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From: Tim Little on 8 Jun 2010 04:07
On 2010-06-08, Bret Cahill <BretCahill(a)peoplepc.com> wrote:
> The same approach could also be applied to a reinforced concrete
> structure near an active fault line. (Earthquake insurance is
> generally prohibitively expensive which suggests their actuaries
> aren't on the ball.)

No, it suggests that earthquakes scale differently from many other
insurable risks. Insurer are exposed to much less financial risk
themselves with types of events that occur more independently of each
other.

For example, automobile claims are much more likely to incur greater
expense over a lifetime than earthquake damage, but it is vastly
easier for an insurer to pay out a fairly steady billion dollars per
month in auto claims than one fifty-billion-dollar hit from a single
big quake (say on average per decade). The latter would tend to upset
the shareholders rather a lot regardless of previous years' profits,
so reducing the liability by pricing it out of most people's range is
simple self-preservation.

Also note: many insurance companies do not offer insurance at all for
events with a likelihood of large-scale simultaneous claims, such as
earthquakes. Where they do, there are frequently clauses that limit
their aggregate liability from all claims arising for that type of
insurance in a given period, which in practice can render it almost
useless when most needed.


- Tim
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