Risk Insider: Michael Korn

Earthquake Cover: To Buy or Not to Buy?

By: | August 8, 2017 • 2 min read
Michael Korn is a Managing Principal and the Property Practice Leader for Integro Insurance Brokers. He oversees the firm’s property brokerage services including growth, placement, market relations and product development. Risk management is in Mike’s DNA — he’s the son of a career risk manager and the father of a broker and an underwriter. Mike can be reached at [email protected]

In high-hazard earthquake zones such as California, Japan, China, Australia and others, earthquake insurance is both tightly underwritten and high-priced.

The decision to buy or not to buy coverage can be a difficult one with varied approaches that range from buying as much as possible to not buying any at all. Specific approaches include:

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  • Buy as much as possible: A number of firms consider the probability and severity of a seismic event to be so potentially devastating to their livelihood that they purchase as much coverage as is available to them, be it from the traditional earthquake insurance market and/or from the growing capital market via Insurance Linked Securities – such as Cat Bonds and the evolving Parametric Trigger products.
  • Set a budget and buy to that: Some firms set a specific premium budget and stick to it. In a soft-market, a premium of $500,000 may buy $50 million of coverage for a specific risk, while that same $500,000 buys only $30 million in a hard-market. A number of firms only purchase earthquake insurance where they are required to per lease agreements containing such stipulations.

Lease requirements can vary from referencing “modeled PML” to “what is reasonably available” and anywhere in between.

  • Buy to the modeled PML: Ubiquitous in the industry now, models are utilized by individual buyers, brokers, insurers, reinsurers, banks and rating agencies. These models factor characteristics such as fault location, release of energy, soil type, building height, construction type, and local codes. Based these geographic and site-specific factors, models estimate the Probable Maximum Loss (PML) for an entire portfolio, as well as (though less statistically accurate) a single location. Many Risk Managers use the PML to set the limit they will purchase. These models represent the best technological estimate of the probability and damageability of seismic events.
  • Only buy what’s required per leases: A number of firms only purchase earthquake insurance where they are required to per lease agreements containing such stipulations. Lease requirements can vary from referencing “modeled PML” to “what is reasonably available” and anywhere in between.
  • Engineer out the risk: Some firms approach seismic risk through a combination of physical and operational strengthening, rather than, or in conjunction with, purchasing insurance. Instead of paying an annual premium, this approach invests would-be premium dollars into seismic retrofitting. They may also invest in business resiliency measures like having alternate facilities remote from the seismically exposed locations, or contingent contracts to strengthen their supply chain.
  • Don’t buy any: There are firms that either due to price, confidence in their physical and operational resilience, or their ability to financially assume the risk, do not purchase any earthquake insurance. They may assume the risk through a captive; special financial instrument designated for seismic recovery; or reliance on cash or loans at the time of loss.

While there are other philosophical approaches regarding whether or not to purchase earthquake insurance, the considerations noted above are the most common. Matching your company’s physical and operational ability to survive an earthquake along with coverage price and availability will help shape your approach to buying seismic coverage.

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

Maila Aganon is the personification of the American dream. The vice president of treasury and risk for Caesars Entertainment Corp. immigrated from the Philippines and worked her way to the top.
By: | October 12, 2017 • 4 min read


R&I: What was your first job?

I actually had three first jobs at the same time at the age of 16. I worked as a cashier in a fast-food restaurant, a bank teller and a debt collector for an immigration law firm.

R&I: Who is your mentor and why?

I have a few. The first one would be the first risk manager I reported to. He taught me the technical part of the job, risk financing, captives and insurance. I am also privileged to be mentored by Lori Goltermann (CEO of U.S. Retail for Aon Risk Solutions).  From her I learned to be resilient and optimize life/work balance. Then of course I also have a circle of ladies at work who I lean in to!

R&I: How did you come to work in this industry?

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I was once a bank teller and had a client who was an insurance agent. He would come in every day to make deposits. One day, he offered me a job. He said, “How would you like to have your own desk, your own phone and your own computer?” And I said, “When do I start?” I worked for this personal lines insurance company for six years.

R&I: Did you take to it immediately?

Yes, I did sales, claims and insurance accounting. I left for a couple years and that is when AAA came calling, which was my first introduction to risk management. I didn’t know there was such a thing as commercial insurance. They called me and the pitch was “how would you like to run a captive insurance company?”

R&I: What have you accomplished that you are proudest of?

It is not so much the job but I say that I am the true product of the American Dream. I came to the U.S. when I was 16. I worked three jobs because I didn’t want to go to high school (She’d already graduated high school in the Philippines.) I spoke very little English, and due to hard work, grit and a great smile I’m now here working with all of you!

R&I: What is your favorite book or movie?

In movies, it is a toss-up between Gone with the Wind and Big Daddy.

R&I: What is your favorite drink?

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I like anything sweet. If you liquify a dessert that’s my perfect drink.

R&I: What is the most unusual/interesting place you have ever visited?

This is easy because I just got back from Barcelona on a side trip. I visited the Montserrat Monastery, which is a thousand-year old monastery. It was raining and foggy. I hiked for three hours and I didn’t see a single soul. It was a very peaceful place.

R&I: What is the riskiest activity you ever engaged in?

This is going back to working at a fast food chain when I was young. I worked in a very undesirable location in San Francisco. At 16 I used to negotiate with gang members so they wouldn’t rob me during my shift. I had to give them chicken so they wouldn’t rob me.

Maila Aganon, VP, Treasury and Risk, Caesars Entertainment Corp.

R&I: If the world has a modern hero, who is it and why? 

I can’t say me. They have to be my kids Kyle and Hailey. They can make me laugh and cry within a half-minute of each other. Kyle is 10, a perfect Mama’s boy. Hailey is seven going on 18.

R&I: What about this work do you find the most fulfilling or rewarding?

I think the most fulfilling part is how you build relationships with people and then after a while they become your friends.

R&I: What is the risk management community doing right?

Risk managers do a great job of networking. They are number one. Which is not a surprise because the pillar of our work is building a relationship with underwriters, clients and brokers.

R&I: What could the risk management community be doing a better job of? 

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I am experiencing that right now; talent.  We need to a better job in attracting and retaining talent. Nobody knows about what we do. You tell someone ‘I’m as risk manager’ and they give you a blank look. What does that mean?

We’re great marketers and we should use this skill set in attracting talent. We should engage our universities, our communities, even our yoga groups and talk to them about the exciting world of risk. It is an exciting career because there is nothing like it.

R&I: What emerging commercial risk most concerns you? 

It would have to be the increasing cyber risk and the interdependency of systems.

R&I: What does your family think you do? 

I took my seven year old daughter once to an insurance event that had live music, dancing and drinks. She thinks that whenever I go to an insurance meeting, I’m heading to a party.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]