Parametric Earthquake Insurance

the new type of earthquake protection available

What is Parametric Insurance

What is Parametric Earthquake Insurance and How its Measured

How parametric earthquake insurance is different than standard earthquake insurance

The Real Basics about Earthquake Parametric Insurance:

Parametric Earthquake Insurance is a very new product globally and here in the United States. Provided by a new company called Jumpstart. If offers small almost instant dollar payments when certain earthquake intensity occurs. The policies are in the range of $10,000 to $20,000 per policy payable amount. [Maximum size of the claim.] The product is offered for consumers and businesses alike and is not tied to rebuilding a structure of replacing specific personal property. Underwriting is very steamlined. Claims are supposed to be very fast.

About Parametric Insurance:

Wikipedia defines parametric insurance as “a non-traditional insurance product that offers pre-specified payouts based upon a trigger event…” And “Trigger events depend on the nature of the parametric policy….” In other words if a triggering event happens than that determines the payout of the policy coverage, subject to the terms, conditions, and other policy documents. Wiki also notes that these types of policies “have most frequently been implemented in developing economies…” Well welcome to the US.

The NAIC states that Parametric Disaster Insurance “describes a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy. “Their opinion is that “This type of contract is attractive because the elimination of the claims adjustment process allows money to reach policyholders much faster.”

What we are discussing in this article is US Parametric Earthquake Insurance.

Today Earthquake Parametric Insurance in the United States is potentially available were you live from Jumpstart. The company was founded by Kate Stillwell and is a “purpose-driven benefit corporation.” Jumpstart considers their product to be a form of a ““Micro-Cat” bond…” The idea is that the policy would be a “Jumpstart.” And it would be the risk tool that they needed after a natural disaster.

Details on Earthquake Parametric Insurance:

The one insurer offering parametric quake insurance is certain US States is Jumpstart. The financial backers of Jumpstart is Lloyds of London, a nonadmitted insurer in California. Jumpstart is based in California, in the city of Oakland. Oakland is located just next to its more famous cousin San Francisco.

The Jumpstart site says that you can use the money for “any quake-related expense,” except “losses already paid by other insurance….losses due to bodily harm…[and] earthquakes caused by nuclear explosions…” Three listed sets of parameters: Claims already covered, bodily hard, and nuclear explosion realted quakes. It should be noted that QuakeCov believes that these are less exclusions than what is found on the CEA mini policy. [Please read the actual policy though if you purchase it to confirm.]

Jumpstart policies contain no dedutucible. Coverage may be either be $10,000 or $20,000 in total. Premiums are derived mostly from your zip code and data from the USGS. [It is an open question if they use UCERF3 earthquake data.] The product is available to both renters and owners alike in California, Oregon, and Washington. One must be 18 years old. It can be purchased in conjunction and “as additional coverage for someone who already has a conventional insurance policy.” However you should be mindful of the duplicate payout clause.

The jumpstart product allows for roomates to each have their own policy.

How Does Jumpstart Determine a Payout due to Earthquake Activity:

Much of what makes up Jumpstart is simple, however Payment Eligibility is pretty complex. To start off they use data from the USGS. They note that the USGS is “US government agency responsible for measuring earthquakes…” Jumpstart derives “Payment eligibility” … “based on shaking intensity.”

So they use Shaking Intensity not the more common Magnitude scale. In addition most insurance policies [non parametric] payout by damage. That is part of the reason that typical policies have claims departments.

What is Shaking Intensity?

From an Insurance Nerds opinion – What exactly Shaking Intensity is – is the million dollar question. In our opinion – Jumpstart supplies little information about this. They simple state that “locations that are coded on the USGS shake map as experiencing “severe” shaking are eligible to receive payment.”

Further on they state that “locations that are coded on the USGS shake map as experiencing “severe” shaking–peak ground velocity of 30 centimeters per second or more” may be eligible for payment. And that this data is available within “24 hours” post quake. They do state that ” PGV is more accurate because it captures the increased shaking intensity in soft-soil areas.” And that “Using magnitude alone would exclude soft soil areas that are far away from the earthquake epicenter…” OK.

However for many consumers Magnitude might be what you would expect the insurer to use. It is after all, the typical measurement tool used right after a quake to explain the intensity of it. Both Magnitude and Depth / Distance are some of the more commonly reported data points. But, Jumpstart does not use that. They use Shaking Intensity. You may ask what exactly is shake intensity / PGV?

What Exactly is Peak Ground Velocity (PGV)?

PGV and PGA:

PGV is a term not used on QuakeCov often, or at all. Therefore an explanation of it is in order. According to EBI Consulting both Peak Ground Velocity (PGV) and Peak Ground Acceleration (PGA) are used with regards to seismic measurements. “PGA has been more commonly used in earthquake engineering and seismic hazard maps used for building codes because, unlike PGV, it can be related to a force, making it …. simpler to use in building design.” And “PGV is the better index in determining seismic hazard for taller buildings.” Also “It can help estimate macroseismic intensity and is often applied in determining liquefaction potential and in the seismic design and assessment of buried pipelines.”

They note that “the peak ground velocity is the greatest speed of shaking recorded at particular point during an earthquake. [iii]” This is about the best explanation you are going to get on PGV – “greatest speed of shaking.“

While PGA has more to do with “change in speed is the acceleration.“

According to the article The Prediction and Use of Peak Ground Velocity, by Bromer and Alarcon: “Peak ground velocity (PGV) has received much less attention in the technical literature than….peak ground acceleration (PGA) ” To that point – a wikipedia page for PGA exists but none appears for PGV. They note that one of the “most important uses of PGV has been in the construction of elastic response spectra.”

Remember that the threshhold for Jumpstart is stated as: “peak ground velocity of 30 centimeters per second or more.”

How doe Peak Ground Velocity get measured?

When reading and researching earthquake scientific tools you will see more information concerning PGA than PGV. PGA can even be pulled from a specific USGS website for some locations.

And According to AF8, a New Zealand partnership, Peak Ground Velocity can be “measured using instruments that measure ground movement – seismometers and strong motion sensors.” PGA can evidently be pulled from these same tools as well. For the record the AF8 states that: “AF8 [Alpine Fault magnitude 8] is an award-winning programme of scientific modelling, coordinated response planning, and community engagement,” Their site does contain a solid amount of information concerning earthquake measurements. However AF8 is a Oceania outfit not the USGS, which seems to be the determiner of the actuacl PGV of a given quake.

How Does Parametric Earthquake Insurance Compare to Common Earthquake Insurance:

There are so many differences between Parametric Quake Insurance and common Earthquake insurance is difficult to know where to start. To begin with Common EQ policies start off with property to cover: Building or Personal Property and Loss of Use, among other coverages. The coverages are based on an exact address and and exact coverage amount and deductible is composed. Parametric insurance is simply by your zip code and the coverage amounts are much smaller. There are no deductibles. A claim for a common EQ policy is based on damage – while a claim with Jumpstart is based on Shaking Intensity.

There are also signficant difference with the exclusions and claims processes.

Which is a Better Deal – Jumpstart or the CEA?

It totally depends on your situation. Neither is really a better deal. In fact they really do not even compete with each other. One can be a $10,000 policy with no deductible – while the other may have a TIV or $1,000,000 with a $150,000 dedutible.

Often a Jumpstart policy will be far less expensive, easier to secure, and have zero deductible.

A CEA or independent quake policy will be more comprehensive, have to go through more underwriting, and be based on your exact location. CEA policies are available in California and Jumpstart in California, Washington, and Oregon.

Summation of Parametric Earthquake Insurance:

I sure hope that our deep dive into the new type of quake insurance, parametric insurance, was not too confusing. We reviewed some differences between the CEA and Jumpstart. We discussed Peak Ground Velocity and Shaking Intensity. In addition some of the underwriting and premium related information about this insurer were discussed. The true financial backer of the product was discussed as well.

Jumpstart is a much more simplistic earthquake coverage option and you don’t even need to own a home to get one. There is no deductible and really no claims process that we are aware of.