Global financial services ratings agency, Fitch Ratings, has said that the insurance industry loss from the recent 6.4 magnitude earthquake in Puerto Rico is likely to be lower than the losses the island experienced from Hurricane Maria.
While many were asleep in the early hours of Tuesday morning, a devastating 6.4 magnitude earthquake struck just off the island’s southern coast, around 6 miles south of Indios, according to the US Geological Survey.
Local reports state that the quake has claimed the life of one person, resulted in the destruction of many homes and structures and also cut power and water service to a large portion of Puerto Rico.
Just two years ago, the island was devastated by the impact of Hurricane Maria, which, according to estimates resulted in an overall insurance industry loss of around $30 billion, with some estimates putting the insured loss in Puerto Rico at around $20 billion of this.
Commenting on the quake and the potential hit for insurers and reinsurers, Fitch Ratings Managing Director, Jim Auden, has said that the insured losses from the quake are likely to be lower than that experienced from Maria.
“While hurricane risk is a prominent exposure in the Caribbean, there is a history of earthquake activity in the region as well, including a 7.1M event in 1917. Without knowing the extent of devastation from today’s quake, it’s hard to estimate its full toll.
“Property owners in Puerto Rico are less likely to have insurance coverage for earthquakes than for windstorms. As such, the percentage of economic losses from this event that is insured could fall much lower than those from Hurricane Maria, which limits loss potential for US insurers and reinsurers,” said Auden.
It’s worth noting that although the final economic loss toll will take some time to be realised, it’s unlikely that the damage caused by the earthquake will be as high as that caused by Maria, at least from what initial reports suggests. Furthermore, the uptake of quake protection in the region is likely far lower than windstorm, as highlighted by Fitch, which means that any hit to the re/insurance industry could be fairly low, especially when compared with the economic hit.
While for insurers and reinsurers this reduces the loss, for the island, it means that more of the financial burden of recovery falls on the government and ultimately the people.
Protection gaps (difference between economic and insured losses post-event) exist in all corners of the world at varied levels, and events like this show how valuable risk transfer mechanisms are in order to mitigate and respond to the impacts of catastrophe events around the world.
