Internationally earthquake insurance, like all other insurance (fire, auto), adopted actuarial approach in the past,which is, based on historical loss experience to determine insurance rate. Due to the fact that earthquake is a rare event withsevere consequence, irrational determination of premium rate and lack of understanding scale of potential loss led to manyinsurance companies insolvent after Northridge earthquake in 1994.Along with recent advances in earth science, computer science and engineering, computerized loss estimation methodologiesbased on first principles have been developed to the point that losses from destructive earthquakes can be quantified withreasonable accuracy using scientific modeling techniques.This paper intends to introduce how engineering models can assist to quantify earthquake risk and how insurance industry can usethis information to manage their risk in the United States and abroad.
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