There are losses a building does not expect – and there are losses the insurance market itself approaches with caution. Earthquake, flood and similar rare-but-huge risks form a category of their own: they can be covered, but with their own rules, exclusions and limits. This article is deliberately honest: it also says out loud what a building should not expect from these covers.
- Under a large share of policy terms, earthquake is part of the base natural-perils cover, though subject to a threshold (a defined magnitude) and its own deductible; flood- and inundation-type risks, by contrast, are typically separate add-ons that depend on territorial classification, where cover can be limited or unavailable altogether. The specific policy terms always decide the actual solution.
- The typical constraints: exclusions, waiting periods, territorial classification, deductible and limit rules.
- Flood damage in regularly inundated areas is typically hard or impossible to insure on the market – this has to be dealt with honestly, not glossed over.
Why are these risks special?
Insurance is built on the law of large numbers: many buildings pay a little so that the large loss of the few can be paid. Earthquake and flood strain this logic: they strike rarely, but they hit very many buildings at once. That is why insurers build a separate set of rules for these risks – not out of ill will, but because otherwise they could not be underwritten at all. For a building, one thing matters here: these covers are not tick-box items but elements to be examined on their content.
Earthquake: the definition and the scale
Earthquake covers typically pay for damage from tremors above a defined magnitude, with their own deductible rules – which can be higher than usual. Hungary is a country of moderate seismicity, but not free of tremors: small to medium quakes occur from time to time. The decision is therefore a matter of risk appetite: the price and the limitations of the cover on one side, a rare risk that touches the very existence of the building on the other. To support the decision, I set it out clearly in the comparison table: what is covered, with what deductible, with what exclusions.
Flood and inundation: the location decides
With flood-type covers insurers work on a territorial basis: for properties on floodplains that are regularly inundated the cover is typically restricted or not available at all, while elsewhere a waiting period (cover that comes into force only some time after the policy is taken out) and special rules may apply. Getting the concepts straight matters too: flood (a watercourse breaking its banks), groundwater inundation, flash flooding from heavy rain and damage from a backed-up sewer can be separate categories in the policy terms – each with different rules. If you represent a building near water, this chapter is the most important page of the policy terms.
The honest conclusion
Special covers can do good service – but only if the building knows what they actually contain. Two mistakes are worth avoiding: one is a false sense of security (“we have flood cover” – while the terms exclude precisely this building's situation), the other is the reflexive shrug (“they never pay out on these anyway”). Reality lies between the two, and it can be known: this is exactly the area where reading the policy terms and comparison based on content pay off. And if a risk cannot be covered for market reasons, I say so – and the emphasis shifts to prevention and to building up reserves.
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