Insured losses from Turkey earthquakes likely to exceed $1B

By Alex Zank, Advisen

Recent devastating earthquakes in Turkey and northern Syria likely caused more than $1 billion in insured losses and worsened an already challenging local insurance/reinsurance industry, according to industry commentary.

Two powerful earthquakes, with magnitudes of 7.8 and 7.5, rattled the region on Feb. 6. According to media reports, the death toll from the quakes topped 35,000 as of Monday. Verisk’s Extreme Event Solution estimated the disasters will result in more than $20 billion in economic losses and $1 billion in insured losses.

“The sizable difference between insured and economic losses—the protection gap—represents the cost of catastrophes to society, much of which is ultimately borne by governments,” Bill Churney, president of extreme event solutions at Verisk, said in a statement. “Increasing insurance penetration can ease much of the burden. There are solutions available that can enhance global resilience efforts including, emergency management, hazard mitigation, public disaster financing, risk pooling, and other government-led risk- and loss-mitigation initiatives.”

Insurance penetration in the impacted region of southeastern Turkey is low relative to the most populous centers of western Turkey, noted AM Best in a recent commentary. Even so, the earthquakes “occurred against a backdrop of a prolonged period of extreme economic turbulence” characterized by drastic inflation and a weakening currency, which Best believes weakened the creditworthiness of the local (re)insurance market.

Earthquake insurance is mandatory for Turkish residential homeowners, but take-up varies across the country and there is no legal penalty for not being covered, Best wrote. The Turkish Catastrophe Insurance Pool (TCIP) provides building-only earthquake cover; additional cover beyond the pool is optional.

The pool is backed by traditional reinsurance as well as catastrophe bonds – Best reported Munich Re and Swiss Re as having the largest shares in TCIP’s excess of loss program.

Best estimated that economic conditions in Turkey have increased asset and underwriting risks for many insurers and reinsurers operating in the country.

“In addition, investment returns, on which many market participants had relied on in the past, have become insufficient to compensate for poor underwriting experience, limiting internal capital generation,” wrote Best.

The latest figures from TCIP estimate compulsory earthquake insurance penetration at around 52% for the impacted region. Following a 7.0-magnitude earthquake in October 2020, TCIP paid $52 million in claims while economic losses were estimated to be around $400 million, per data from broker Aon.

TCIP does not cover commercial property and businesses are not required to carry earthquake insurance. However, it is typically included in policies issued by local insurers and reinsurers, Best noted.

Earthquakes are not uncommon in the region, according to Verisk. Since 1900, Turkey has experienced approximately 12 earthquakes of magnitude 5.0 or greater and one of magnitude 6.0 or greater annually.

Turkey’s building codes reflect the latest advancement in building technology and seismic design nearly in-line with changes to the U.S. seismic code, but buildings’ performance during earthquakes is mixed. Buildings that complied with code have performed well, while many others sustained significant damage and collapse.

Reporter Alex Zank can be reached at alex.zank@zywave.com