Earthquake parametric insurance

Earthquake parametric insurance pays a set amount the moment a qualifying earthquake is confirmed by an independent seismic reading, rather than after a lengthy damage assessment.

For businesses in seismic zones, that speed can be the difference between a controlled recovery and a prolonged shutdown, because a quake stops operations in seconds and the cost keeps mounting long after the shaking stops. Where conventional earthquake cover is limited, expensive or slow, parametric offers certainty and speed.

This page explains what an earthquake costs a business, why traditional cover falls short, how Trigger structures earthquake parametric cover, the trigger and data behind it, how basis risk is managed, an example structure, the businesses it suits, and how fast it pays.

What an earthquake costs a business

An earthquake stops operations in seconds and can leave premises, machinery and infrastructure unusable for months. The financial damage keeps compounding long after the shaking stops: lost production, idle staff, broken supply lines and emergency repair costs. In many seismic regions, conventional earthquake cover is limited, expensive or carries large deductibles, so a significant share of the loss falls on the business itself. For operators, lenders and public bodies alike, an uninsured or slowly settled earthquake can turn a survivable event into a lasting setback.

Where traditional cover falls short

Conventional earthquake cover settles only after the damage has been surveyed building by building, which is slow at the best of times and slower after a major event, when adjusters are stretched across a whole region. Deductibles for earthquake are often high, and in the most exposed zones cover is restricted or priced out of reach. The settlement, when it comes, frequently arrives after the decisions that shape recovery have already been forced. Parametric removes that delay by paying on the seismic reading itself, so usable funds arrive while the assessment is still underway. Compare the two in parametric vs traditional insurance.

How Trigger structures an earthquake cover

We build cover around an independent measurement of the event, typically the earthquake magnitude at a defined depth and distance from your insured location. You set the limit and the payout levels, and the contract states exactly what is paid at each magnitude band. Cover can be binary, paying in full once the trigger is met, or scaled so the payout rises with magnitude and proximity. Because the payout follows the reading rather than an assessed loss, there is no adjusting and no dispute, and settlement usually follows within days of the data being confirmed.

The trigger and the data behind it

The trigger uses independent seismic data. Seismic networks publish the magnitude, location and depth of earthquakes almost in real time, which makes the trigger fast, objective and impossible for either side to influence. A trigger is typically defined as a magnitude at or above a set level within a defined radius of the site, sometimes with more than one distance band so that a closer, smaller quake and a larger, more distant one both respond appropriately. The clarity of seismic data is one reason earthquake is among the cleanest perils to structure parametrically. Read more on the data used in parametric insurance and earthquake and catastrophe data sources.

Reducing basis risk on an earthquake cover

Basis risk on earthquake cover comes mainly from the relationship between the measured magnitude at a point and the shaking actually experienced at your site, which depends on distance, depth and ground conditions. It is reduced by setting the distance bands and thresholds carefully, using more than one band where helpful, and, where the data allows, using ground shaking intensity rather than magnitude alone. Every proposed trigger is back tested against the historical seismic record so you can see how it would have paid in past events before you commit. See how basis risk is managed.

Example structure

A manufacturer with a plant in a seismic region takes cover that pays in full when a magnitude 6.0 or greater event occurs within 50 kilometres of the site, with graded payouts for smaller events nearer the plant. When a qualifying quake is confirmed by the seismic network, the agreed amount is released within days, funding safety checks, repairs and the cost of keeping the workforce in place while production is restored.

Which businesses and sectors it suits

Earthquake parametric cover suits energy operators with exposed assets, construction and real estate, manufacturing and supply chain sites, and public sector bodies and infrastructure owners funding disaster response. Lenders and investors use it to protect the value of assets and the cashflows that service debt in seismic regions. It is equally valuable to any organisation that would face a sudden liquidity gap if a quake halted its operations.

How fast the cover pays

Because there is no loss to assess, an earthquake parametric policy pays within days of the seismic data confirming the trigger. Seismic readings are among the fastest catastrophe data available, often published within minutes and refined over the following hours, so the main determinant of timing is simply confirmation of the official reading rather than any adjustment or negotiation. That speed is the point: funds arrive while they still shape the recovery. This peril sits within our catastrophe parametric insurance line, alongside the other events that cause sudden, severe loss.

Data source: USGS Earthquake Hazards

Common questions