JUNE 2015
UP FRONT
|
|---|
|
THE TOPIC
An earthquake is a sudden and rapid shaking of the earth caused by the breaking and shifting of rock beneath the earth’s surface. This shaking can sometimes trigger landslides, avalanches, flash floods, fires and tsunamis. Unlike other natural disasters such as hurricanes, there are no specific seasons for earthquakes.
Earthquakes in the United States are not covered under standard homeowners or business insurance policies. Coverage is usually available for earthquake damage in the form of an endorsement to a home or business insurance policy. However, insurers that don’t sell earthquake insurance may still be impacted by these catastrophes due to losses from fire following a quake. These losses could involve claims for business interruption and additional living expenses as well. Cars and other vehicles are covered for earthquake damage under the comprehensive part of the auto insurance policy.
The U.S. has about 20,000 earthquakes a year, mostly small, and 42 states are at risk of quakes, according to the U.S. Geological Survey. One of the worst catastrophes in U.S. history, the San Francisco Earthquake of 1906, would have caused insured losses of $96 billion, were the quake to hit under current economic and demographic conditions, according to AIR Worldwide.
The potential cost of earthquakes has been growing because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may not have been built or upgraded to current building codes.
The Northridge earthquake, which struck Southern California on January 17, 1994, was the most costly quake in U.S. history, causing an estimated $44 billion in total property damage when occurred, including $24.5 billion in insured losses in 2014 dollars. The California Earthquake Authority is one of the world’s leading residential earthquake insurers, with 800,000 policies in force and 17 participating insurers. However, only about 10 percent of homeowners in California now buy earthquake coverage, according to the California Insurance Department.
RECENT DEVELOPMENTS
- 2015 Global Earthquake Losses: On Saturday April 25, 2015 a 7.8 magnitude earthquake struck Nepal. Thousands of people were killed and many more injured. Aftershocks from the earthquake could persist for years according to geologists. Only a small fraction of the economic losses are covered by insurance. Operating in one of the world’s poorest nations, Nepal’s insurers collected $102 million in premiums for non-life coverages in 2013, according to Axco Insurance Information Services.
- 2014 Global Earthquake Losses: Natural catastrophes and man-made disasters caused economic losses of about $110 billion in 2014, according to Swiss Re’s sigma. Insured losses were estimated at $35 billion. Insured losses from earthquakes were about $313 million, far below 2011’s record $54 billion. There were a total of 15 catastrophic earthquakes in 2014, killing 897 people. A 6.1-magnitude earthquake In Yunnan, China, in August was the deadliest catastrophe of 2014, with 731 people killed or missing. Economic losses totaled $5 billion. An August 6.0-magnitude quake in South Napa, California, was the strongest temblor to strike the area since the Loma Prieta quake in 1989. No earthquakes figured among the top 20 insured loss events for 2014.
- 2013 Earthquakes Losses: Natural catastrophes and man-made disasters caused economic losses of about $138 billion in 2013, according to Swiss Re’s sigma. Insured losses were estimated at $45 billion. Insured losses from earthquakes were $45 million, far below 2011’s record $54 billion. The largest insured earthquake loss, $25 million, resulted from a magnitude 7.0 earthquake that hit Lushan, China, in April. There were a total of 12 catastrophic earthquakes in 2013, killing 1,095 people, none of them in the United States.
- Fracking: Hydraulic fracturing, commonly known as fracking, is a drilling technique used to extract natural gas and oil from the ground. The process involves injecting large amounts of drilling fluids into wells. Critics charge that the wastewater produced by the process can cause drinking water to be polluted. But some energy companies, state authorities and environmentalists contend that poor construction of wells, rather than the process itself, is the cause of the pollution. There is, however, some evidence that fracking has contributed to an increase in the number of earthquakes. In March 2013 researchers at the University of Oklahoma, Columbia University and the U.S. Geological Survey determined that the 5.7 magnitude earthquake that hit Oklahoma in 2011 was caused by the disposal of wastewater from oil production. The findings were published in the journal Geology. In April 2012 the U.S. Geological Survey released a study that concluded that a series of earthquakes in the middle of the U.S. was the result of human activity and that fracking could be the cause.
- In March 2015 the U.S. Geological Survey released a report showing that the recent small earthquakes across Oklahoma, which have been linked to fracking, are reactivating long dormant fault lines that are 300 million years old. The new research concludes that the faults could produce quakes with far higher magnitudes than the more than 3,600 small tremors that were recorded in central Oklahoma from 2009 through 2014. The report will be used to develop a new earthquake hazard map for Oklahoma that the survey will issue later in 2015.
- Earthquake Risk and Nuclear Plant Safety in the U.S.: In January 2012 the NRC, the U.S. Department of Energy and the Electric Power Research Institute released a seismic study and model intended to help nuclear power plants in the central and eastern parts of the U.S. reassess their vulnerability to earthquakes. The study found that nuclear reactors in the region face bigger threats from big earthquakes than were previously recognized. The model, which came out of the study, replaces previous models used by the government and the nuclear power industry since the late 1980s. The NRC will require nuclear plant operators to conduct new studies for all 96 reactors in the regions.
- Studies: A March 2015 forecast from the U.S. Geological Survey (USGS) has upped the likelihood that California will be hit by a magnitude 8 earthquake over the next 30 years to 7 percent from 4.7 percent forecast in a 2008 report. The most recent calculations differ from those in the earlier USGS forecast in that scientists took into account the possibility that a quake can move from one fault to another, releasing more seismic energy, as well as including newly discovered fault zones. Scientists also said that the probability that the state will be shaken by a magnitude 6.7 quake, similar to the devastating 1994 Northridge temblor, is higher than 99 percent.
- In July 2014 the U.S. Geological Survey updated its U.S. National Seismic Hazard Maps for the first time since 2008. The new maps reflect the best and most current understanding of where future earthquakes will occur, how often they will occur, and how hard the ground will likely shake as a result. The new maps show that 42 states are at risk, with 16 states that have experienced earthquakes with a magnitude 6 or greater and which are considered at high risk. Earthquake hazard is especially high on the West Coast, the intermountain west and in several active regions of the central and eastern U.S., including New Madrid, Missouri and near Charleston, South Carolina. Highlights by region include the East Coast, which has the potential for larger and more damaging earthquakes than considered in previous maps and assessments; the central U.S., where the New Madrid Seismic Zone has been identified to have a larger range of potential earthquake magnitudes and locations than previously identified; and the West Coast, where earthquake hazard in California extends over a wider area than previously thought. In California faults were recently discovered, raising earthquake hazard estimates for San Jose, Vallejo and San Diego.
- In a study published in Earthquake Spectra, the journal of the Earthquake Engineering Research Institute, in February 2013, scientists at the U.S. Geological Survey warn that more fatalities will result from catastrophic earthquakes this century than ever before because populations in the regions of the world prone to quakes are increasing. The researchers estimate that 21 catastrophic earthquakes with more than 50,000 fatalities will occur before the end of this century, compared with only seven quakes of such magnitude during the 20th century, and that at least 3.5 million will die, more than twice the 1.5 million killed in the 20th century.
- Earthquake Coverage: According to a 2014 Insurance Information Institute survey, 7 percent of American homeowners have earthquake insurance, down from 10 percent in 2013 and 13 percent in 2012. In the West this measure fell from 22 percent in May 2013 to 10 percent in May 2014. Seven percent of homeowners in the Midwest have earthquake insurance. In the South the proportion of homeowners who said they had earthquake coverage stood at 6 percent. Only 2 percent of homeowners in the Northeast said they have earthquake insurance. Eleven percent of homeowners earning $100,000 or more said they had earthquake insurance, down from 18 percent a year ago. Only 2 percent of homeowners who earned less than $35,000 said they had earthquake insurance in 2014, down from 6 percent in 2013.
- The California Earthquake Authority (CEA) was created in 1996 two years after the devastating Northridge Earthquake caused huge losses for homeowners insurers in the state. The California Legislature established the CEA as a publicly managed, largely privately funded entity. The CEA now collects about $570 million in premium each year. Its claims paying capacity exceeds $10.2 billion. The CEA has paid out only $3.6 million in losses since its inception in 1996.
- According to SNL Financial, direct premiums written for earthquake coverage in California totaled $1.6 billion in 2013, including $574 million for the CEA, the largest provider of earthquake insurance in the state (see Background). The CEA’s share of the market was about 35 percent. The CEA has some 800,000 policies in force in the state. CEA premiums vary, depending on the location and construction of the home, but the average premium in 2013 was about $676, according to the California Department of Insurance. Only about 10 percent of Californians now purchase earthquake coverage.
EARTHQUAKES
The chart below shows losses based on total damages (including insured and uninsured losses) when occurred. The costliest U.S. earthquake, the 1994 Northridge quake, caused $15.3 billion in insured damages when it occurred (about $24 billion in 2014 dollars). It ranks as the fifth-costliest U.S. disaster, based on insured property losses (in 2013 dollars), topped only by Hurricane Katrina, the attacks on the World Trade Center, Hurricane Andrew and superstorm Sandy. Eight of the costliest U.S. quakes, based on inflation-adjusted insured losses, were in California, according to Munich Re. There were 11 earthquakes in the United States in 2014, according to Munich Re. On August 24 a 6.0-magnitude earthquake struck South Napa, California, killing one person and causing $700 million in total damage and $150 million in insured losses, according to Munich Re.
THE TEN MOST COSTLY U.S. EARTHQUAKES BY INFLATION-ADJUSTED INSURED LOSSES (1)
($ millions)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Costliest U.S. earthquakes occurring from 1950 to 2014, based on insured losses when occurred. Includes the 1906 San Francisco, California, earthquake, for which reliable insured losses are available.
(2) Based on property losses including, if applicable, agricultural, offshore, marine, aviation and National Flood Insurance Program losses in the United States and may differ from data shown elsewhere.
(3) Inflation-adjusted to 2014 dollars by Munich Re.
(4) Inflation-adjusted to 2014 dollars based on 1913 Bureau of Labor Statistics data (earliest year available).
NA=Data not available.
Source: © 2015 Munich Re, Geo Risks Research, NatCatSERVICE.
Comments
Post a Comment