Earthquake Reinsurance

After a major earthquake, the large payouts of insurance claims by insurance companies could go further than what they can afford; therefore, the government shares insurance responsibility through reinsurance.

How Earthquake Reinsurance works?

Insurance companies, to limit the impact which a catastrophic earthquake might have on current revenues and reserves, purchase reinsurance through which a stipulated sum will be paid to the primary company if an earthquake event requires a payout. As with other problems involving providers, reinsurance difficulties can be traced to limited knowledge of direct and indirect losses likely to be caused by a major earthquake. Because of this limited underwriting information, reinsurers must rely on their knowledge of the underwriting expertise of the primary insurer. Reinsurers also establish limits of exposure to a given type of peril and this is especially the case with catastrophe coverage.

Need for Worldwide Catastrophe Reinsurance

Worldwide catastrophe reinsurance service meets the demands of coverage when earthquake insurance is not enough, as well as natural disaster perils which may not be anticipated. Therefore, government reinsurance programs at very high levels are needed. Most countries with an earthquake insurance system make extensive use of the worldwide reinsurance market.