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Karl Schembri
A tsunami of the scale that hit the Indian Ocean last Sunday would sweep away not only a good part of Malta but may also devastate the Maltese insurance industry, according to impact studies commissioned by insurers.
Although insurers avoid talking of insolvency, they are aware that insurance premiums are insufficient to cater for damages to insured property here that is conservatively estimated to reach more than Lm4 billion.
This means that even though Maltese home insurance holders may, on paper, be covered for tsunamis, earthquakes and other natural calamities against a nominal premium, in reality they might not receive anything if a catastrophe had to hit the islands.
“The premium we collect is insufficient to cover the risks,” said an insurance broker who spoke on condition of anonymity. “As things stand, the risk of a moderate to large size earthquake close to the islands is not being credibly underwritten and the fact is that it would affect the entire insured property here.”
A scientific study commissioned by the Malta Insurance Association two years ago confirms that the insurance market is unprepared for the financial consequences of a damaging earthquake.
“As more Maltese insurance operations are transformed into indigenous companies, it is not at all certain that huge catastrophes of this nature can be covered by classical insurance,” said the association’s Director General, Anton Felice.
The report compiled by EQECAT global risk management and catastrophe consultants shows that although earthquakes may be rare in Malta, “the disturbances arising from them could be more devastating than originally thought”.
“The Malta Insurance Association has consistently expressed concern over the vulnerability of human life and property in Malta following an earthquake in the central Mediterranean region,” Felice said. “The question of the extent of damage is related to how far inland the tsunami action will reach. Low lying coastal areas in the Marsa and Msida area are substantially at risk. Equally hazardous are seashore touristic developments on low lying shore line, with the heavy concentration of investment in such areas adding to the vulnerability of the risk to Maltese insurers.”
Countries abroad cater for natural catastrophes through nationally coordinated funds and cooperation between the state and insurers.
The Turkish government has set up a compulsory earthquake insurance scheme with the support of the insurance industry.
In France, a state-owned company offers coverage for specific natural disasters and similar state consortia exist in Greece and Spain which guarantee extraordinary risks following calamities.
Malta’s last experience of a major earthquake goes back to 1693 when the Mdina Co-Cathedral was destroyed by a force 8 quake on the Mercalli scale.
This means that general public awareness of earthquake risk is very low. In July 2003 an earthquake of magnitude 4 shocked the islands and served as a reminder of Malta’s vulnerability to natural calamities although there have been no major developments in the insurance industry since then.
The Maltese government has not yet decided what to do in this regard. So far the Malta Financial Services Authority has set up a committee made up of representatives from government, engineers, architects and insurers in a bid to find an insurance solution at national level – an initiative which the insurance association views as a step in the right direction.
The majority of residential buildings in Malta are constructed of unreinforced masonry, while light and seismic resistance materials are rarely used.
Heavy pre-fabricated ceilings with inadequate interconnection to supported walls could collapse “pancake-like” under even a small to moderate ground shake.
On the other hand, most commercial buildings have structural elements of reinforced concrete, however the quality of concrete, inexperienced builders and lack of proper attention to detail as well as environmental effects on the durability of concrete, reduce strength considerably.
Also, demand for large open areas with greater height in commercial buildings, results in soft stories that in turn make these buildings more vulnerable to ground shaking, such as hotels with vast ground floor used as a lobby or restaurant.
In his research paper called Malta’s risk minimsation to earthquake, volcanic and tsunami damage, structural engineer Denis H. Camilleri warns that Malta cannot remain complacent to potential earthquake damage.
“Malta cannot run the risk of being unprepared for the effects of a medium-sized earthquake,” Camilleri says. “With the economy concentrated in a small region, with a high dependency on real estate due to the high price of land, the situation is even worse than in other localities, as help from other parts of the country cannot remedy the situation. The current rebuilding cost under normal conditions of only the residential property market works out at twice the GDP.”
karl@newsworksltd.com
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