Edition

Differences in Earthquake Risk and Insurance Coverages by Region

Background and Purpose

Earthquake risk on the West Coast of North America is well documented, and take-up of insurance coverages reflects this. An example of a less well known, but also an area of earthquake risk is the New Madrid Fault Zone running through the mid-Mississippi River area of the U.S. Earthquake insurance policy take-up in this area is significantly less, as would be earthquake-resilient construction. Given the earthquake risk, level of building code rigor and insurance uptake, the risk of an insurance coverage gap exists for homeowners as well as business operations from infrastructure damage to land and river ports. A holistic research analysis of the potential damage and an assessment of insurance gaps would be valuable.

Although the potential geological severity of an earthquake in, for example, Eastern Canada or the U.S. Mid-West is significantly lower than on the West Coast, less rigorous building codes and less earthquake-resilient construction may result in the overall economic costs due to an earthquake being of a similar magnitude. The potential losses to individual homeowners could indeed be higher, due to low awareness of the risk and low uptake of earthquake riders under homeowner policies.

Research Objective

The Society of Actuaries Research Institute (SOA) Catastrophe & Climate Strategic Research Program Steering Committee and the SOA General Insurance Research Committee (GIRC) (the Sponsors) are seeking researchers to investigate the implications of earthquake coverages by regions in the U.S. and Canada. The following are examples of proposed topics that may be addressed:

  • How can we best measure and compare the impact of the insurance coverage gap, by region in Canada and/or the U.S.?
  • How do consumer attitudes differ by region? To what extent is the low uptake rate in some regions influenced by lack of awareness, or by a belief that they have adequate coverage, or by moral hazard?
  • What reputational risk is the insurance industry confronted with – e.g., if consumers are unaware of relevant policy limits or exclusions under their existing homeowner coverage, and believe they have adequate coverage in place?

Note that the above list is not meant to be exhaustive but merely examples of proposed topics that may be researched. Proposers should thoroughly describe issues on which they intend to focus in their proposals.

Proposal Requirements

To facilitate the evaluation of proposals, the following information should be submitted:

  1. Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
  2. An outline of the approach to be used (e.g., literature search, model, etc.), emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
  3. A description of the expected deliverables and any supporting data, tools or other resources.
  4. Cost estimates for the research, including computer time, salaries, report preparation, material costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
    As a guide for developing the project budget, please review the Historical Project Cost Guide (see Appendix)
  5. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The General Insurance Research Committee is interested in completing this project in a timely manner. Suggestions in the proposal for ensuring timely delivery, such as fee adjustments, are encouraged.
  6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

Selection Process

The Catastrophe & Climate Strategic Research Program will appoint a Project Oversight Group (POG) to oversee the project. The Steering Committee is responsible for recommending the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the Program Steering Committee will make the final recommendation, subject to Society of Actuaries Research Institute (SOA) leadership approval. An SOA staff research actuary will provide staff actuarial support.

Questions

Any questions regarding this RFP should be directed to Rob Montgomery, SOA Research Project Manager at rmontgomery@soa.org or +1-740-258-2977.

Notification of Intent to submit Proposal

If you intend to submit a proposal, please email written notification to Erika Schulty at eschulty@soa.org

Submission of Proposal

Please email your proposal to Erika Schulty at eschulty@soa.org; proposals must be received no later than May 10, 2023. It is anticipated that all proposers will be informed of the status of their proposal by end of June 2023.

Conditions

The selection of a proposal is conditioned upon and not considered final until a Letter of Agreement is executed by both the Society of Actuaries Research Institute and the researcher.

The Society of Actuaries Research Institute reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The Society of Actuaries Research Institute also reserves the right to redirect the project as is deemed advisable.

The Society of Actuaries Research Institute plans to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

The Society of Actuaries Research Institute may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the [Society of Actuaries/sponsoring entity] in publicizing or promoting the research and responding to media requests.

The Society of Actuaries may also choose to market and promote the research to members, candidates and other interested parties. You agree to perform promotional communication requested by the Society of Actuaries Research Institute, which may include, but is not limited to, leading a webcast on the research, presenting the research at an SOA meeting, and/or writing an article on the research for an SOA newsletter.

Conflict of Interest

You agree to disclose any of your material business, financial and organizational interests and affiliations which are or may be construed to be reasonably related to the interest, activities and programs of the Society of Actuaries Research Institute.

Appendix

The cost ranges below are intended as a guide for budgeting project costs for proposals in response to SOA Research Institute Request for Proposals (RFP). Please note these figures span the 33rd to 66th percentiles for all projects as well as projects that involve a specific approach (lit review, survey, etc.). They are based on historical costs over several recent years. Expected costs for some RFPs may fall outside these ranges depending on the nature of the work and resources required for completion.

All Contracted Projects

This category includes all contracted projects that the Institute has undertaken within the last several years.
The 33rd-66th percentile project costs range is $25,000 - $50,000.

Literature Reviews

This category includes projects that involved only a literature review or the cost for the portion of a larger project that included a literature review.
The 33rd-66th percentile project costs range is $15,000 - $20,000.

Surveys

This category includes all projects that had a survey as their primary component.
The 33rd-66th percentile project costs range is $28,000 - $55,000.