A reader notes that in Tsunami Insurance I wrote that “…it appears that insurers usually exclude tsunamis from flood coverage, considering them more like earthquakes.” (Note the words “it appears that”.)
He says he has researched this issue and has found that:
In the US, the National Flood Insurance Plan (NFIP),
the Insurance Services Office (ISO)
and the Factory Mutual Insurance Company (FMO)
consider all forms of wave damage including tsunamis and tidal waves
as flood losses.
These groups are not concerned with what caused the flood.
That paragraph is from a report Perspectives — Tsunami by the insurance broker Willis;
look under January 28, 2005.
The report has much further context, including a discussion of how
nonetheless many insurers may write policies that make an excluded peril
take precedence over an insured peril.
He also notes some insurers that do class tsunamis as earthquakes,
as I mentioned.
Among the many possible causes of tsunamis, ranging from mudslides to meteors,
it seems that people living in places that might have tsunamis (which includes
the North American east coast) might do well to check their insurance policies,
especially for flood insurance, to see what sort of concurrent contingent
perils may be included in them.
My, I’m behind on responding to comments.
A reader says:
Phenomenon of Tsunami is going to be universal and may hit any country
without any geographical /distance limitation. When the risk of Natural
calamity is accepted in one country ,loss due to tsunami is to be paid,
since application of premium rate is limited to that country.
That may be true for an insurance policy, but it doesn’t have to be true
for a catastrophe bond, which can be bought by anyone anywhere.
In 1998 the former chief meteorologist of Thailand said
“a tsunami is going to occur for sure”.
Smith Dharmasaroja was called a mad dog for that.
On Sunday 26 December 2004, after the earthquake but before the tsunami
hit Thailand, he tried again to warn the Thai meteorological department,
but could not get them to respond.
(A case of
denial and damage, just as happened years before in the U.S. regarding
How did Mr. Smith know?
He didn’t accept the received wisdom
that earthquakes off Indonesia would only happen on the
other side of Sumatra from Thailand.
He studied seismology and discovered there was a fault line that would
put the Thai tourist resort Phuket in the direct path of a tsunami.
His public warning in 1998 was after a tsunami from the same fault
hit Papua New Guinea (the Aitapa tsunami of Friday 17 July 1998; there was
no tsunami warning system for that part of the Pacific at that time, either).
"You’d really have to go digging into very old historical records and the scientific literature and extrapolate from what’s there to find that yes, there could be effects (leading to tsunamis) in Thailand," says Phil Cummins, a seismologist who studies the region at Australia’s national geological agency. "But he was correct."
Such an earthquake did occur and the resulting tsunami hit Phuket.
Two weeks after the 2004 tsunami, the Thai government called
Smith Dharmasaroja out of retirement to head its new
tsunami warning system.
The economic damages of the 2004 tsunami are estimated at
$14 billion by Munich Re, the world’s largest reinsurer.
Maybe it would be prudent to do some historical exploration and to set up
an early warning system for
Internet events that could cause $50 to $100 billion
in economic damages.
IIt seems likely that tsunami insurance
would be easier to get if there were an early warning system.
There is one
for the Pacific but none for the Indian Ocean.
Australia, which participates in the Pacific warning system, may have been the first country to volunteer (on 27 December)
to help set up a tsunami warning system for the Indian Ocean.
Since then India has announced it is building one to be operational within 3 years, PM Koizumi has ordered one for Japan,
the U.S. has come out in favor of one, Thailand is lobbying to be the location for one, and there’s been a meeting in Indonesia
about the need for one.
Maybe early warning and tracking systems would be useful for other fields of likely major economic damage.
Speaking of natural disasters, this one wasn’t a disaster, but it was unusual:
snow in the United Arab Emirates.
The American Bar Association is concerned about insurance being out of date in a networked world:
Most businesses have insurance designed to cover them if a building burns down or someone trips and falls in the parking lot – yesterday’s risks. Today’s businesses may suffer intangible losses resulting from computer viruses, hacker attacks, and theft of confidential information. Current commercial general liability policies do not cover damage to intangible property. They exclude nearly all intellectual property exposures, and personal and advertising injury coverage for website designers. Internet search, access, content and service providers and companies that host bulletin boards are also excluded. Crime policies require identification of the perpetrator and cover only money, securities, and other tangible property. As a result, insurers are rejecting policyholders’ claims under traditional insurance.
This program examines the 21st century risk environment and the heightened legislative and regulatory focus of network security and privacy. It shows how traditional insurance policies fall short in protecting against 21st century risks, and identifies a new generation of specialty insurance coverage that can protect your clients against those risks.
That’s the course description for a teleconference and webcast the ABA is going to hold on 11 January, called
21st Century Risks
Are Your Clients Covered?
Thanks to Phil for the pointer.