Johannesburg tremor - Is SA insurance industry prepared for earthquakes?

The 5.5 magnitude tremor experienced in Gauteng and other parts of South Africa on Tuesday 05 August 2014, brings to the fore a pertinent question about whether the local insurance industry is prepared for damage as a result of earthquakes.

In 2012, only 7.5% of earthquake related losses were covered by insurance according to findings from James Daniell, founder of the CATDAT Damaging Earthquake Database (a historical global catastrophe database compiled by Wills Research Network (WRN) partners).

Christelle Fourie, Managing Director of MUA, says these statistics raise important questions over the preparedness of the insurance industry to deal with such disasters in order to help the rebuild process. "This tremor in Johannesburg provides a wake-up call to the insurance industry about the need to prepare effectively for large scale disasters."

While it has yet to be proven that earthquakes are related to climate change, insurance and reinsurance companies have been among the first companies to start feeling the effects of natural disasters in the form of increased payouts related to severe weather events like floods and storms, says Fourie.

"In South Africa, most insurance companies are aware of the implications of climate change but more does need to be done in order to better understand its full impact. Due to the fact that South Africa is not a country with a recent history of extreme natural disasters, we have become somewhat relaxed about disaster risks, let alone the possibility of loss accumulation (simultaneous unfolding of two large-scale natural disasters), such as an earthquake and a tsunami, as happened in Japan in 2011."

Part of the problem is that the memory of an extreme natural disaster lasts for only one generation, she says. "If it survives, it does so merely as anecdote. A good example is the earthquake which was felt in Ceres, in the Western Cape, in 1969 and measured 6.3 on the Richter scale and destroyed many buildings and resulted in loss of life. Because this occurred four decades ago, it becomes easier for us to behave as if we are immune to the possibility of being hit again."

Seismology experts say South Africa's potential for earthquake damage comes in the form of natural seismic activity, mining-related events from deep underground mining, and earthquakes that occur outside our borders but are nevertheless strong enough to create some kind of effect.

Seismologists identify this as one of South Africa's natural earthquake hotspots, based on two seismic events in the historical records. South Africa's first recorded earthquake occurred in 1620 near Robben Island. Its magnitude has since been estimated at roughly 4.0 on the Richter scale.

The next significant earthquake, recorded in Milnerton in December 1809, notched up an estimated magnitude of 6.1. The Milnerton Race Course is in fact built in the depressed area in the earth where the epicenter of the quake is believed to have been.

"While the risk facing South Africa is certainly not as significant as a number of other regions, the insurance industry is aware of earthquake risk and has factored it into premiums. But it might take a larger, seismic event, to test just how seriously it is rising to the challenge," concludes Fourie.