SED| Paying for earthquake damage in Switzerland: a cost comparison

In Switzerland, only about 15% of buildings are currently insured against earthquake damage. To close this gap, the Swiss Parliament is discussing the introduction of a ‘contingent liability’ system. In the event of a damaging earthquake, this would see all building owners collectively pay up to 0.7% of their building’s insured value to cover the costs incurred.  

Based on Switzerland’s earthquake hazard and risk model, the Swiss Seismological Service (SED) at ETH Zurich investigated how often the contingent liability would be likely to be triggered, what the costs would be and how these would compare to private insurance solutions. The SED has presented its insights for the first time at a meeting of the Council of States Environment, Spatial Planning and Energy Committee and has now summarised them in a short report.

The costs of building damage in Switzerland due to earthquakes are expected to average CHF 246 million per year, or around CHF 12.3 billion over the average 50-year lifespan of a building. These costs arise in the specific years in which strong earthquakes cause major damage, which also explains why, in most years, including the past 50, no substantial costs have been incurred. Since 1295, the longest interval between two major earthquakes has been 168 years, the shortest 17 years. 

On average, the contingent liability is expected to be triggered about five times in 50 years. During this period, there is an approximately 10% probability that damage of CHF 22 billion or more will occur, meaning that the maximum contribution of 0.7% of the insured value would have to be paid.

For a building with an insured value of CHF 800,000, the cost would be around CHF 4,600. This equates to an average annual charge of CHF 92. Currently available insurance solutions work out 3.5 times more expensive than this, with the expected cost of private insurance solutions amounting to CHF 333 for one year. These are average values; the costs can vary greatly depending on the provider and location.  

The comparison is subject to certain assumptions and limitations, which are described in the detailed explanations of the calculations. These include overhead costs, which are already included in the private insurance solutions and have to be added to the contingent liability. Estimates of these costs for a major event vary widely. 

Detailed explanations of the comparison are set out in the following report (in German): Kostenvergleich Deckung von Erdbebenschäden in der Schweiz