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April 2005                                                                            Volume 8 - Number 3

Tsunami Disaster Updates...

Estimating Losses From the 2004 Southeast Asia Earthquake and Tsunami

By Anthony Lee

Risk Management Solutions (RMS) special report titled “Estimating Losses From the 2004 Southeast Asia Earthquake and Tsunami” was issued about a month after the December 26, 2004, earthquake. It set “out the main lines of businesses that will be affected by the 2004 Asian tsunami, identifies the key drivers of insured losses, and estimates their magnitude.” This paper is a summary of RMS’s special report.

(http://www.rms.com/Publications/SumatraInsuredLoss_RMSwhitepaper.pdf)

The RMS report was a high-level report that sketches the disaster broadly for use in the insurance industry. It was more of a humanitarian disaster because of its limited insurance claims. The RMS report would be of little value but to calm the nerves of the insurance industry – the insurance Industry nerves were raw over 2004’s second-highest economic losses since the 1995 Kobe earthquake. The lost of over a quarter million human lives is of more value than any insurance industry executive can measure but for the sake of measuring insurance-claims losses the RMS report reported in matter-of-fact economic terms. The vastness of the devastated area and the tremendous effect it had on its peoples do not show up in the reporting of insurance statistics.

(http://www.climateark.org/articles/reader.asp?linked=37698)

Property insurance losses in the area were relatively small because commercial and personal property policies are not used in the region as much as in Europe and the US. To be covered the fire protection policy would have to have additional coverage specifically covering earthquakes and associated tsunami losses. If this disaster would have occurred near Florida or California the economic losses and resulting insurance claims would have been larger by a magnitude of 10 to 100 times greater. Richmond Times Dispatch reported a prehistoric Virginia tsunami thirty-five million years ago was a mile-high that reach over the local mountain range – estimated the 2004 Southeast Asian earthquake at 22 billions tones of TNT but the prehistoric earthquake off the coast of Virginia at 10 trillion tones of TNT.

(http://www.timesdispatch.com/servlet/Satellite?pagename=Common%2FMGArticle%FP...)

Although economic loses are estimated as high as $14billion the insured losses are estimated to be less than $4billion. Life and Health insurance claims would be made by the local population and tourists. Only about 10% of the local populations had Life and Health insurance and they were concentrated in the developed regions/cites not affected as much by the tsunami. Of the tourist claims the RMS report confirmed 373 deaths and 6,617 missing with Germany having the most deaths and Norway/Sweden having the most missing. Americans do not use travel insurance as much as Europeans -- about 30% of Europeans travelers do use travel insurance. Although travel insurance packages include different things in different countries they primarily cover cancelled travel plans due to work/illness and to some degree Life & Health issues. Although estimated at $125million in losses the travel insurance claims are the smallest of all insurance related losses.

(http://www.climateark.org/articles/reader.asp?linked=37698)

What the RMS special report does not say is that the World Community has covered many of the uninsured through International Foreign Aid. The sheer savings in people’s lives and economic losses (1) when the World Community helps the local population learn how to better protect themselves and (2) the international development and operations of an early warning system will make the future investment well worth the cost.