If Israel were to have a serious earthquake, only about one-third of the resulting damage would be insured, according to the Inbal government insurance company.
Inbal examined the country's earthquake insurance situation at the request of Deputy Finance Minister Itzhak Cohen and National Economic Council head Eugene Kandel, and found that Israel is severely underinsured.
Inbal currently insures $12.7 billion in government assets - most of what the government holds directly, including hospitals, prisons, police stations, embassies and public housing. These assets are fully insured, and last year Inbal bought $700 million in reinsurance from large insurers abroad, about 6% of the total sum. In insurance terms, this is considered very conservative. While insurance companies generally hold reserves worth about 1% of the property insured, Israeli companies generally hold 2% and Inbal holds 6%. Since the probability of more than 6% of the government's property being destroyed in an earthquake is nearly zero, the $700 million in reinsurance should be more than enough.
However, in practice, this is probably only one-third of what Israel needs, since many important elements in the country's infrastructure may lack insurance entirely.
Inbal's weakness is that all its insurance policies are held by reinsurers. Reinsurance is renewed every year, and prices are now expected to spike following the earthquake in Japan. Therefore, Inbal will be paying a lot - or it will downsize its insurance to less than 6%.
But a more serious flaw is that the insurance covers only property held directly by the government. For instance, it doesn't cover the extensive property of the Defense Ministry, which manages its affairs independently and doesn't reveal to what extent it's insured. In fact, the Defense Ministry and its billions of dollars worth of property are believed to have no insurance coverage at all.
Inbal also does not insure the large government companies, including the Mekorot water utility, the Israel Electric Corporation, Israel National Roads Company and the ports. These entities are all independent and handle their own insurance matters, and the government does not know how much insurance they have - although it does know that none have insured their distribution networks.
Rehabilitating basic infrastructure, such as water, gas and electricity, is crucial after an earthquake, and can even be a matter of life and death. Therefore, if these companies are underinsured, as many believe they are, this could be a tremendous problem in the event of an earthquake. Furthermore, Inbal does not insure the local authorities, even though they own most of the country's schools and kindergartens; the authorities are thought to have very little earthquake coverage.
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