Earthquake Insurance Market

Market Overview

The global earthquake insurance market is projected to reach a value of USD 167.6 billion by 2031, registering a CAGR of 6.0% during the forecast period (2023-2031). The global earthquake insurance market share is predicted to grow significantly during the forecast period due to increased natural disasters.

Earthquake insurance is a subset of property insurance that covers damage to a property caused by earthquakes. It aims to safeguard homes, tenants, and companies from financial damages caused by earthquake events. Individuals and businesses in earthquake-prone locations may need a separate earthquake insurance policy to offer adequate protection because standard homeowners' insurance plans often do not cover earthquake-related damages.

Rising insurance policy adoption due to future concerns and increasing demand for protecting older buildings drive earthquake insurance market growth. Furthermore, the absence of financial concern about something unprecedented aids market expansion. However, the higher cost of insurance premiums may hinder the market growth. In contrast, increased global awareness of earthquake insurance is projected to bring profitable prospects to the industry in the coming years.

Market Dynamics

Global Earthquake Insurance Market Drivers:

Government Initiatives and Regulations

Government policies and regulations have a critical role in boosting earthquake insurance demand. Policymakers acknowledge the possible financial strain on public resources in the aftermath of seismic events and encourage or require property owners to obtain earthquake insurance coverage as a risk reduction approach. Furthermore, governments may create incentives to encourage increasing use of earthquake insurance to improve overall community resilience. The California Earthquake Authority (CEA) is a famous example of a government-backed campaign to market earthquake insurance in California, prone to seismic activity. The CEA, founded in the aftermath of the Northridge earthquake in 1994, is a publicly administered, privately funded corporation that provides earthquake insurance plans to California residents. The California state government, insurers, and reinsurers support it.

Similarly, in Japan, the government reinsures the earthquake insurance obligations guaranteed by private insurance companies to stabilize the livelihoods of those harmed by earthquakes. The overall amount of reinsurance claims paid by the government for a single earthquake, etc., must, however, fall within the limit set by the Diet each fiscal year. The maximum amount is 11.7713 trillion yen. When combined with liability sharing for private insurance companies, the overall compensation ceiling for a single earthquake totals 12 trillion yen. Furthermore, the sum insured under earthquake insurance can be specified to be between 30% and 50% of the amount protected under fire insurance. In addition, the sum insured for buildings is limited to 50 million yen and household goods to 10 million yen. As a result, government activities and regulations substantially impact the earthquake insurance market trend. 

Global Earthquake Insurance Market Restraints:

Perceived Affordability and Cost Concerns

The perceived affordability of earthquake insurance, as well as worries about the overall cost of earthquake insurance, are critical limitations in the worldwide earthquake insurance industry. In most jurisdictions, earthquake insurance can cost between USD 100 and USD 300 annually. However, premiums may be higher in earthquake-prone states such as Washington, California, and Oregon. According to Forbes Advisor, homeowners in a low-risk location may spend as little as USD 300 per year, while those in a high-risk area may pay as much as USD 2,000 per year. Property owners in areas with little seismic activity may dispute the cost-effectiveness of earthquake insurance. For example, homeowners in a region with a historically low occurrence of earthquakes may believe that the likelihood of a significant seismic event is low. As a result, people may assess the perceived low probability of an earthquake vs the cost of insurance premiums.

Furthermore, research suggests that there may be a link between income and the purchasing of earthquake insurance. Lower-income property owners may be more sensitive to perceived premium affordability, contributing to a higher proportion of uninsured or underinsured properties in particular socioeconomic categories.

Global Earthquake Insurance Market Opportunity:

Urbanization Trends

Rapid global urbanization creates a significant opportunity for the earthquake insurance business. The potential financial losses from earthquake damage increase as more people and assets concentrate in metropolitan areas, creating a greater demand for insurance coverage. The urbanization patterns in earthquake-prone areas such as the Asia-Pacific Ring of Fire. Rapid population expansion and infrastructural development occur in cities such as Tokyo, Istanbul, and Jakarta. Urbanization increases the risk of earthquakes because valuable assets are concentrated in highly inhabited areas. Global demographic studies and urbanization trends show that populations are shifting from rural to urban locations. According to the United Nations, approximately 70% of the world's population will live in cities by 2050, with a significant increase in megacities and urban clusters.

Furthermore, economic figures reveal that metropolitan regions considerably contribute to a country's GDP. Earthquake insurance is critical for limiting potential financial losses because of the concentration of commercial, residential, and industrial assets in urban areas. As a result of the potential afforded by urbanization trends, insurers should concentrate on designing earthquake insurance products to meet the specific needs and hazards associated with city living. This could involve creating policies that meet the unique issues of high-density urban environments, providing coverage for residential and commercial properties, and modifying underwriting methods to reflect the higher exposure in urban areas. Furthermore, focused marketing and educational programs in rapidly urbanizing regions might assist insurers in capitalizing on the increased demand for earthquake insurance.

Regional Analysis

North America Dominates the Global Market

The global earthquake insurance market analysis is conducted in North America, Europe, Asia-Pacific, the Middle East and Africa, and Latin America.

North America is the most significant global earthquake insurance market shareholder and is estimated to grow at a CAGR of 6.3% over the forecast period. Earthquake insurance is particularly relevant due to earthquake-prone areas in North America, such as the western United States and parts of Canada. California has the most damaging earthquakes of any state. Indeed, seismologists Charles Francis Richter and Beno Gutenberg discovered that the frequency of earthquakes increased about tenfold with each unit fall in seismic magnitude, underscoring the importance of earthquake insurance in these places.

Moreover, government activities and regulations relating to earthquake preparedness and risk reduction may influence the insurance market. The National Earthquake Hazards Reduction Program (NEHRP) is a federal program to mitigate earthquake damage. NEHRP collaborates with universities, research institutions, and other organizations to create risk-reduction strategies. Even though California experiences 90% of the country's earthquakes, just 10% of its citizens have earthquake insurance. Despite having the second-largest market in the seismic space, only 11.3% of Washington's citizens were protected in 2017. As a result, this is likely to offer significant market opportunities.

Asia-Pacific is anticipated to exhibit a CAGR of 6.5% over the forecast period. Japan, Indonesia, and New Zealand are all located in the Pacific Ring of Fire, which has high seismic and volcanic activity. The Pacific Ring of Fire is the world's most significant earthquake belt, with fault lines running from Chile to Japan and Southeast Asia. Every year, over 1,500 earthquakes can be felt by residents in Japan. Over 20,000 earthquakes occur yearly in New Zealand, with approximately 250 large enough to be handled. Toka T Ake EQC, commonly known as the Earthquake Commission, is a Crown agency in New Zealand that offers natural disaster insurance and invests in disaster research and education. Under the EQC Act, Toka T Ake gives the maximum cover for damage to your home and some residential land. For each natural catastrophe event, the EQCover building cap for a residential building with one residence is typically USD 300,000 + GST.

Europe is not generally seen as an earthquake-prone region. Some countries, however, are more vulnerable to earthquake activity than others. Turkey, Greece, Albania, Italy, and Romania have the highest risk of earthquakes in Europe, according to the European Facilities for Earthquake Hazard and Risk (EFEHR). 

Although Greece is one of the world's most earthquake-prone regions, it is primarily uninsured against earthquakes and floods. As a result, the market is currently experiencing moderate growth. However, there are opportunities for expansion in Greece due to the country's high risk of earthquakes.

In Turkey, earthquake insurance is required for all residential buildings in metropolitan areas. The Turkish Disaster Insurance Pool (TCIP) is a public-private partnership offering homeowners disaster risk insurance in Turkey. The TCIP is modeled after the California Earthquake Authority and the Earthquake Commission of New Zealand. This is projected to drive the regional market.

Segmental Analysis

The global earthquake insurance market is segmented based on type, application, distribution channel, end-users, and region.

The market is further segmented by type into Life Insurance and non-life Insurance.

Life Insurance accounts for the largest share of the market.

Life Insurance

Life insurance is a financial policy that pays out to beneficiaries upon the insured's death or after a set length of time. It is intended to provide financial security to the policyholder's dependents or beneficiaries. The insured pays recurring premiums, and in exchange, the insurer pays the beneficiaries a death benefit or a lump sum payment. Life insurance can also contain features like cash value accumulation, which allows policyholders to accumulate funds over time.

Non-Life Insurance

Non-life insurance, commonly known as general insurance, covers many risks and perils other than those involving human life. It consists of numerous types of insurance that protect against financial losses caused by accidents, property damage, liabilities, and others. Non-life insurance policies are often limited in duration and do not accrue economic value. Non-life insurance products include vehicle, home, health, and liability insurance.

By application, the segment can be further bifurcated into Personal and Commercial.

Personal generates the most revenue in the market.

Personal

Personal insurance refers to products meant to protect individuals and their families against numerous hazards that may affect personal well-being and assets. It consists of a variety of policies that are tailored to satisfy the distinct needs of individuals. Health insurance, life insurance, homeowners' or renters' insurance, auto insurance, and personal liability insurance are all common types of private insurance.

Commercial

Commercial insurance, often known as business insurance, is designed to meet the risk management requirements of corporations, organizations, and professions. It covers a variety of business risks, such as property damage, liability, company disruption, employee injuries, and professional errors or omissions. Commercial insurance is critical for protecting businesses from financial losses and liabilities that may occur throughout their operations.

The market is sub-segmented based on distribution channels: Banks, Agents, Brokers, and Retailers.

Banks

Banks act as insurance product distribution channels, delivering policies to customers as part of a broader financial services portfolio. Insurance goods supplied by banks are frequently combined with other financial products, giving customers a one-stop shop for all their financial needs. Banks promote and sell insurance products such as life insurance, health insurance, and general insurance by leveraging their existing client base and infrastructure.

Agents

Individuals or institutions authorized by insurance firms to sell and service insurance products are known as agents. They operate as go-betweens for insurers and customers, offering tailored advice, facilitating insurance sales, and dealing with claims. Agents may work solely for one insurance firm (captive agents) or several insurers (independent agents). They aim to understand customers' needs, recommend appropriate coverage, and guide them through the insurance transaction.

Based on end-users, the market is fragmented into Individuals and Businesses.

Individuals

Individual end-users are private consumers who buy insurance for protection and financial stability. Individuals' particular needs and risks are addressed by policies such as life insurance, health insurance, auto insurance, homeowners' or renters' insurance, and personal liability insurance. Individuals purchase insurance to protect their well-being, assets, and financial stability against various dangers and uncertainties.

Business

Business end-users include many entities, including small, medium, and big businesses from various industries. Businesses purchase insurance to manage and mitigate risks associated with their operations. Commercial insurance policies are tailored to the needs of companies and may cover property damage, liability, business interruption, professional liability, and employee-related risks. End-users of business insurance seek protection for their assets, personnel, and overall business continuity.

Recent Developments

• November 2023- Nationwide will introduce new annuity riders and raise payment rates on L.inc+ annuities. suite
• In 2023- The CEA continued to provide Loss of Use coverage of up to USD 100,000. This coverage is for policyholders who suffer costs due to having to relocate temporarily due to earthquake damage. This insurance has no deductible.