Earthquake Insurance: Importance, Challenges & Steps Ahead

Table of contents

India’s geographical diversity makes it highly vulnerable to seismic activities, with 59% of its landmass prone to moderate to severe earthquakes (MoES). Despite the recurrent occurrence of devastating earthquakes like Bhuj (2001) and Kashmir (2005), earthquake insurance penetration remains alarmingly low.
This lack of financial protection not only amplifies post-disaster economic burdens but also weakens the country’s disaster resilience, highlighting the urgent need for wider adoption of earthquake insurance to safeguard lives, infrastructure, and livelihoods.

India’s Seismic Vulnerability and Role of Earthquake Insurance

Seismic Risk in India

India is one of the most earthquake-prone countries, with about 59% of its land area susceptible to moderate to severe seismic activity. The country is classified into four seismic zones based on earthquake intensity:

Zone II (Low Risk): Covers stable regions with minimal earthquake occurrences.
Zone III (Moderate Risk): Includes cities like Bengaluru and Chennai that experience occasional tremors.
Zone IV (High Risk): Encompasses Delhi, parts of Uttarakhand, Punjab, and Bihar.
Zone V (Very High Risk): Includes Himalayan states (J&K, Himachal Pradesh, Uttarakhand, NE states), Kutch (Gujarat), and Andaman & Nicobar Islands—areas prone to massive earthquakes.

Notable Earthquakes in India

Latur Earthquake (1993): 6.3 magnitude, 10,000+ deaths.
Bhuj Earthquake (2001): 7.7 magnitude, ~20,000 deaths, economic loss of ₹30,000 crore.
Kashmir Earthquake (2005): 7.6 magnitude, widespread devastation.
Sikkim Earthquake (2011): 6.9 magnitude, infrastructural losses.

Importance of Earthquake Insurance

Disaster Recovery: Facilitates quick rehabilitation and rebuilding of homes and infrastructure post-earthquakes (E.g., Bhuj earthquake, 2001).
Financial Security: Provides monetary compensation to individuals, reducing the burden on governments (E.g., ₹30,000 crore loss in Bhuj earthquake).
Urban Resilience: Encourages earthquake-resistant construction through premium incentives (E.g., Gujarat’s mandatory structural safety checks post-2001).
Livelihood Protection: Ensures business continuity, especially for small enterprises (E.g., Japan’s Earthquake Insurance System aiding business recovery).
Risk Awareness: Promotes community-level preparedness through policy-linked incentives (E.g., NDMA’s campaigns on disaster preparedness).

Global and Indian Case Studies on Earthquake Risk Mitigation

Kashmir – Dhajji-Dewari System: Traditional timber-laced construction technique offering flexibility and seismic energy absorption (E.g., Kashmir earthquake, 2005).
Himachal Pradesh – Building Code Implementation: Enforced seismic building codes, retrofitting vulnerable structures, and conducting public awareness campaigns.
Delhi – Lifeline Building Retrofitting Project: Retrofitted five critical lifeline buildings with structural & non-structural mitigation measures in collaboration with Geo-Hazards International.
New Zealand – Christchurch Earthquake (2011): Focused on resilient infrastructure, community engagement, and earthquake education in schools.
Japan – Seismic and Tsunami Mitigation: Japan adopted tsunami-resistant buildings, GPS buoy systems, and quake-proof technologies like seismic isolation in homes and the jacket method in bridges.

Challenges in Expanding Earthquake Insurance in India

Awareness and perception issues

Lack of awareness among the public about the availability and benefits of earthquake insurance, especially in high-risk zones.
People underestimate the probability of earthquakes in their lifetime, leading to complacency.

Economic Constraints

High premium costs make insurance unaffordable, particularly in high-risk zones for economically weaker sections.
Households prioritise short-term financial needs over long-term risk mitigation.

Structural and Administrative Barriers

Low insurance penetration (3.7% in 2023-24), especially in rural and semi-urban areas, limits accessibility.
Technical jargon, complex clauses, and unclear claim procedures discourage individuals from purchasing policies.

Trust and Transparency Deficit

Mistrust toward insurance companies due to delayed or denied claims and instances of misselling.

Policy and Regulatory Gaps

Absence of mandatory provisions for earthquake insurance, unlike motor insurance.
Insufficient disaster relief funds and weak public-private partnership (PPP) mechanisms in risk transfer.

Global Models of Earthquake Insurance

Japan’s Public-Private Model: Private insurers provide primary coverage, while the government acts as a reinsurer, ensuring financial stability for large-scale payouts (E.g., Great East Japan Earthquake 2011).
Turkey’s Compulsory Earthquake Insurance (TCIP): Mandatory for all residential buildings, with over 60% penetration. Disbursement of $340 million after the Turkey- Syria 2023 earthquake, enabling swift reconstruction.
Mexico’s Catastrophe Bonds (Cat Bonds): Transfers disaster risks to global investors, providing rapid liquidity for recovery efforts (E.g., 2017 Mexico City Earthquake).
New Zealand’s Earthquake Commission (EQC): Government-backed scheme funded through home insurance levies, aiding recovery from the Christchurch 2011 earthquake with $40 billion in estimated losses.

Measures to Enhance Earthquake Insurance Penetration in India

Nationwide Awareness Campaigns: Launch mass awareness drives in collaboration with insurance companies, disaster management agencies, and Panchayats.
Affordable Premiums: Introduce subsidies, tax incentives, and risk-based pricing models to make earthquake insurance affordable, especially for low-income households in high seismic zones.
Bundled Insurance with Home Loans: Mandate banks and housing finance companies to offer earthquake insurance bundled with home loans in high-risk areas.
Digital Access Expansion: Expand digital platforms, mobile applications, and e-insurance services to enable easy access, especially in rural and remote regions.
Simplified Policies: Design easy-to-understand policies in regional languages with transparent terms and quick claim settlement processes.
Consumer Trust Building: Enforce strict claim settlement regulations, establish an independent insurance ombudsman, and promote success stories of quick settlements.
Mandatory Coverage in High-Risk Zones: Make earthquake insurance mandatory for buildings in seismic-prone areas, similar to motor insurance regulations.
National Earthquake Insurance Fund: Set up a dedicated fund to provide low-cost insurance coverage to vulnerable populations.
Public-Private Partnerships (PPPs): Develop affordable and comprehensive insurance schemes through collaboration between the government and private insurers, supported by a catastrophe insurance pool.
Integration with Disaster Risk Reduction Strategies: Link earthquake insurance with urban planning, smart city projects, and seismic risk assessments to enhance disaster preparedness.

Strengthening earthquake insurance in India is essential to protect lives, livelihoods, and infrastructure, ensuring faster recovery and building a more resilient society against seismic risks.

Reference: Livemint | PMF IAS: Earthquakes

PMF IAS Pathfinder for Mains – Question 92

Q. India is highly vulnerable to earthquakes, yet earthquake insurance coverage remains inadequate. Analyse the key challenges in expanding earthquake insurance in India and suggest policy measures to improve its accessibility and effectiveness. (15 Marks) (250 Words)

Approach

Introduction: Briefly highlight India’s seismic vulnerability and the significance of earthquake insurance.
Body: Discuss key challenges hindering earthquake insurance penetration and suggest policy measures to improve accessibility and effectiveness.
Conclusion: Emphasize the importance of enhancing earthquake insurance for disaster resilience.