Guy Carpenter’s QuakeCube® Eases Design of Parametric Covers for Earthquake

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According to the Federal Emergency Management Agency (FEMA), the US is underprepared for earthquake damage. For example:

  • Despite experiencing 90% of the country’s earthquakes, only 10% of California’s residents have earthquake insurance.
  • Only 11.3% of Washington state’s residents were covered in 2017 despite having the second-largest market in the seismic space.
  • In 2000, 60% of residents in Missouri’s New Madrid area had earthquake coverage. As of 2020, that number declined to 12.7%.

Parametric insurance, in which conditions for payment and payment amounts are defined in accordance with certain physical conditions or measurements, was designed to eliminate the traditional claims adjustment process, which typically takes months or years to complete. In contrast, recoveries provided by a parametric mechanism can be accessed without dispute and within weeks of the event. This feature makes parametric solutions appealing when transparency and speed of payment are priorities.

Guy Carpenter’s QuakeCube® provides a global parametric earthquake product that features payment conditions according to a regular, high-resolution, 3-dimensional grid. Optimizing the appropriate magnitude trigger in each grid cell, we can capture the risk of our client’s portfolio with greater fidelity.

Featuring efficient design and placement, QuakeCube® is a “cat-in-the-box” catastrophe product that offers prepackaged and off-the-shelf solutions, tailored to respond to industrywide losses, so the triggers can be used effectively as an industry loss index on a parametric basis. At the same time, Guy Carpenter works with clients to determine the degree of customization necessary, ranging from minor tuning of an industrywide solution to a fully custom-built trigger that specifically captures clients’ assets.