The New Seismic Code and the Earthquake Claim You Cannot Fully Recover

In late 2025 the Bureau of Indian Standards notified a revised earthquake design code, IS 1893:2025, the first major rewrite of India's seismic standard in over two decades. It introduced a new Zone VI, the highest hazard band, and pulled the entire Himalayan arc from Jammu and Kashmir and Ladakh across to Arunachal Pradesh, plus the Andaman and Nicobar Islands, into that top tier. Built on Probabilistic Seismic Hazard Assessment, active fault mapping and near-fault effects, the revised zonation classified roughly 61 percent of India's land area as moderate-to-high seismic risk, up from 59 percent, with about three-quarters of the population living in earthquake-prone areas.

Then, in early March 2026, BIS withdrew it. The Ministry of Housing and Urban Affairs flagged construction cost escalation estimated at 10 to 15 percent for buildings in Zones V and VI, and up to 50 percent for infrastructure projects, plus inadequate stakeholder consultation. IS 1893 (Part 1):2016, with its familiar four zones (II to V), is back in force.

For a structural engineer, the rollback resets the design basis to 2016. For an insurance broker, it changes almost nothing about the underlying exposure. The faults did not move because a code was withdrawn. The PSHA studies that produced Zone VI still exist and still describe real ground-motion estimates. What the episode did was put a number, officially, on how far rebuild economics have drifted from the valuations sitting in most property policies. That gap is where earthquake claims quietly fail.

Most Indian commercial property and fire policies, including the Standard Fire and Special Perils structure that earthquake add-on cover attaches to, carry an average clause (the condition of average). The mechanics are unforgiving. If the sum insured is less than the actual value at risk on the date of loss, the insurer pays only the proportion that the sum insured bears to the true value, even on a partial loss.

Work an example. A factory block is insured for 40 crore on a reinstatement-value basis. After an earthquake, a surveyor assesses the true reinstatement cost at 60 crore, because steel, cement, skilled labour and compliant design have all risen since the valuation. The policyholder suffers a partial loss of 12 crore. Average applies the ratio 40 over 60. The insurer pays two-thirds, about 8 crore. The client absorbs 4 crore on a loss they believed was fully covered, before the deductible even bites.

That shortfall is not the insurer being difficult. It is the contract doing exactly what it says. And it surfaces precisely when the client is least able to fund it, mid-rebuild, with operations down.

Earthquake amplifies this in two specific ways. First, quakes produce widespread, simultaneous damage, so reconstruction demand spikes locally and rebuild costs run hotter than the index assumed at inception. Second, post-event reconstruction is where authorities push code upgrades hardest, so the rebuild is rarely a like-for-like replacement of the old structure. Both effects widen the gap between yesterday's sum insured and tomorrow's repair bill. The withdrawn code simply quantified the second effect for high zones.

Standard reinstatement cover promises to rebuild the property as it was. It does not, by default, pay the extra cost of rebuilding to current law. After a major quake, local authorities and building bye-laws frequently demand that the replacement structure meet present seismic detailing, and a damaged older building cannot lawfully be put back the way it stood. The delta between old-spec and code-compliant reconstruction is a real, often large, uninsured cost unless the policy specifically picks it up.

The usual instrument is a public authorities clause, sometimes called a municipal-law or increased-cost-of-construction extension. It covers the additional cost of complying with statutory requirements when reinstating damaged property. Three practitioner points matter here.

• The extension is frequently sub-limited, and the sub-limit is often set once and never revisited. A 2 crore municipal-law limit fixed five years ago looks thin against today's high-zone upgrade economics.
• Many wordings exclude the cost of complying with notices served before the loss. If the authority had already flagged the building, that portion may fall outside cover.
• Undamaged portions are often excluded. If code compliance forces work on parts of the structure the quake did not touch, that spend can sit with the client.

The withdrawn 2025 code is the cleanest available proxy for how much this line item can move: the government itself estimated 10 to 15 percent on buildings and up to 50 percent on infrastructure in the highest zones. Even with 2016 back in force, that is the order of magnitude a serious public authorities sub-limit should now anticipate, not the figure brokers carried forward from the last renewal.

Treat the regulatory status and the risk status as two separate questions. Regulatory status: design must follow IS 1893:2016, so a new building permitted in 2026 is engineered to 2016 zones, not Zone VI. Risk status: the hazard a building genuinely faces is described by the latest seismology, which is what produced the 2025 map. A prudent risk manager underwrites to the hazard, not just to the minimum legal design basis.

That distinction drives concrete placement decisions.

• Locations in the Himalayan belt, the northeast, Kutch, Andaman and Nicobar, and the Indo-Gangetic plain carry seismic exposure that the 2025 study rated higher than the 2016 map suggests. For these, push sums insured and earthquake sub-limits up regardless of the rollback.
• Where earthquake is offered as a percentage sub-limit of the sum insured rather than full value, recheck that the percentage still reflects a credible maximum loss. A modest percentage of an already understated sum insured is doubly inadequate.
• For multi-location corporates, accumulation matters. A single fault rupture can hit several sites at once, so the relevant question is portfolio-level probable maximum loss, not per-site comfort. This is where nat-cat accumulation management earns its keep.

On pricing, the withdrawal removes near-term upward pressure that a live Zone VI would have created on earthquake rates and on reinsurance treaty terms feeding off GIC Re and the global retrocession market. Brokers get a window. Use it to fix sums insured while rates are soft rather than after the next event hardens them. The soft-market buyer playbook applies directly: buy adequacy now, cheaply, before the cycle turns.

Underinsurance is almost always a valuation failure, not a coverage gap. The fix is a current, properly documented reinstatement valuation, and earthquake-exposed assets deserve to be near the front of that queue.

Move off historical cost

Many Indian corporates still insure property at depreciated book value or an outdated capitalised cost. On a reinstatement-value policy that is the wrong base entirely. The contract promises new-for-old replacement, so the sum insured must reflect today's cost to rebuild, including design fees, debris removal, professional charges and the code-compliant specification. A formal valuation by a chartered or registered valuer is the practitioner standard.

Build code upgrade into the number

For assets in higher-hazard locations, the valuation should explicitly carry the cost of rebuilding to current seismic detailing, not the cost of replicating the existing structure. Where the public authorities clause picks this up, the sub-limit should be sized against the same escalated figure, not a legacy round number.

Index, then verify

Annual escalation clauses help, but they are blunt. Indexation that lagged real construction inflation is how a policy drifts into underinsurance while the paperwork looks tidy. Pair indexation with a periodic full revaluation. A structured sum-insured adequacy review every two to three years, sooner for high-zone or high-value sites, is the discipline that keeps the average clause from ever engaging.

Consider a reinstatement-value clause with a margin

Some insurers offer escalation or day-one uplift provisions that build a stated percentage buffer over the declared value, so modest inflation between valuations does not immediately tip the policy into average. Used alongside a current valuation, not as a substitute for one, this can absorb the ordinary drift that catches careful clients out. Read the trigger conditions, because the uplift often applies only if the base declared value was itself adequate at inception.

Document the basis in the file. When a quake claim is surveyed, a current valuation report is the single strongest defence a policyholder has against an average deduction. The surveyor will test the declared value against real reinstatement economics, and a dated, professionally signed report shifts that argument decisively in the policyholder's favour.

Material damage underinsurance gets attention because it is visible at claim stage. Business interruption underinsurance is quieter and frequently larger, and earthquakes expose it brutally because the indemnity periods involved are long.

After a serious quake, a damaged plant is not back in weeks. Demolition, statutory clearances, redesign to current seismic code, a constrained local contractor market and supply bottlenecks for steel and cement routinely push reconstruction past a year. If the business interruption sum insured was set on a 12-month maximum indemnity period, the policy stops paying while the building is still rising. The gross profit was insured; the time to recover was not.

Two adjustments deserve a place on every high-zone renewal.

• Stress-test the maximum indemnity period against a realistic post-earthquake rebuild timeline, not a fire-style scenario. For larger or specialised facilities in Zones IV and V, 18 to 24 months is often more honest than the default 12. Anchor this in a proper business impact analysis.
• Confirm that increased cost of working and additional increased cost of working sub-limits are sized to fund temporary relocation, expedited reconstruction and overtime, which is exactly the spend that shortens a post-quake outage.

Also check the interaction between the public authorities clause and the BI section. If code-mandated reconstruction lengthens the outage, some wordings cap the extra BI attributable to that delay. Read the clause before the event, not during the loss adjustment.

Declaration-linked policies add a further trap. If the sum insured was based on an estimated gross profit that has since grown, or on a forecast that excluded a new line or expanded capacity, the under-declaration triggers BI average in the same proportionate way material damage does. For high-zone sites, revisit the gross profit basis at every renewal and confirm the indemnity period reflects current rebuild realities rather than the figure that happened to be on the schedule three years ago.

The withdrawal of IS 1893:2025 created a clean, low-cost window to repair earthquake adequacy before the next event or the next hard market closes it. Concrete steps, in priority order.

1. Screen the book by hazard, not just by zone label. Flag every insured location in the Himalayan belt, the northeast, Kutch, the Andaman and Nicobar Islands and the Indo-Gangetic plain, using the 2025 PSHA findings as your risk lens even though 2016 governs design.
2. Pull the declared sum insured against the most recent reinstatement valuation for each flagged site. Where the valuation is older than three years, or set on book value, trigger a fresh one.
3. Re-size the public authorities or increased-cost-of-construction sub-limit against escalated, code-compliant rebuild economics, using the government's own 10 to 50 percent escalation range as the sanity check.
4. Reset earthquake sub-limits expressed as a percentage of sum insured so they reflect a credible probable maximum loss at full value.
5. Stress-test BI maximum indemnity periods against realistic post-quake rebuild timelines and confirm increased-cost-of-working adequacy.
6. Document everything in the client file. The valuation report, the rationale for sub-limits and the earthquake claims settlement expectations should be agreed in writing now.

The code was withdrawn. The hazard, the rebuild inflation and the average clause were not. Brokers who close the adequacy gap in this window will have done their clients a genuine service the next time the ground moves.