Insurance In Natural Disaster

Among a number of natural disasters such as flood, typhoon, hurricane, earthquake, and tsunami, perhaps earthquake and tsunami are the most horrifying of them all and represent the most risk to humans in this modern world.

The focus of the people of the world are on the biggest earthquake and tsunami to have occured in the last forty years. It was an earthquake with a magnitude of about 9.0 on the Richter scale that centered at about 100 miles west of Indonesia’s island of Sumatra, and at depth of 6.2 miles under Indian Ocean. It triggered a series of tsunami that sent waves of water chasing into at least 6 countries across Southern Asia. It was estimated that more than 300 thousand of people lost their or are still reported missing, with countless millions becoming homeless and with no immediate livehood.

Property damage to infrastructure and residences and commercial buildings was so extensive and losses are estimated as being a few billion dollars. In the worst hit city, Meulaboh - Aceh of Indonesia, almost 90% of the city was damaged.

Although losses of lives were estimated to be the highest in the modern history, losses to life insurance were considered to be modest. This is because the most hit areas represented a very low insurance density. Had this earthquake and tsunami occured to the other higher insurance density cities such as Medan or Jakarta of Indonesia, then the loss the insurance industry would be astronomical

With the level of destruction in the worst affected city like Meulaboh of Indonesia reaching 90%, the insurance industry should re-address their perception toward what can constitue a worst case scenario that can occur to an area or city. It is very important for the insurance industry to learn lessons from this particular event, to ensure the future risk modeling will be capable to accurately and safely anticipate the level of destruction similiar to what tragically happened in Meulaboh - Aceh Indonesia on 26 December 2004.