Insurance issues

1. preliminary remarks

Even in Germany, earthquakes can cause considerable damage to buildings and their contents. In addition to building precautions, i.e. designing buildings in accordance with the local earthquake hazard, risk prevention by taking out insurance is one way of limiting one's own financial outlay in the event of damage. The questions and answers listed below deal with some important aspects and are intended to provide an introduction to the subject of earthquakes and insurance.

In the language of insurance, earthquakes belong to the natural hazards. Damage caused by earthquakes can be covered under so-called Extended Elemental Damage Insurance (EEV). Recently, since the beginning of 2011, natural hazards (usually windstorm and hail) and extended natural hazards (primarily flood, backwater and earthquake) have increasingly been grouped together under the collective term "natural hazards": On this date (Jan. 1, 2011), the German Insurance Association (GDV) published new non-binding model terms and conditions for residential building insurance and household insurance with a modified scope of coverage. Unlike before (according to GDV model conditions 2008 or before), the new conditions automatically cover not only the "classic" natural hazards such as storm and hail, but also all previous extended natural hazards, such as earthquake. Whereas previously the extended earthquake risk had to be deliberately selected, now a risk such as earthquake is deliberately deselected by the policyholder. Since the implementation is non-binding for German insurance companies, both approaches still exist on the market.

In addition, the insurance conditions available on the market are company-specific - there are no legal requirements in this regard. However, they are often drafted, at least in terms of definitions and general provisions, along the lines of the GDV's model terms and conditions mentioned above. More far-reaching contractual components, such as insurance premiums or deductibles, depend on the respective insurance company and the individual insurance offer. Accordingly, only very rough information can be provided in this regard.

It should be noted that all answers and the statements and evaluations contained therein reflect the current state of knowledge and the views of the DGEB board members. No guarantee can be given for their correctness.

2. Is it possible to insure against earthquake damage?

In principle, one can insure oneself against natural hazards by taking out a homeowners or household insurance policy. Depending on the terms and conditions, the policyholder may additionally take out an extended natural hazards insurance to protect against earthquake damage, or he may choose the overall package according to the 2010 model terms and conditions, where all natural hazards are covered as natural hazards, including earthquakes.

3. What can be insured against earthquake damage?

Private customers can insure their residential building and household contents against earthquake damage and possible loss of rent by taking out Extended Natural Hazards Insurance or by taking out Residential Buildings and Household Contents Insurance (based on the Model Conditions VGB / VHB 2010). The same applies to commercial enterprises, which can insure the building and business contents as well as damage due to business interruption and loss of rent.

Corporate customers (industrial companies, municipalities, churches, etc.) can take out so-called EC coverage ("extended coverage") in addition to an existing fire insurance policy in order to obtain insurance protection against earthquake damage. Depending on the agreement, the scope of insurance coverage may include earthquake damage to buildings, contents, machinery, as well as financial losses due to business interruption, retroactive damage and clean-up costs.

4. What are earthquakes according to the insurance contract?

The definition of earthquakes commonly used in the insurance industry and also stated in the GDV model conditions is:

Earthquakes are natural earth tremors triggered by geophysical processes in the earth's interior.

In addition, the following definition was commonly used, especially in Baden-Württemberg:

Earthquakes are natural earth tremors that reach magnitude M=3.5 (according to C.F. Richter) after seismic measurements at at least two earthquake stations.

Both definitions explicitly refer to "natural earth tremors" . This serves to differentiate from anthropogenically caused shaking damage, e.g. earthquakes caused by mining, which are normally excluded in insurance contracts.

5. Who needs earthquake damage insurance?

Insurance against earthquake damage to real estate and contents can be useful for building owners, proprietors and tenants, as well as for companies. Whether one "needs" insurance depends on personal risk acceptance. The decision to bear the earthquake risk oneself or to insure it depends primarily on the question of whether one could replace one's own material assets after earthquake damage without financial support.

6. Where in Germany do I need earthquake insurance?

Earthquakes are possible throughout the Federal Republic of Germany, but the probability of their occurrence varies greatly from region to region. The areas with an increased earthquake risk mainly include parts of the federal states of Baden-Württemberg, Bavaria, Hesse, Rhineland-Palatinate, North Rhine-Westphalia, Thuringia, Saxony-Anhalt and Saxony. An initial overview of the earthquake hazard at one's own place of residence is given in the brochure "Earthquakes in Germany" published by the DGEB. The brochure contains the earthquake zone map of DIN4149 "Buildings in German earthquake zones", which divides the earthquake hazard in Germany into four hazard levels. In more precise spatial resolution, this map is available, e.g. in Baden-Württemberg, as an administrative map to the local building authorities. Further sources of information are the regionally responsible earthquake services . The commissioning of an inspection engineer from the field of civil engineering represents a further possibility of obtaining information.

7. Do I need earthquake damage insurance even if the building is earthquake-proof according to standards?

The basis for standard-compliant earthquake-resistant construction of buildings in Germany is DIN4149 "Buildings in German Earthquake Regions". The load assumptions contained in this standard are selected in such a way that the collapse of a building in the event of an earthquake is avoided with a high degree of probability. However, despite standard-compliant earthquake-resistant construction, considerable damage can occur to the building and/or its contents - even if the building does not collapse.

The load assumptions on which the standard is based in the event of an earthquake vary depending on the earthquake zone and subsoil class and were determined for an occurrence probability corresponding to a return period of 475 years.

8. what earthquake damage is paid and what evidence is required in the event of a claim?

Which earthquake damage is paid by the insurer depends on the individual insurance conditions. Usually, compensation is paid for insured property that was destroyed or damaged by an earthquake or lost as a result of an earthquake. Any agreed deductible is taken into account in the amount of compensation. The policyholder must credibly prove that the damage was caused by an earthquake. In the case of a major earthquake event, this is unproblematic. For earthquakes of lesser magnitude, the insurer may require proof. Therefore, the insurance conditions often contain the wording that the policyholder must prove that "the natural ground shaking in the vicinity of the insured location caused damage to buildings in perfect condition or to other property that was equally resistant, or that the damage could only have been caused by an earthquake because of the perfect condition of the insured property." In disputed cases, the factual situation can be clarified by an expert.

9. Which insurance companies offer earthquake damage insurance?

It can be assumed that all insurance companies that offer building and/or household contents or contents insurance in Germany usually also offer 'Extended Elemental Coverage' as a supplement.

10. What should be considered when taking out earthquake damage insurance?

Care should be taken to ensure that the agreed sum insured is appropriate and reflects the replacement value of the building or contents. By agreeing a deductible, the insurance premium to be paid can usually be reduced - but in the event of a claim, the agreed sum or percentage must be paid by the insured himself. Certainly, the scope of coverage of the insurance offer and the amount of the premiums to be paid should also be checked. Comparison offers from several insurance companies may be suitable for this purpose. Before concluding a contract, factors that characterize the insurance company offering the policy (e.g. quality and availability of advice, economic situation of the insurer, etc.) should also be taken into account.

11. What does the question about previous damage mean?

In the application forms for the insurance of extended natural hazards, there is often a question about previous damage (within the last 10 years). This question is primarily focused on the flood peril and is usually only asked for this peril. In rare cases, however, questions are also asked about past damage due to earthquakes. The question whether a structure to be insured has been affected by an earthquake in the past years, which is also found in rare cases in application forms, is very imprecise and often not easy to answer. It can be assumed that this question is also aimed at finding out whether damage has been caused by earthquakes in the past. In case of doubt, the relevant insurer should be asked what is meant by the phrase "affected".

Asking about previous damage is a simple way for an insurance company to better assess the risk to be assumed. Previous damage is ultimately an indication of whether damage may also occur in the future. The number and amount of previous losses are a factor in determining the conditions under which insurance cover is granted (e.g. deductible, preventive measures) and the amount of the premiums to be paid.

12. how high are the premiums, for example?

This question cannot be answered unambiguously, as each insurance company has its own rates. Basically, the value of the property to be insured and the location of the property to be insured are of decisive importance. Since earthquake damage is almost always insured in combination with other natural hazards, at least in the private customer business, it is above all the risk of flooding that determines the price, in addition to the earthquake hazard.

In its 08/2011 issue, the magazine Finanztest examined 58 offers for residential building insurance with extended natural hazards coverage. For the model house taken as a basis, the annual premiums to be paid ranged from 20 to 950 euros.

Map of Germany's seismic hazard (Source: Meskouris, K., Brüstle, W., Schüter, F.-H.: Neufassung der Norm DIN 4149. Bauingenieur, Vol. 79, S3-S8, 2004.)
Map of Germany's seismic hazard (Source: Meskouris, K., Brüstle, W., Schüter, F.-H.: Neufassung der Norm DIN 4149. Bauingenieur, Vol. 79, S3-S8, 2004.)