Tuesday, 5 January 2021

Croatian Resident from California on Earthquake Insurance Policy Back in the USA

January 5, 2021 - With 85% of Croatian homes not insured for earthquake damage, what is the earthquake insurance policy in other high-risk areas?  A Croatian resident from California. 

One of the many things we have learned in the wake of the devastating 2020 earthquakes in Croatia is how few people have an earthquake insurance policy. Industry experts put the figure at about 85% of homes without an earthquake insurance policy in Croatia. As we saw yesterday in With 85% of Croatian Properties Not Covered for Earthquakes, an Insurance Expert Speaks, of the officially estimated 100 billion kuna earthquake damage of 2020, only 237.5 million kuna had been paid out in November, or 0.2375%. 

One of the responses I had to the article was from a Croatian now retired here, but who lived most of his life in California, a region known for its earthquakes. Here is what he sent me about how the earthquake insurance policy works in California. 

California insisted that, in order to operate in the state, an insurance company must offer (as an option) earthquake coverage. After the Loma Prieta and especially Northridge, companies started pulling out of California rather than sell earthquake coverage. The crisis was resolved by the setting up of a state-backed fund and insurance provision, that was sold through insurance companies.

But it was expensive. It was limited in that it only provided 75% cover and only if you suffered a big loss, many tens of thousands of dollars. And worst of all, if there was a big earthquake and the fund ran out, policyholders who were not affected would be called on to pay more into the fund. Unsurprisingly coverage dropped to negligible levels.

Time passed and more time passed, and there were no devastating earthquakes. Insurance companies' drive for more income eventually caused some of them to come back into the market. But it is still expensive. Regarding conditions, there were no special requirements for an earthquake to be a particular strength. It had to be an earthquake though - subsidence, landslides and the like, not caused by an earthquake, were not covered. We decided it was not worth the price, as it would have more than doubled our cost. In 23 years we saved probably over $30000, but yes we were taking a risk. Oh and we had to sign a bit of paper every time we renewed, that we had been offered earthquake insurance and declined it.

Another thing unique to CA (maybe to other US states too) is that your mortgage was something you could walk away from, leaving the property to the mortgage holder. Unlike any other loan, they could not come after you for the difference in value, even if the property was destroyed.

CA also had a state insurance commissioner whose job was to make sure companies behaved. He had real teeth and used them

This is an issue which we will be continuing to monitor at TCN. If you have anything to contribute, please contact us at This email address is being protected from spambots. You need JavaScript enabled to view it. Subject Insurance

For the latest news from the Petrinja earthquake, visit the dedicated TCN section

If you would like to donate to the earthquake relief efforts, my recommendation is Glas Poduzetnika (Voice of Entrepreneurs) fund - full details here.

Monday, 4 January 2021

With 85% of Croatian Properties Not Covered for Earthquakes, an Insurance Expert Speaks

January 4, 2021 - Croatian earthquake insurance is the exception rather than the norm, meaning that 2020 will prove a financially devastating year for many. 

After the initial emotions of the earthquake, the harsh realities of life that will follow, and how it will be changed for many. 

After seeing hundreds of articles in the Croatian media in the aftermath of the earthquake, all focus on the devastation and human interest stories, one story in 24Sata caught my attention on an entirely different topic, one which we subsequently covered in Croatian Earthquake Aftershocks: A Home Destroyed, Loan Repayments Unaffected.

My first reaction was that the couple should have had house insurance, but I decided to read the article. And so began an introduction into an issue which is going to have a huge impact on the lives of many people affected by the disaster. I also learned a lot more about Croatian insurance than I thought I ever needed to know. 

It turned out that the couple did have insurance. Indeed, they had to have insurance, a requirement from the bank which gave them a 30-year loan on their first home, an apartment in Sisak. They moved in on November 27, 2020, 32 days before disaster struck. Before they had made the first repayment to the bank, the apartment must now be demolished. But the bank repayments must continue. 

This is obviously going to be far from an isolated case, and I posted on Facebook and LinkedIn to see what more information I could learn. It has been quite an education so far, and many thanks for all the contributions received. I learned a few things, such as 1964 being a pivotal date in earthquake insurance, with policies and payments changed in the aftermath of the 1963 major quake in Skopje, (now North) Macedonia. 

I also learned that cover depends on the size of the quake for it to be designated as a quake. From one current policy in Croatia:

In terms of these Terms, an earthquake signifies a naturally induced ground motion (shaking) sudden geophysical processes in the Earth's crust which manifested itself in the place of insurance with an intensity of 5 degrees and more per Mercalli-Cancani-Sieberg scale (MCS scale).

I also learned that the culture of insuring houses is not so strong in Croatia, with an estimated 30% of properties insured. While basic property insurance is mandatory for bank loans, earthquake insurance is an added extra, and not one that many take up. Indeed, there are an estimated 15% of properties with earthquake insurance. 

Which means that there are 85% of properties which are not covered. The consequences of which can be felt in seconds with a major quake.

It was reported today that earthquake insurance premiums are to rise 28% in Croatia, understandably in the wake of recent events.  The report also has some other numbers from the Chamber of Economy. 

"The devastating earthquakes which hit Croatia last year have caused over HRK 100 billion worth of damage and many people have lost their properties."

"After the March 2020 earthquake, insurance companies paid HRK 237.5 million and processed 7,269 damages claims by the end of November, the HGK said, adding that the Zagreb quake showed that an extremely low percentage of apartment buildings had earthquake insurance."

Do the maths. Of course there will be additional payouts, particularly from the most recent quakes, but according to these official numbers from the Chamber of Economy, 100 billion kuna of damage and 237.5 million kuna of payout equates to 0.2375% of compensation. 

There is a lot more to this, of course, and I am certainly no expert, but this is looking like a huge issue, one which TCN will be following. If anyone has insights or information to add, please send (with links to authoritative sites preferred) to This email address is being protected from spambots. You need JavaScript enabled to view it. Subject Insurance.

Among the many responses I received to my social media plea, Ognjen Radulovic said that he would be happy to answer some questions in his capacity of Strategic Insurance Specialist at MAI Insurance and Reinsurance Brokers. Some of the answers are below, while Ognjen has agreed to get more data for other questions.

1. What is the general culture and attitude to home insurance in Croatia? 

Home insurances have been increasing over the last decade, for sure due to bank loans as collaterals but also with a different scope of required coverages. Most commonly used are Fire, Lightning, Explosion, Aircraft fall (the so-called FLEXA group of perils).

2. Earthquake insurance is an additional extra, and I understand that 85% of properties are not covered by it. Can you explain a little about the earthquake cover and its costs?

After closing FLEXA, it is possible to proceed with the closing of extras such as EQ (earthquake insurance).

Unlike FLEXA and some other named perils, EQ is a 100% reinsured peril, which means that local markets are paying premiums to reinsurers in order to obtain the cover. It also means that local markets do not participate in the remuneration of losses, they only formalize the payout once the losses have been confirmed by reinsurers.

All relations among insurers and reinsurers are strictly regulated by supervisory bodies (HANFA in Croatia).

The costs (insurance premiums) may vary among markets. With the intention to reduce the insurance premium, markets are offering coverage closing with the insured's self-retention clause based on the Sum Insured (contracted Property Value) or Loss Amount (depending on the market).

3. Several people who had earthquake cover in Zagreb in March found that they were unable to claim due to the small print. What were the main reasons for this?

Hard to answer without detailed insights. Most likely the coverage has been closed with deductible in % and stated absolute minimum of self-retention which is higher than the loss occurred.

4. How transparent is the insurance industry in your opinion, and what steps could be taken to improve the information flow and encourage more homeowners to insure their properties?

This is a subject of local insurance culture generally: for instance, Slovenia has double insurance premium per capita than Croatia, Serbia twice lower... A higher economic standard is mostly followed by a higher interest of homeowners for insurance - paradoxically, but true: the less money you have, the harder you decide to protect the property you own.

5. We are already hearing of several examples of apartment owners in the Petrinja area who were insured and had bank loans but no earthquake insurance. Some buildings have been earmarked for demolition, thereby leaving people without homes but still with the bank loans to pay. In your experience, what happens in situations like these?

Banks do not require EQ coverage, but it was not the obstacle for the owners to arrange the closure of this specific peril in addition - an example of owners' bad risk management and lack of insurance culture. They got the loan, the properties don't exist anymore, they have to return the loans as agreed.

Best case scenario: the state will provide some help, but for sure not equal to the losses they suffered.

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