A tale of three earthquakes

Three countries, three earthquakes, three unique loss adjusting challenges. Paul Ogni, Javier Carvallp and Peter Ziegler give their firsthand accounts of dealing with earthquakes in Italy, Chile and New Zealand

Of all natural catastrophes, earthquake is the peril most associated with loss creep and a complex and lengthy claims process. From a loss adjusting perspective there are many considerations, particularly when dealing with secondary hazards such as strong aftershocks, tsunami, landslides, liquefaction and even – as witnessed following the 2011 Tohoku earthquake – a nuclear catastrophe.

As recent earthquakes in Italy, Chile and New Zealand have demonstrated, each event and insurance market has its own unique characteristics that impact the adjusting process. These can determine how quickly businesses and communities get back up and running, and how long the claims process takes.

While most claims from the 2010 Maule M8.8 earthquake were settled within a year, for instance, in New Zealand, some claims from the 2010 and 2011 earthquakes in Christchurch (which together cost the industry over $9 billion) are still outstanding and “earthquake fatigue” is setting in.

Coping with aftershocks

A significant secondary factor following Christchurch’s deadly earthquake in February 2011 were the high number of aftershocks, one as high as M5.7. The earthquake was itself a M6.3 aftershock following the M7.1 Canterbury earthquake in September 2010. But while the 2010 tremblor caused some damage, it was the February 2011 aftershock that devastated the city, causing widespread damage and 185 deaths.

Although there had been a five-month gap between the events, it was, in some cases, unclear which was responsible for the building damage. Underlying weaknesses in foundations emanating from the mainshock in September were believed to have caused further damage following February’s quake.

“Identifying which event the damage arose from matters for many reasons,” explains Peter Ziegler, head of specialist services, Crawford New Zealand. “In insurance policies, sometimes there is a period of time – usually 72 hours – where a subsequent event is considered to be related to the first. After that period, it’s considered a separate event, and you face a separate claim and insurance deductible.”

“The loss adjusting challenge is to tie the damage and increased cost back to the first or second event,” he continues. “This is also important because some insurers had a different set of reinsurers during the event in September to the event in February. So reinsurers also undertook audits of the claims settlements to identify which event the damage related to and whether it had been measured accurately, so they knew whether it rested with them or another reinsurer.”

Safety was a key concern for Crawford adjusters. “In September, which is where the story started for me, there was somewhat of a naiveté and we would find ourselves rolling up our sleeves and getting stuck in,” says Ziegler.

“The February event changed that,” he continues. “The loss of life and considerably greater building damage heightened our awareness of the risk, particularly given the increased number of intense aftershocks.”

The series of earthquakes in and around Christchurch also revealed the sizable impact of liquefaction as a secondary peril. “Liquefaction can suggest there are voids under the surface. So when you’re trying to bring machinery and equipment across the surface you have to be careful because you can run the risk of people being harmed.”

A problem of access

Since the 2009 L’Aquila earthquake, Central Italy has also suffered strong aftershocks, including last year’s deadly earthquake in Norcia and the avalanche in January 2017 near Gran Sasso, which killed 29 people. Access to this sparsely-populated mountainous region has at times been problematic, and was severely hampered during rescue efforts following the avalanche.

“The unusual combination of heavy snowfall and then the earthquake led to a massive avalanche that hit the Rigopiano Hotel,” explains Paul Ogni, country manager, Crawford Italy. “Before that, I would never have thought of avalanche as a secondary earthquake hazard, but that’s what happened and it was a very tragic case. Aftershocks and looting are the more usual secondary aspects we deal with in Italy.”

Access has also been an issue following the November 2016 Kaikoura earthquake in New Zealand. “Container operations are being significantly impacted given the damage and liquefaction at the Wellington port,” explains Ziegler. “The network of roads in the upper part of the South Island have also been severely damaged and as a result you have longer routes being used that weren’t designed for the heavy traffic.”

“Furthermore, the Main Trunk railway line south from Picton to Christchurch has also suffered significant damage and is not operational, forcing more freight movements onto the road.

These have manifested themselves in surcharging for freight movements across the Cook Strait and through the upper part of the South Island.” “All that brings contingent costs,” he continues. “That increased cost of freight is coming through as increased costs to businesses are growing and slow-burning losses.”

A devastating tsunami

Given its predisposition to major earthquakes, Chile, situated directly on the Pacific Ring of Fire, has a long history of disaster preparedness, strong building codes and high insurance penetration.

But the February 2010 Maule earthquake triggered a tsunami that engulfed several coastal towns in South-central Chile. The tsunami warning came too late, and 350 people lost their lives in the coastal vacation town of Constitución.

Looting was another unexpected secondary aspect to the earthquake. “Usually you would expect earthquakes and tsunamis to come together,” explains Javier Carvallo, president Crawford Chile. “However, looting is another totally different risk, but it’s a direct consequence of an earthquake.”

“It’s impossible to distinguish between the destruction caused by an earthquake, tsunami or looting,” he says. “Normally the insurers ended up paying for all the consequences that occurred within the first 72 hours of the earthquake.

This was a practical solution, because it was impossible in some cases to identify what hazard the loss emanated from. But there are quite different deductibles for earthquakes, tsunamis and looting. So what the market did in this instance was to apply the bigger one.”

In stark contrast to New Zealand and Chile, Italy is highly underinsured, particularly from a residential earthquake perspective. In spite of the devastation caused by the M6.3 L’Aquila and M6.6 Norcia earthquakes, neither were significant insurance losses. By contrast, two earthquakes in the Emilia-Romagna region of northern Italy in 2012 cost insurers $1.6 billion.

“Emilia-Romagna is an economically important part of the country, and therefore a lot of the businesses had commercial insurance that includes earthquake cover,” says Ogni.

While there is talk of an Italian earthquake pool and purchase of quake insurance becoming compulsory in the future, at present the majority of losses stemming from quakes in Central Italy are economic in nature. New Zealand has a public private approach to covering earthquakes, with the Earthquake Commission (EQC). However, in Chile the market is entirely private.

Carvallo believes this – along with a no nonsense approach from the regulator – is a significant factor that enabled over $8 billion in claims emanating from the Maule earthquake to be settled so quickly and efficiently.

“Within two years the whole event was settled. In the first nine months, almost 96 percent of all residential claims were settled and 53 percent of all commercial claims. The industry is very sophisticated in terms of its procedures and the quality of its reinsurance.”

“Out of 202,000 claims, we only had 30 cases that ended in litigation,” says Carvallo. “This is because of laws which dictate that all discussions between disagreeing parties must take place within the adjusting process.


It offers both parties the opportunity to ask the adjuster’s opinion and to hold immediate negotiations to solve the problem.”


Ramping up resources

Inevitably, there is a huge demand for resources and adjusting personnel in the aftermath of major events. Following the Maule and 2010/2011 Christchurch earthquakes, experienced adjusters were drafted in from Crawford’s offices around the globe.

“They were all very capable people – they got here from Spain and the U.K. and worked with us to settle a $532 million case,” says Carvallo of the Maule earthquake.

One key benefit of this global experience is the opportunity for information sharing. “We do a good job of learning from earthquakes around the world, and information and data is shared not just within Crawford but across the industry,” adds Ogni. “Then there’s the informal sharing that comes about through the standard mentoring programs within the group and just the fact that adjusters love to share their war stories.”

April 2017