24 February 2023Insurance

Insured losses from Turkey’s massive earthquakes to top $5bn amid $25bn economic toll

The total economic losses caused by the recent earthquakes in Turkey will likely exceed $25 billion, with insured losses surpassing $5 billion, global catastrophe risk modelling firm  Moody’s RMS has said in its latest estimates that are significantly higher than those made by  Fitch and  Karen Clark & Company (KCC).

Fitch, in its latest update, said insurable losses are hard to predict at this stage but are likely to exceed $2 billion and could reach $4 billion or more. While KCC has pegged close to $2.4 billion.

Losses in Syria are not included in Moody’s and KCC estimates. But, the insured losses include those to private insurers as well as to the Turkish Catastrophe Insurance Pool (TCIP). The TCIP is said to have started paying claims for residential property losses.

The magnitude Mw7.8 and Mw7.5 earthquakes that struck southern Turkey on February 6 caused widespread and severe damage across the country and northern Syria, with shaking felt as far away as Lebanon, Cyprus, Israel, and the State of Palestine.

“The earthquakes ruptured geometrically complex faults with multiple branches and were part of an active sequence that included over 400 events of Mw4 or greater. It is very unusual for an earthquake to trigger another event of such a magnitude as the Mw7.5 earthquake. The two largest earthquakes generated significant ground motions, and many areas were impacted by both events,” said Nilesh Shome, vice president of Earthquake Model Development at Moody’s RMS.

Its loss estimates are based on an analysis of the earthquake sequence using Moody’s RMS Europe Earthquake Models and reflect damage to property and contents, and business interruption, across residential, commercial, and industrial lines in Turkey alone.

The devastation was widespread and RMS noted that a unique contributor to the overall loss is that most of the economic losses due to shaking can be attributed to structures with severe damage that have either collapsed already or will require demolition.

The scale of damage amid complex macroeconomic conditions means the road to recovery in the country will take several years and add to the overall costs, Moody’s cautioned.

Helena Kingsley-Tomkins, Moody’s Investors Service covering the reinsurance industry, said: “Only around 20% of the $25 billion economic losses that RMS estimates will result from the earthquake in Turkey will be covered by the insurance sector, highlighting the vast protection gap that exists in the country. Moody’s expects reinsurers to absorb the bulk of the industry loss, which is relatively small in light of the devastation caused.”

Laura Barksby, product manager, Moody’s RMS, added: “The events highlighted the devastation that can arise when large magnitude events coincide with vulnerable building stock. We continue to learn from each significant earthquake, and the events in Turkey act as a wake-up call for other earthquake-prone regions, particularly concerning the true quality of the building stock.”

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