many different risks while under construction. They may catch fire, be damaged by high winds, or fall victim to other force majeure. A principle of common law is that any new construction or other improvement to land becomes property of the owner of the land - the title holder - once there has been an "improvement" to the owner's site. Builder's risk insurance indemnifies against some of these losses.

Coverage[edit]

Builder's risk covers perils such as fire, wind, theft and vandalism and many more. It typically does not cover perils such as earthquake, flood or wind in beach zones unless the policy has been specifically endorsed to do so. However, earthquake riders can be very economical, depending on where your project is located and should be considered. These policies also do not cover accidents and injuries at the workplace.^[3] and is intended to terminate when the work has been completed and the property is ready for use or occupancy. If you are going to properly setup your policy, coverage should be effective prior to when the materials are delivered to the job site. Coverage ends upon the earlier of closing of the sale, occupancy or the policy expiration date. After builder risk coverage expires, due to sale or occupancy, the new owner should take out permanent property insurance on the building such as a home owner's policy or a commercial property policy.

Who buys builder's risk insurance?[edit]

Coverage is often purchased by the custom builder or general contractor and may also be purchased by the property owner. Builder's risk coverage may be necessary to show proof of insurance to comply with local city, county, and state building codes and is often required as a condition to many contracts. However, many architects believe that it is the property owner who should have the builder's risk policy, because they have already paid for the improvements to their land, and if the builder receives the funds directly from a claim, theoretically, he/she could abscond with that benefit. It is far safer for the property owner to obtain the builder's risk policy, because they already own the building, even while it is under construction. If something happens to the under-construction project, then they should be the beneficiary and control how it is spent. Yes, the builder ends up receiving the funds in the end, to rebuild damage, but this method gives the control of the insurance benefit to the owner.

Alternatives[edit]

If the project involves renovations or additions to an existing building, the owner's existing property insurance may cover the work under construction, obviating the need for builder's risk insurance. (Policies vary.) However, in the case of new buildings under construction on vacant sites, the owner may not have an existing policy that provides coverage.

Boiler insurance

Boiler insurance (Boiler cover) is a type of insurance that covers repairs and in some instances, the replacement of a home boiler. It can also cover other parts of the central heating system and even plumbing and electrics.

Types of boiler covererage[edit]

More than 22 million UK households rely on a boiler for their heating and hot water. But boilers are not usually covered by standard home insurance and can be very costly to repair or replace. An owner of a building may purchase boiler insurance. Coverage is negotiated between the insurance carrier and may include the boiler only, piping system, or the full heating system. Some insurance carriers also offer annual service packages.

The most costly coverage will include the full central heating system. Insurance is generally offered by gas and electric energy providers, although other companies also provide cover. Policies have various restrictions on time of work, and cost of repairs. Old equipment may not be insurable.

Property insurance

Property[edit]

Main article: Property insurance

This tornado damage to an Illinoishome would be considered an "Act of God" for insurance purposes

Property insurance provides protection against risks to property, such as fire, theftor weather damage. This may include specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance. The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance, some of which are listed below:

Aviation insurance

• Aviation insurance protects aircraft hulls and spares, and associated liability risks, such as passenger and third-party liability. Airports may also appear under this subcategory, including air traffic control and refuelling operations for international airports through to smaller domestic exposures.

Burial insurance

Burial insurance[edit]

Burial insurance is a very old type of life insurance which is paid out upon death to cover final expenses, such as the cost of a funeral. The Greeks and Romans introduced burial insurance c. 600 CE when they organized guilds called "benevolent societies" which cared for the surviving families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose, as did friendly societies during Victorian times.