Because of their rarity, volcanic eruptions are a pretty interesting insurance topic, so on the “thigh bone’s connected to the hip bone” principle, we thought we’d stray a bit afield today. Mother nature has reminded us who’s boss in a truly spectacular display of muscle flexing that’s brought travel and commerce to an unprecedented standstill for a huge part of the globe.
As an insurance event, it may not prove to be as costly as one might think, given the havoc that it is wreaking on business and travel – estimated at $2 billion and counting. Most airlines will be absorbing the cost of the delays since there is not actual physical damage to the fleet, and a volcano would be considered an ‘act of God.’ This prompts Vladimir Guevarra of the Wall St, Journal to ask if we might see volcano-related insurance as a new product for the airline industry.
European insurers don’t expect a big hit, largely because business interruption claims are considered unlikely – claims would need to be triggered by actual physical damage. The property and casualty damage from volcanic ash is not expected to be extensive.
For at least one segment of the industry, this is being deemed a significant claims event: Insurance companies that provide trip coverage are being inundated with calls, and they expect to pay out millions in trip claims. For travelers who were insured before April 13, coverage is likely, depending on exclusions, but after April 13, travelers should not expect ash coverage.
Future scenarios
In the great scheme of things, as far as volcanic eruptions go, this is a modest affair. However, there are two scenarios that could raise the stakes. The first is what the effects would be if volcano disruption lasts weeks, months – many are speculating about how the European crisis could play out
The second rather troubling scenario would be if this is a dress rehearsal, which it could well be if history is any guide.
“Eyjafjallajokull has blown three times in the past thousand years,” Dr McGarvie told The Times, “in 920AD, in 1612 and between 1821 and 1823. Each time it set off Katla.” The likelihood of Katla blowing could become clear “in a few weeks or a few months”, he said.
The 1783 eruption was devastating and had a global impact:
A quarter of the island’s population died in the resulting famine and it transformed the world, creating Britain’s notorious “sand summer”, casting a toxic cloud over Prague, playing havoc with harvests in France — sometimes seen as a contributory factor in the French Revolution — and changing the climate so dramatically that New Jersey recorded its largest snowfall and Egypt one of its most enduring droughts.
Despite that sobering thought, Iceland’s glaciers do not pose the most serious risk, according to the Willis Research Network. According to their research, an eruption of Mt. Vesuvias could be devastating, with 21,000 casualties and an economic toll of $24 billion. For some interesting risk-related reading, check out the Willis Research Network report on Insurance Risks from Volcanic Eruptions in Europe.
More volcano resources
Lists of the most deadly and the most costly eruptions
Volcano World
Aerial photo gallery of the Iceland volcano
Another gallery of stunning images
How to pronounce Eyjafjallajokull (video)
