Between January 26th and 28th , our island got a little shaken up by a swarm of earthquakes – over 22 – recorded at a magnitude ranging from 3.8 to 5.1. Earthquake swarms are clusters of earthquakes – sometimes hundreds of them – with no definitive mainshock. The largest events in a swarm are all of roughly the same magnitude and occur in a limited area. While no damage is expected from the January swarm, it is an opportune time to point out the specific clauses that will affect a claim by catastrophe perils such as earthquakes, hurricanes and floods caused by those perils.
Most insurance policies for buildings, contents and stock in Trinidad and Tobago have a deductible of 2% of the sum insured for earthquake and hurricanes. This means that insurers will only pay a claim caused by earthquake if the loss exceeds 2% of the sum insured. For example, a $5,000,000 building would have to have damage exceeding $100,000 before insurers would respond. If your property is underinsured, then insurers will reduce your claim in the same proportion of the underinsurance, and then apply the 2% deductible.
There are instances where a building is not damaged directly by the earthquake but by another peril such as fire or explosion that was a direct result of the earthquake. In such cases, the earthquake deductible will apply.
Catastrophe deductibles are imposed by reinsurers on all insurers in the region, so they are not negotiable.
“72 Hours Clause”
In an earthquake swarm, a series of earthquakes occur over a period of time. The 72 hours clause states that the policy deductible is applied for each “loss occurrence”, and the duration and extent of any “loss occurrence” is limited to 72 consecutive hours. If an earthquake on Friday caused a partial loss, then only one deductible would apply to any further tremors causing damage – up to 72 hours. If another earthquake occurred four days after the initial tremor and caused further damage, then a second deductible would apply – provided that the insurer could distinguish between the damage caused by the two earthquakes.
Flood occurring after an earthquake or hurricane
Buildings that withstand an earthquake unscathed still face the risk of a subsequent flood. Flood, or more accurately ‘‘overflow of the sea”, does not have to be a Japanese type tsunami to cause damage. Even moderately sized waves during high tide can cause flooding in low lying areas such as downtown Port of Spain. This “overflow of the sea” is also subject to a deductible of 1% or 2% of the sum insured depending on the policy wording.
Looting is excluded under the standard Fire and All Risks Policy wordings, so if looters help themselves to contents and stock following an earthquake, the contents and goods that disappear are not covered.
The Harvey-Irma-Maria chain of hurricanes showed how vulnerable insurers and reinsurers are to multiple catastrophic events, so the market for ‘deductible buybacks’ – where policyholders could purchase insurance for high deductibles – has also disappeared. Caribbean governments could consider requesting administrators of the Caribbean Catastrophe Risk Insurance Facility to allow companies – and even homeowners – to insure part of the catastrophe deductible.