|
KEEP ME INFORMED |
|
|
 |
|
O'CONNOR REAL ESTATE EVENTS |
|
- Office Forecast Luncheon
September 22, 11:30 a.m. - 1:00 p.m.
Location:
Courtyard on St. James, 1885 St. James Place, Houston
Register Now!
- Apartment Forecast Luncheon
October 20, 11:30 a.m. - 1:00 p.m.
Location:
Courtyard on St. James, 1885 St. James Place, Houston
Register Now!
- Industrial Forecast Breakfast
November 17, 7:30 a.m. - 9:00 a.m.
Location:
Courtyard on St. James, 1885 St. James Place, Houston
Register Now!
» RSVP for an event |
|
|
|
|
|
Are You Buying Too Much Earthquake Insurance?June 2007
Are You Buying Too Much Earthquake Insurance?
By: William Graf, C.E.
Before a property owner or lender purchases expensive earthquake insurance coverage, an engineering risk study should be performed. The risk study should provide good data for the seismic hazards at each site and the earthquake vulnerability of each building. With good value data and proper risk analysis - considering deductibles, the owner will be in a much better position to choose the amount of earthquake coverage to buy.
The basic elements needed for good risk analysis for the selection of earthquake insurance are:
- Good inventory for all buildings, with locations and descriptions (age, height, area, materials, occupancy, etc.),
- Accurate current replacement values for buildings and other insured values-at-risk,
- Proper consideration of time-element losses, such as revenue or rents lost during vacancies for repair,
- Earthquake vulnerability review of buildings and important equipment by a qualified structural engineer, and
- Good earthquake risk analysis methods and software.
Getting Good Data
Good inventory and value data -- from a valuation study -- is essential, since errors here translate directly into bad risk analysis results. Business interruption analysis may be needed where any prolonged vacancy can cause large losses to the insured. Engineering review provides value in a number of ways. Seismic weaknesses can be
identified, so that losses are not underestimated. Experienced structural engineers can identify opportunities for low-cost seismic risk reduction, such as equipment anchorage or seismic retrofit, preventing damage and possibly saving lives, while promoting more rapid business resumption.
Risk Analysis - Insured Risk
With good data in hand, earthquake risk software quantifies losses from possible future quakes. Catastrophe models use earthquake simulations to cover the full range of possible events (i.e., all credible magnitudes on each fault, and all rupture locations). The output presents portfolio-wide loss versus return period (or annual probability of exceedance). A sample curve is shown above. Risk is plotted as a function of probability, so risk managers can choose an appropriate level of conservatism, examining losses for a 200-year return period or a 500-year return period, rather than focusing on low-probability extreme losses. Deductibles reduce the amount insurers pay, so it is the insured losses, rather than the raw losses, which should be used for the selection of insurance coverage amounts. The coverage amount needed to achieve an appropriate level of financial security may be decided by examining a plot of portfolio-wide losses after the application of deductibles.
Smart owners and lenders select insurance coverage amounts at an appropriate probability, considering the effects of deductibles. In the figure above, this reduces the coverage amount (from 'D' to 'B' or 'A'.) In many cases, the reduction in insurance premiums from this approach more than pays for the cost for the cost of the valuation and risk studies. The improved understanding of earthquake risks will also lead to better portfolio risk management decisions regarding the purchase or sale of properties, and seismic retrofit.
About the Author
William Graf is the manager of earthquake risk for URS Corporation in Los Angeles, California. The company is headquartered in San Francisco with locations around the world. URS Corporation offers a comprehensive range of professional planning and design, systems engineering and technical assistance, program and construction management, and operations and maintenance services for transportation, facilities, environmental, water/wastewater, industrial infrastructure and process, homeland security, installations and logistics, and defense systems. Headquartered in San Francisco, the Company operates in more than 20 countries with approximately 29,500 employees providing engineering and technical services to federal, state and local governmental agencies as well as private clients in the chemical, pharmaceutical, oil and gas, power, manufacturing, mining and forest products industries. Contact Mr. Graf at 213-996-2381 or william_graf@urscorp.com.
|
|
