On June 04, 2000, a 7.3 Richter Scale of Earthquake shocked Bengkulu, hundreds of people were killed or missing and hundred of houses and other properties suffered heavy damages or destroyed. It was then announced as a National Disasters by the Indonesian Government.

A giant sea waves called Tsunami that swept East Timor several years ago was another horrible story. Some destructive volcanic eruptions were also reported in our country, which have caused major destruction to some cities or population around it.

Why those disaster - natural catastrophes in the term of insurance industry - continue to happen in our country? To answer this question we have to understand how those catastrophes are developed. 

The outermost part of the earth, called the lithosphere, is divided into several plates, which are susceptible to horizontal movement, propelled by convection currents affecting the mantle bellow. There are 3 types of the plate's movements, which called as Convergent, Divergent and Strike Slip or Side Sliding.

The friction between the plates then causes what we call earthquakes and tsunami. Those movements also cause some cracks in earth crust that fill up by lava and then form a new volcano (usually submarine). Divergent movement causes most of heavy earthquake, and the location of the collision between two plates is called as subduction zone - the zone of earthquakes and volcanoes - in some cases also tsunami.

As shown in picture 1, Indonesia is lies near two subduction zones - Java Trench in the south and Japan Trench in the north. This makes the exposure to Earthquake, Volcanic Eruption and Tsunami in some part of our country is a bit high (picture 3 and picture 4).

The next picture shows the earthquake maps in our country neighborhood. Red dot shows the recently detected earthquake by BMG (30 EQs in early October 2000 only), which not all of those are felt in our daily life.

In insurance industry especially Property Insurance, those catastrophes are usually excluded from the standard fire insurance cover. Although Indonesia is considered as a quite save place from those perils, the data shows the opposite. 

It is true that not all of those catastrophes have significant effect to our daily lives, but Insurance Company should has an adequate awareness and must provide sufficient explanation to their clients about those perils. It is not only about to get higher premium but the most important thing is to give better service to the client, which can give a significant added value for the Insurance company. 

The next question then "how do we know that we live on the safe place concerning to those catastrophes?" Well, first we have to understand their characteristics.

Earthquake is propagated through waves. These waves - body waves and surface waves - cause a seismic vibration, which lead to shrinkage, expansion, shear and even compaction of loose soils. So, stiff or firm soils have better resistance to earthquake damages. The topography should also be considered; peaks and spurs, the edge of cliff or embankment, or steep gradients are systematically the focus of heavier damages than flat or slightly sloping areas.

Building with irregular distribution in mass and rigidity (wings, staircases and external terraces) also subject to heavy damages. The most affected buildings are those with poorly executed masonry; poor bond; being out of plumb, and bad quality mortars are bad aggravating factors. Similarly, very slim elements (in their height/thickness ratio), very long un-braced elements, and walls partially filled in with panels, all behave very badly.

Place does matters in the case of Volcanic Eruption. However, in nowadays condition of overpopulated world, the number of people living close to - or on - dangerous volcanoes increases dramatically, that makes the possibility of loss due to volcanic eruption is greater. The major outputs of volcanic eruption are pyroclastic flows, debris avalanche, lahars, lava flows and landslides. By understanding the characteristic of these perils, the risk can be reduced.

In insurance industry, to forecast a volcanic eruption will be out of context. So, determining the level of volcanic hazards for a premise near an active volcano is the major consideration. For example, a premise located upwind from a volcano is safer than downwind and premise located in the valley near the volcano is more dangerous than premise on hillside. Of course, deeper analysis should be taken into account.

Tsunami is a secondary product of both earthquakes and volcanic eruptions (submarine). Picture 4 shows the potentially damaged area cause by tsunami in Indonesia. Compare it with picture 1, we will find that those area are facing a subduction zone of Java, Japan and Philippines. 

The best things to reduce the risk cause by Tsunami is to avoid those areas, since tsunami can be as high as 10 m or more with a speed of 100 km per hour. There's nothing we can do about it.

Nowadays, some advanced techniques and methods have been used to design an earthquake resistant buildings or forecasting a volcanic eruption and tsunami, which ensure a safer condition against those catastrophes. But, still it destroyed Kobe (earthquake), Pinatubo (volcanic eruption) and East Timor (tsunami). 

The idea is not taking advantages from somebody else's misery but to provide protection or indemnity again those perils. Because, although we can minimize the loss in lives, the properties remain in the same condition - they were and will continually be damaged or destroyed by earthquake, volcanic eruption and/or tsunami. At this point, insurance will play their basic purpose, as a risk transfer mechanism.

Jakarta, 17 October 2000.


Earthquake, Volcanic Eruption and Tsunami: an Insurance Perspective

by Adhi Nursetyo