Development of an earthquake loss model for Turkish catastrophe insurance

Following the devastating Kocaeli and Duzce earthquakes of August and November 1999, the Turkish Government was faced with an enormous financial burden as a result of its statutory obligation to cover the full costs of rebuilding. In order to offset this liability in the future - which has had an adverse effect on the Government's economic programme - a compulsory earthquake insurance scheme has been introduced for all householders in Turkey. A key element for successful implementation of this novel and ambitious programme is the transfer of the earthquake risk absorbed by the Turkish Catastrophe Insurance Pool (TCIP) to the international reinsurance market. An earthquake loss model, described in this paper, has been developed for the TCIP to serve as a basis for the decision-making process with respect to the pricing of its insurance policy, risk control, the purchase of reinsurance, and the transfer of seismic risk. Sample results of the loss calculations are presented.