What is Parametric Earthquake Insurance and Why Your Organization Should Consider this Alternative to Traditional Earthquake Coverage

Alliant and Amwins have collaborated to provide an exclusive “easy to quote/easy to bind” parametric earthquake solution for our APIP clients called “Shake and Pay”.

As you are likely aware, a parametric insurance coverage structure is fundamentally different from a traditional structure.  For property risks, rather than the triggering event of coverage being effectively “physical damage sustained from an insured peril”, the trigger for a parametric cover is the occurrence of an event that usually strongly correlates with loss.  In the case of a parametric earthquake cover, the event is a certain level of ground motion. Beyond simplification in the loss adjustment, process, a key value of a parametric cover is that insurance proceeds are free to be used to indemnify the insured for nearly any economic loss sustained, not just physical damage which opens up the value of the insurance considerably.  Beyond damage to real property, think “lost tax revenue”, or “overtime pay for policy and fire” as well as any other kinds of economic loss, or extra expense incurred, and damage to typically uninsured property, like infrastructure.

In the case of “Shake and Pay”, the trigger is an earthquake of a minimum Richter magnitude of 6.0, and where a minimum “Peak Ground Acceleration” (PGA) is experienced in the cover territory (in this case, “county”), starting at 20% or 35% depending upon the county in which the insured resides.  This level of ground motion roughly equates to an expectation that damage from the event would be moderate to severe.  The payment amount increases on a scale to 100% when a higher level of PGA is experienced.  The structure will pay based upon the maximum PGA in the county, regardless of where the insured’s assets are within the county.  Once a triggering event occurs, insurance funds are available within days, and the substantiation of economic loss by the insured occurs subsequently. 

“First-dollar” coverage is available for limits sought between $50,000 and $5,000,000 – meaning that no dollar or percentage deductibles apply, and premiums start at a much lower entry point than traditional commercial earthquake coverage.