One could consider it ironic that the buildings in Haiti most likely to receive insurance money are those that experienced the least amount of damage. It is more likely that those buildings experiencing the heaviest amounts of damage during the 7.0 magnitude earthquake had no insurance coverage at all.
However, it is not irony; it’s the logical consequence of profit-minded insurance principles. As a condition of writing policies many insurers require buildings to meet certain standards or building codes in order to mitigate the amount of possible losses. As a result of the codes structures are sturdier and less likely to result in damage and death. While state-run insurance policies might eventually require certain standards, they aren’t incentivized in the same way private insurers are to guarantee that consumers are holding to the building codes and to make sure the codes actually prevent or mitigate against damage. Haiti has no national building code despite its participation in a Caribbean-wide insurance pool for hurricanes and earthquakes
Haiti has no national building code. Risk modeling firm Eqecat of Oakland, Calif., said it expects to find that insured buildings have fared slightly better, because insurers likely insist that structures be reinforced as a requirement for getting coverage.
Eqecat pointed out that poor construction contributed to the heavy losses, with most of the concrete or masonry buildings featuring “little or none of the lateral reinforcing needed for earthquake resistance.”
But Haiti does have government-run insurance via the Caribbean Catastrophe Risk Insurance Facility, an insurance pool to reimburse the governments of Caribbean nations. The problem with government provided insurance is that they are not motivated by profit and are, therefore ,not motivated to reduce losses. Unlike the private insurance companies the CCRIF does not require adherence to building codes as a precondition of coverage. Additionally, Haiti is covered by the CCRIF only up to $8 million while losses are expected to reach into the billions.
The problem in Haiti is that few of the buildings are covered by private insurance. One obvious reason that Haiti lacks availability of insurance is the long history of political instability.
There is a bright side to the tragedy in Haiti. As noted by Robert Hartwig of the Insurance Information Institute, Haitians can revitalize their insurance market if they adhere to certain codes as they rebuild structures.
At home in America, insurance has been a hot topic for the past year. If we can take anything away from the tragedy in Haiti as we observe their efforts to rebuild, it should be the benefits that accompany the availability of private insurance.