Insuring earthquakes: How would the Californian and Japanese insurance programs have fared down under (after the 2011 New Zealand earthquake)?

Cuong Nguyen and Ilan Noy

No 20251, Working Paper Series from Victoria University of Wellington, School of Economics and Finance

Abstract: Earthquakes are insured only with public sector involvement in high-income countries where the risk of earthquakes is perceived to be high. The proto-typical examples of this public sector involvement are the public earthquake insurance schemes in California, Japan, and New Zealand (NZ). Each of these insurance programs is structured differently, and the purpose of this paper is to examine these differences using a concrete case-study, the sequence of earthquakes that occurred in the Christchurch, New Zealand, in 2011. This event turned out to have been the most heavily insured earthquake event in history. We examine what would have been the outcome of the earthquakes had the system of insurance in NZ been different. In particular, we focus on the public earthquake insurance programs in California (the California Earthquake Authority - CEA), and in Japan (Japanese Earthquake Reinsurance - JER). Overall, the aggregate cost to the public insurer in NZ was $NZ 11.1 billion in its response to the earthquakes. If a similar-sized disaster event had occurred in Japan and California, homeowners would have received $NZ 2.5 billion and $NZ 1.4 billion from the JER and CEA, respectively. We further describe the spatial and distributive patterns of these different scenarios.

Keywords: Earthquakes; Earthquake insurance; 2011 New Zealand earthquake; California; Japan (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwecf:20251

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