Swiss earthquake insurance: private provision instead of state aftercare

If we had the chance to get into a time machine and travel to 2019 – a year before the start of the coronavirus pandemic – what would we do?

We might do some things differently. Regarding Corona, we would invest more in preparation, also knowing that such events cannot be prevented in the long term. Let’s build structures to be able to respond quickly and efficiently. This would allow us to reduce suffering, but also national debt. Not to be forgotten: In the first year of Corona, the Confederation had to give loans worth 38 billion francs. Contributions that, in the worst case scenario, will cause debt – and which the next generation would have to bear.

Time travel is beyond the realm of possibility – even for us insurgents. But we can help reduce the financial consequences of the risks we face in the future. Earthquakes are such a danger.

Although large earthquakes are rare in Switzerland, they have the potential to cause devastating damage. An event with a return period of 500 years today would cause a modeled economic loss of 30 to 40 billion francs. That is a huge amount. The risk is not evenly distributed over time, but is particularly characterized by rare, catastrophic earthquakes, which usually occur without any prior warning. Hopefully that day

From a sophisticated insurance perspective, earthquake risk has some advantages over pandemic: A real earthquake causes a lot of suffering and destruction, but it is regionally limited. It is rejected on a global scale as the corona pandemic. Earthquakes also occur randomly and independently of each other. This makes it possible to measure the risk and therefore insurance. This means that major insurers and reinsurers have the ability to offer earthquake cover on a large scale, as demonstrated by the earthquakes in New Zealand in 2010 and 2011. However, far too few homeowners in Switzerland today have insured themselves against earthquake risks. Many of them are not even aware of this protection gap. The insurance industry is working to raise the necessary awareness.

Politicians have implicitly recognized the need for action, but want to treat it with the wrong medicine. “Swiss earthquake insurance using a contingent liability system” is the name of the motion by which the Parliament asks the Federal Council to submit a corresponding proposal. This stipulates that homeowners must contribute up to 0.7 percent of the property’s insurance amount to cover damage in the event of an earthquake. While the resolution is worth supporting, its implementation is questionable. It seems silly to want to bill homeowners so soon after an earthquake destroys their belongings.

This is not mandatory. Contingency duty is nothing more than a false solution that gives you the pleasant feeling of being ready when the weather is nice, but disappears like a concept in a drawer when the weather is nice. The most likely thing that would be left is that the state would accept financial obligations and thus again a debt that would be burdened on future generations. Care instead of prevention.

Despite all the data models and early warning systems, we have to accept that we do not know in which generation an earthquake will occur. So such a rare but devastating event requires solidarity in two ways: on the one hand between generations, and on the other hand between people with different levels of risk. This is exactly what natural hazard insurance has been doing for decades. So it would be wise to include earthquakes as the tenth hazard – along with floods, floods, storms, hail, avalanches, snow pressure, rock falls, falling rocks and landslides – in the natural risk insurance. This means that the insurance benefits from a verification system. It includes not only buildings, but also the furniture in them.

Insurance is designed to be long-term and prudent. The benefit to society is that, in the event of an emergency, there are ways to quickly repair damage. The insurance industry can take this role when it comes to earthquake risk. In this case, the state can confidently limit itself to the task itself: creating framework conditions so that the private sector can offer real solutions.

corn bear, 59, has been the director of the Swiss Insurance Association SVV since 2022. He studied business administration at the University of St. Gallen and graduated from the Stanford Executive Program. During his career, Arbter held management positions at several national and international insurance companies.

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