On the other side: the additional insurance failure of an earthquake scenario
Much has been said about the failures that may prevent the insured from restoring the situation to normal in the event of the destruction of the apartment following an earthquake. However, there is another failure, which exposes the insurance company: when a building that is in a dilapidated state and on the verge of collapse itself, collapses due to an earthquake (even a weak one) – the insurance company will not be able to deny coverage because an earthquake is covered by the policy.

Alongside the failures that may prevent the insured from receiving full compensation for the destruction of his apartment following an earthquake, there is also an insurance failure that causes the insurance companies to also be exposed to a risk that they did not plan to cover, in the event of an earthquake. About a year and a half ago, with the collapse of the building in Holon, after which additional buildings were evacuated due to the danger of collapse, the public discovered that when a building collapsed due to wear and tear / gradual deterioration – the building’s insurance will probably not cover the damage. The issue has been discussed at the Ministry of Finance, and a solution has not yet been found. Now, the question arises from the other side. What happens when buildings that were prone to collapse due to their condition, and a low-intensity earthquake, which should not cause their collapse, is a trigger and causes a collapse? The insurance company will not be able to make any claims regarding the physical condition of the building, since the collapse occurred as a result of an earthquake covered by the policy. In fact, in buildings built before the standard, if their condition is poor, there is a two-way failure: 1. In a normal situation where the building collapses – the apartment owners are exposed, since the insurance company will renounce the coverage because it is not a sudden damage (this is a gradual wear and tear / deterioration). 2. In a situation where an earthquake occurs (even with a weak intensity that should not cause the collapse of a building in good condition) and the building collapses – the insurance company is obligated to compensate because of the earthquake, and even if it proves that the building was in a dilapidated state and the real cause of the collapse is wear and tear and the building might have collapsed even without an earthquake, it cannot deny the cover. Are the insurance companies prepared for this? The situation created is like this: without an earthquake – the public owners of these apartments are exposed, and in the event of an earthquake – the insurance company is exposed. A complex issue that needs a comprehensive solution. As stated, 40% of the apartments in Israel were built prior to the Israeli standard for strengthening buildings (Israeli Standard SI 413, 1980). These are about 1.7 million apartments, the condition of which is unclear. At the time, we proposed a solution to the Treasury, the essence of which was to conduct a survey of the existing situation for these apartments using the traffic light method. The review will rate their situation and recommend preventive actions accordingly as well as recommendations to the insurer. The survey is more relevant now than ever. In this framework, we also contacted reinsurers abroad who expressed willingness and interest to provide insurance coverage for the issue, but there was no entity in Israel, neither the state nor the insurance companies, that agreed to bear the costs of the survey.
Earthquake insurance – the collapse of buildings, the insurance failure and everything in between.