SANTIAGO (Reuters) – Chile has agreed to an earthquake insurance program with the World Bank protecting it from $630 million worth of damage from strong earthquakes, in an effort to shore up risks to public debt from possible natural disasters.
The insurance will cost 4.75% of the total value of the insurance each year, the finance ministry said in a statement.
The South American nation is located in the so-called Pacific Ring of Fire, an area characterized by frequent earthquakes and active volcanoes.
The southern Chilean city of Valdivia was struck in 1960 by a 9.5 magnitude earthquake, the most intense on record, which caused over 1,600 deaths.
In 2010, an 8.8 magnitude quake and subsequent tsunami in Chile killed more than 500 people and caused some $30 billion in damage, wrecking hundreds of thousands of homes and mangling highways and bridges.
“This insurance will allow Chile to receive pre-established compensation payments for up to the maximum coverage, in the event of certain high-intensity parameterized seismic events that cause material damage to the country and public finances,” the ministry said.
“If an earthquake is greater than a particular threshold and occurs in a particular zone and depth, the insurance provides for a specific payout associated with the event, which, on average, occurs approximately every 70 years,” it added.