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:


  • 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

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]