‘Get your cover right and your disaster plans in place’

Marsh’s head of claims for Singapore and Asia Graham Purdon (pictured) has warned risk professionals not to be lulled into a false sense of security after a “year of relative calm”.

“Asia-Pacific is particularly prone to natural disasters, as evidenced by the Christchurch, New Zealand, and Japan earthquakes,” he told StrategicRISK.

Purdon’s comments came after the release of research into the global insurance industry’s response to major earthquakes in Japan, New Zealand and Chile.

“Despite 2013 being a year of relative calm in terms of insured losses from natural disasters, this report shows the importance of getting your cover right and your disaster plans in place,” he said.

The Marsh risk management research report Comparing Claims from Catastrophic Earthquakes is particularly poignant for the Marsh team, dedicated as it is to the memory of three colleagues who perished in the earthquake that struck 6km southeast of Christchurch, New Zealand, on February 22, 2011.

The NZ event one of four of the most expensive insured earthquakes in history, all of which occurred between February 2010 and March 2011.

The paper explores three of the earthquakes, sharing lessons on insurance claims arising from catastrophic events. Along with the NZ event, there’s the 8.8-magnitude earthquake that struck off the coast of Chile on February 27, 2010, and the 9.0-magnitude earthquake on March 11, 2011, that hit the east coast about 373km northeast of Tokyo, resulting in a tsunami that devastated coastal cities and severely damaged several nuclear power plant reactors.

Together, the three earthquakes took nearly 20,000 lives, left many without homes and caused billions of dollars in economic losses.

Chairman of Marsh’s global claims practice David Pigot said that the report examined how the insurance industry performed in the aftermath of the earthquakes.

“We analyse and compare the facts, coverage elements, policy features, and practical considerations in relation to each event so that those affected by future earthquakes – and the perils that may follow them, such as tsunamis and fires – might be better prepared and better positioned to recover more quickly,” he explained.

The report tackles issues such as how long claims took to settle for clients, whether business interruption cover worked, and how loss adjusters coped. It also examines coverage elements such as multiple perils, the Japan event being the most obvious example of this, with its complex combination of earthquake, tsunami, radioactive contamination and government intervention.

The report concludes that risk professionals can mitigate future potential coverage problems in several ways. These include declaring values accurately to insurers, rigorously examining supply chains and effects on customers, and understanding how policies apply deductibles and sub-limits.

Pigot said that the strain on insurer resources after the event had taken place was evident with all three earthquakes.

“This scarcity of resources creates an opportunity for price gouging, though this can in part be mitigated by commercial pressures if the contractor usually performs insurer or client work,” he said.

Purdon added that he felt the insurance industry was “at its best when helping societies get back on their feet”.

“These three earthquakes, each devastating in their own right, show the importance of being prepared, and having the right levels of insurance in place to recover as quickly as possible,” he said.