The role of commercial insurance in post-disaster recovery: quantitative evidence from the 2011 Christchurch earthquake

School of Economics and Finance Working Paper 01/2016:

This paper examines the role of business interruption insurance in business recovery following the Christchurch earthquake in 2011 in the short and medium term. In the short-term analysis, it asks whether insurance increases the likelihood of business survival in the aftermath of a disaster. It finds only weak evidence that those firms that had incurred damage, but were covered by business interruption insurance, had higher likelihood of survival post-quake compared with those firms that did not have insurance. This absence of evidence may reflect the high degree of uncertainty in the months following the 2011 earthquake and the multiplicity of severe aftershocks.

For the medium-term, results show that firms with business interruption insurance have a higher probability of increasing productivity and improved performance following a catastrophe. It shows that those organisations that receive prompt and full payments of their claims have a better recovery than those that had protracted or inadequate claim payments (less than 80% of the claim paid within 2.5 years). Interestingly, the latter group does worse than those organisations that had damage but no insurance coverage. This analysis strongly indicates the importance not only of good insurance coverage, but of an insurance system that also delivers prompt claim payments.