Year of Award
Master of Business Administration (MBA)
College of Business & Professional Studies
losses, devastation, underwriting, fire, tsunami
It is no longer a question of if the United States will suffer a , major earthquake, but only when it will occur and where it will occur. The probability of significant losses from.an, earthquake before the year 2000 is considered by many experts to be greater than 75 percent. These losses may devastate the.U. S. insurance industry.
Earthquakes and their related losses are very unpredictable. Studies of past earthquakes have shown losses can occur across all lines of property, casualty, workers compensation, and medical coverages. Estimates of these losses range anywhere from $5 billion to over $50 billion. The size of these potential losses are of grave concern to the insurance industry. Many industry officials doubt that the U. S. insurance companies can survive losses of this magnitude.
The potential for economic devastation goes beyond the U. S. insurance industry. A major earthquake would disrupt many areas in the specialized and interdependent U. S. economy. Individual businesses, the financial markets, and governments would be shaken into turmoil. Financial survival would be in question as the effects of the earthquake damage reverberated throughout the country.
Earthquakes are difficult for insurance companies to underwrite because there has been so little experience to draw upon. Without adequate underwriting, the only way to properly provide for earthquake losses is to establish adequate earthquake loss funding. Suggestions for establishing the necessary funding include industry sponsored earthquake reserves with special tax consideration and a government sponsored partnership with the insurance industry.
A major earthquake cannot be accurately predicted and certainly not prevented. There are things that can be done, however, by insurance companies, businesses, governments, and individuals to prepare more effectively for such an event. This preparation may make the difference between a manageable loss and a national economic catastrophe. This preparation must begin without further delay.
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Jennings, Richard Farrell, "A Study of the Economic Effects of a Major U.S. Earthquake on the Insurance Industry" (1989). All Theses, Dissertations, and Capstone Projects. 511.
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