Building Loss Estimation for Earthquake Insurance Pricing

After the 1999 earthquakes in Turkey several changes in the insurance sector took place. A compulsory earthquake insurance scheme was introduced by the government. The reinsurance companies increased their rates. Some even supended operations in the market. And, most important, the insurance companies realized the importance of portfolio analysis in shaping their future market strategies. The paper describes an earthquake loss assessment methodology that can be used for insurance pricing and portfolio loss estimation that is based on our work esperience in the insurance market. The basic ingredients are probabilistic and deterministic regional site dependent earthquake hazard, regional building inventory (and/or portfolio), building vulnerabilities associated with typical construction systems in Turkey and estimations of building replacement costs for different damage levels. Probable maximum and average annualized losses are estimated as the result of analysis. There is a two-level earthquake insurance system in Turkey, the effect of which is incorporated in the algorithm: the national compulsory earthquake insurance scheme and the private earthquake insurance system. To buy private insurance one has to be covered by the national system, that has limited coverage. As a demonstration of the methodology we look at the case of Istanbul and use its building inventory data instead of a portfolio. A state-of-the-art time depent earthquake hazard model that portrays the increased earthquake expectancies in Istanbul is used. Intensity and spectral displacement based vulnerability relationships are incorporated in the analysis. In particular we look at the uncertainty in the loss estimations that arise from the vulnerability relationships, and at the effect of the

implemented repair cost ratios.