Earthquakes will increase demand for insurance
Yesterday’s earthquakes were significant for a number of reasons. Certainly, the Virginia earthquake registering at 5.8 on the Richter scale and the Colorado temblor ranking 5.3 shook up citizens in a way that few from these areas can remember. While West Coasters may josh at upset populations in the Rockies and on the East Coast, these quakes may cost them something in the longer run, too.
In truth, most residents in both of the affected areas have not experienced the visceral feeling of fear and uncertainty caused by an earthquake. While the physical damage may be limited in both cases, the psychological reaction by insurance buyers is likely to be noticeable.
Let’s face it, Earthquake Insurance buyers have been making decisions for decades with little fear in their minds. An earthquake was something that you read about – it just didn’t happen in East Coast or Rocky Mountain backyards. Only a small percentage of commercial insurance buyers in these markets paid for coverage, that will now likely change. What risk manager or CFO wants to turn down an offer to buy Earthquake Insurance in the coming year and take the risk that these quakes were the last tectonic hiccups of their business career? The likely response is that more insurance buyers will pony up for more coverage.
Earthquake Insurance is a limited market on the supply side. Most insurers and reinsurers have been sensitive to their cumulative exposures to this peril and they cannot quickly or efficiently ramp up new capital to respond to this demand. So, stable supply plus increased demand equals one thing: higher prices. And since the insurers for coverage are national in scope, an increase in demand for Earthquake Insurance will likely lead to higher prices in high-anxiety zones like California and Missouri as much as in Virginia or Colorado.
Buyers beware. If I were a buyer with a renewal coming up, or I have a quote outstanding for renewal, I would take action to quickly bind the proffered terms and not wait for insurers to respond to increased fear by upping prices.
About the Author
Phil Edmundson is the Chairman and CEO of William Gallagher Associates (WGA), insurance brokers and consultants for businesses with over 30 years in the insurance industry. He manages strategy, talent acquisition and development, and management / acquisitions at WGA.
617.646.0229 PEdmundson@wgains.com Connect with Phil on LinkedIn