An earthquake measuring 5.5 on the Richter scale hit Orkney on 5 August 2014 and was felt in most parts of the country.  It caused structural damage to buildings, leaving many with a great deal of questions regarding the structural integrity of buildings in South Africa.

According to Pieter Visser, a Catastrophe Analyst at Aon Benfield, poor construction can greatly exacerbate damage. “Any part of a building that is not braced to another, such as walls to the foundation of the building, meshed inner wall joints and solid roofing structures, will cause cracks even from small magnitude events. Damage can however be prevented by enforcing building regulations, which were clearly lacking from the amount of damage caused to properties in informal settlements, in and around Orkney. The fact that the majority of these properties were uninsured or under-insured makes matters worse,” says Pieter.

Mandy Barrett of risk consultants and insurance brokerage, Aon South Africa, says that many South Africans are however under-insured against major losses, such as an earthquake. “Financial times are tough and many households have reduced their sums insured in a bid to try and cope with skyrocketing living costs. What most forget to factor into their decision is the fact that you will most likely have to replace all your household content and possibly even the entire structure of your home in the event of a catastrophic event,” warns Mandy.

If a client is under-insured, they may find themselves in a situation where they are only paid partially for a loss at claims stage.  “Insurers call it the ‘average formula’ which means that if your property is under-insured by 50% for example, they may only pay you 50% of your claim.  This easily happens where a home was bought a number of years ago. Many insure the structure of their home for the value that they purchased the property for or the current market value of the house, but as building costs escalate the actual replacement cost – not the market value – could have appreciated to well beyond your insurance cover,” Mandy explains.

Most homeowners insurance policies insure on the replacement value of the structure and its contents, Mandy adds. “The replacement value covers a ‘new-for-old’ approach, which is why it is essential that the sum insured is adequate to cover the cost of rebuilding the same building at today’s prices that includes associated costs such as municipal and professional fees in addition to debris removal.”

Pieter Visser of Aon Benfield goes on to say that the basic building quality within settlements that are close to deep mines, is a concern. “The majority of large seismic events, excluding Ceres in 1969, occurred within close proximity of deep mines, which leads one to conclude that these locations are more prone to frequent, relatively small, earthquakes of a magnitude of 5.5 and lower,” says Pieter. “Typically we do not expect structural damage above ground from magnitude events smaller than 5, while mines may suffer losses from seismic events that are smaller than a magnitude 5,” he adds.

Pieter explains that an earthquake is often not induced by a single blast operation within a mining operation, but by the mine changing the stresses within a plate on a continual basis. There is often not reliable information on stresses underground, especially not on stable continental plates. It therefore makes it very hard to pinpoint the cause of a seismic event, which makes it difficult to prove liability, especially from a mining perspective.

Experts are saying that we can expect more tremors like the one experienced in Orkney. “The South African insurance industry does not have a great deal of experience in dealing with earthquake damage, due to the low frequency of earthquake losses. The events in Orkney may lead to many insurers reviewing the cost of damage which may hint at possible premium increases, an increase in excess payments for earthquake damage or even exclusion of cover in areas that are prone to earthquake damage,” says Mandy.

The services of a professional broker could well prove to be invaluable in evaluating your exposure to earthquake risks. “A professional broker will be able to facilitate the making of a well-managed insurance programme that accounts for your unique needs and risk profile, while matching your available budget. Your broker will also be able to confirm whether you are covered for an earthquake and whether any exclusions exist on your policy. A broker can ensure that you are in good hands in the event of a catastrophe and that there are no surprises waiting for you when you claim,” concludes Mandy.