Category Archives: Earthquakes

California Earthquakes: How Modern Building Codes Are Making Safer, More Resilient Communities

By Sean M. Kevelighan, CEO, The Insurance Information Institute

 

 

The earthquakes that hit southern California on July 4 and 5 gave us all reason to reflect on a natural disaster that infrequently makes headlines here in the U.S.  A major seismic event occurring near several population centers is the sort of thing that many fear—but it’s also something insurers study constantly to make sure quake-impacted affected areas can recover and rebuild.

Earthquakes and other natural disasters are facts of life. The International Code Council (ICC) helps to create resilience through modern building codes that enable households and communities to rebound faster and more completely after an earthquake.

The ICC reports:

 “On the morning of July 4, a 6.4 magnitude earthquake rattled through Southern California, with another 7.1 magnitude quake striking the region the following evening.

“The damage resulting from these events could have been significant. Thanks to the modern, up-to-date building codes in California – based on the International Codes (I-Codes) – the Searles Valley Earthquake resulted in no loss of life and minimal structural damage. The I-Codes are keeping us safe, and this event reminds us of the importance of adopting and effectively implementing current model building codes as a key defense against natural disasters. Building codes save lives.

“According to structural engineers working with the Earthquake Engineering Research Institute, the homes and buildings experiencing the most severe damage date back to the 1930s, ’40s and ’50s. Modern buildings built using model codes experienced damage that was largely limited to nonstructural elements or contents.”

We encourage you to read the entire article to learn more about the essential role of building codes in creating a “resilience culture” to make our communities safer and more productive.

Got Earthquake Insurance? Businesses Should AssesS Their Readiness for “The Big One” and Other Natural Disasters

By Loretta L. Worters, Vice President – Media Relations, Insurance Information Institute

Every year businesses temporarily shut down – or close forever – because of a disaster.  The 6.4- and 7.1-magnitude earthquakes which struck near Ridgecrest, California late last week are stark reminders of a quake’s ability to disrupt a business’ operations. Even though many California businesses are in seismically active areas, only one out of 10 commercial buildings are insured for quakes, according to the California Department of Insurance.

Depending upon a business’ location, the threat to its operations may come from risks other than earthquakes, such as a hurricane, tornado, or wildfire. Forty-plus percent of U.S. small businesses do not reopen after a disaster impacts them, the Federal Emergency Management Agency (FEMA) estimates. But by taking measures to prepare, businesses can increase their chance of recovering financially from a disaster.

Steps businesses can take in the aftermath of this month’s southern California earthquakes:

1) Review Insurance Coverage: It is important businesses have the right amount and types of insurance for their needs and risk profile. There are two types of policies that can be purchased by a business owner.

  • A Businessowners Policy (BOP) is commonly purchased by small businesses. BOP policies combine property, liability, and business interruption coverages in one policy and are usually less comprehensive than a commercial multiple peril (CMP) policy. Business interruption coverage, also known as business income insurance, reimburses a business owner for lost profits and continuing fixed expenses during the time a business stays closed because of a covered event, such as a hurricane, tornado, or wildfire.
  • A Commercial Multiple Peril (CMP) policy combines several coverages—such as property, boiler and machinery, and general liability—into a single policy. It is typically less expensive to buy a CMP policy than to buy these coverages individually. Boiler and machinery insurance, also known as Equipment Breakdown Insurance, also usually extends to air conditioners, heating, electrical, telephone, and computer systems.
  • Commercial Earthquake Insurance Is Sold Separately: Earthquake-caused property damage and business interruption is not covered under either a standard BOP or CMP policy. Businesses in earthquake-prone parts of the U.S. must consider a separate policy or an endorsement to an existing policy which specifically mentions earthquake-caused damage. Earthquake insurance carries a percentage deductible ranging from 10 percent to 15 percent.

There are some areas of a business that automatically include coverage for earthquakes.  Commercial auto provides coverage for loss or damage from temblors.  This can include damage from falling debris, fire, or other events.  Injury to employees at work because of an earthquake is also a covered loss under workers’ compensation insurance.

2) Develop a Business Recovery Plan: Businesses that are forced to close following a disaster run the risk of never being able to open their doors again. But by developing a business disaster recovery plan, they will be able to determine how their operations will be restored after a natural or operational disaster. Moreover, the Insurance Institute for Business & Home Safety (IBHS) offers a free, customizable toolkit to help businesses plan for any type of business interruption.

3) Take a Business Inventory: Creating a business inventory includes listing equipment, supplies, merchandise, and commercial vehicles. An inventory facilitates the filing of a business insurance claim.

Herein lies the fault:  Businessowners, by their very nature, are risk takers; trailblazers in their respective fields.  Risk-taking is a crucial component of launching and building a successful business, be it with capital investment, hiring employees or marketing strategies. But entrepreneurs who don’t purchase the right type and amount of coverage, including earthquake insurance, end up jeopardizing the enterprise they worked so hard to build, leaving themselves, and their business, on shaky ground.

Earthquakes: More links from Insurance Information Instititute

We posted this look at insurance coverage and earthquakes earlier today. More important links about earthquakes and insurance:

 

An analysis of workers comp exposure to California earthquakes

The earthquake risk exposure for California’s workers comp market is huge, as nearly every worker in the state is covered. By contrast only about 10 percent of Californians have residential earthquake insurance.

The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) has recently partnered with Risk Management Solutions, Inc. (RMS), on a report quantifying the earthquake risk faced by California workers’ compensation insurers.

The timing of an earthquake event emerged as one of the critical factors when assessing the risk to employees. Recent earthquakes such as the Loma Prieta and the Northridge happened during off-peak hours; had the timing been different, the human impact could have been much worse. As expected the highest concentration of employees coincides with the highest hazard regions.

The Week in a Minute, 9/20/17

The I.I.I.’s California representative, Janet Ruiz briefed our membership this week on key insurance related stories. Here are some highlights. 

  • The I.I.I.’s Steven Weisbart was quoted in a Washington Post story on the insurance industry’s financial strength in the wake of Hurricanes Harvey and Irma.
  • A FEMA/State Disaster Recovery Center opened today (September 20) at the Carolyn Sims Center in Boynton Beach (Palm Beach County) for Floridians impacted by Hurricane Irma.
  • Florida’s Department of Financial Services opened Irma-related Insurance Village locales this week in St. Augustine, Jacksonville, Fort Myers, and Naples.
  • The Texas Department of Insurance (TDI) released details on Hurricane Harvey’s Disaster Assistance Mobile Unit Locations.
  • Maria made landfall as a Category 4 storm in southeast Puerto Rico Wednesday. The governor’s spokesperson said ‘this is a total disaster.’  The same evacuation centers used for Irma are filled with thousands of people according to CNN.
  • The LA Times offered these earthquake preparedness tips in the wake of the deadly 7.1 quake that struck Mexico City on Tuesday.
  • Politico posted last week an in-depth story on how Oklahoma’s earthquakes could adversely impact the U.S.’s energy supplies.  It was written by the author of Quakeland: On the Road to America’s Next Devastating Earthquake (Dutton 2017).
  • Dr. David Harkey will succeed Dr. Adrian Lund in January 2018 as president of the Insurance Institute for Highway Safety (IIHS) and the Highway Loss Data Institute (HLDI).

 

Disaster theme parks coming to a city near you?

In Japan, disaster learning centers that allow visitors to experience simulated earthquakes, typhoons and fires are gaining five-star reviews on travel sites like TripAdvisor and providing valuable lessons in preparedness.

The Japan Times reports that earthquake simulators have become major tourist draws at more than 60 disaster education centers nationwide and are attracting growing numbers of foreign visitors.

Some attribute the increased interest in disaster prevention education in Japan to the 2011 Tohoku earthquake and tsunami. Others note that tourists today are more interested in life experiences than shopping.

From The Seattle Times: “Many of the more than 60 centers feature large shake tables where visitors can ride out fake quakes as powerful as the real thing. In some centers, visitors navigate life-size dioramas of crushed cars and teetering power poles while being quizzed on the best response to dangerous situations.”

The emphasis is on personal responsibility and action: how to make your way safely through wreckage and how to find the closest shelter.

So could centers like these form a valuable part of disaster preparation in earthquake-prone parts of the United States?

According to The Seattle Times, civic leaders in Seattle have long wanted to import the concept to quake-prone Western Washington, where many residents have only a vague understanding of the risks.

It quotes Bill Stafford, a retired director of the Trade Development Alliance of Greater Seattle: “If people could experience the visceral jolt of being rattled on a shake table or of picking their way through a recreation of a post-quake Seattle, they might take the risks more seriously.”

Check out I.I.I. facts and statistics on earthquakes.

Man-made earthquakes in Oklahoma – a headache for insurers

I.I.I. research manager Maria Sassian and I.I.I. chief actuary James Lynch take a closer look at man-made earthquakes, based on a presentation by Kelly Hereid, Chubb Tempest Re at Reinsurance Association of America’s Cat Risk Management 2017 conference:

In Oklahoma, for each barrel of oil extracted by energy companies, seven to 10 barrels of wastewater are produced. Oil and gas companies use a technique called ‘dewatering,’ which allows a cheap separation of oil and water, making old geologic formations economic. The water, which sits underground for millions of years getting saltier and nastier with the passage of time, must be disposed of safely. Oil companies send it to disposal wells where it is injected deep into the earth. This disposal process has been linked to an increase in earthquakes because the injected wastewater counteracts the natural frictional forces on underground faults and, in effect, “pries them apart”, thereby facilitating earthquakes. Because of wastewater disposal earthquakes on natural faults are occurring faster than they would have happened otherwise.

The spate of earthquakes in Oklahoma (Figure 1) over the past few years has driven earthquake insurance take-up rates in that state from 2 percent to 15 percent (higher than in California).  According to NAIC data from S&P Global Market Intelligence and the I.I.I., direct premiums written from earthquake insurance in Oklahoma increased by over 300 percent from 2006 to 2015 (Figure 2). The Oklahoma market has been declared noncompetitive as only four companies combine to write a 55 percent market share. The action gave the state Insurance Department the right to approve rate changes in advance. Some insurers suggested a better solution would be to encourage competition rather than increase regulation.

Due to the volatile nature of the risk there is potential for insurance market surprises. Earthquake liability could harm energy prices and create an environmental risk problem for insurers. Some economists argue that housing prices could fall by nearly 10 percent following strong (MMI VI) shaking, which is not uncommon in magnitude 5+ earthquakes. Lawsuits over loss of value could get big fast.

The 2016 Pawnee earthquake was the largest in the Oklahoma historical record with a magnitude of 5.8.

One of the problems for insurers is that lots of wells are injecting so it’s tough to tell which company caused the earthquake. It’s also tough to tell if an earthquake has been induced since an induced earthquake looks the same on a seismograph as a natural earthquake. The USGS 2014 seismic hazard update is being incorporated into earthquake risk models now, but the update doesn’t contemplate induced earthquakes, which are now covered in USGS annual rate forecasts instead.

In recent years, the rate of injection has fallen due to regulation in the form of a mandated 40 percent decrease in wastewater disposal in key earthquake regions, falling oil prices and new geologic targets which produce less water. And it looks like reductions in injection volume are reducing activity. However, some experts believe the damage has already been done. Above-normal earthquake activity may continue for several decades, with fewer but potentially stronger earthquakes.

Oklahoma is a hotspot for earthquakes linked to wastewater disposal, but it’s not alone. Concerns in Texas led to the closing of a wastewater injection site near the Dallas-Fort Worth International Airport and there is evidence that some of the earthquakes that occurred in California decades ago may have been induced.

Check out the I.I.I. issues update Earthquakes: Risk and Insurance.

An Early Take on the Kumamoto, Japan Earthquakes

Two earthquakes within a few days may seem like a lot for one region of a country to withstand, but in the case of the insurance and reinsurance industry early indications suggest the impact of the Japan quakes will be manageable.

A magnitude 6.5 earthquake struck the Kumamoto prefecture of Japan last Thursday. Just 28 hours later a magnitude 7.3 quake struck the region. So far, Japanese officials have confirmed 46 fatalities and more than 1,000 people injured.

Reports appear to show significant property damage in the region, but it’s too soon to know what insured losses will be.

Analysts say that based on early information from Japan, the quakes are unlikely to challenge the 2011 Japan earthquake and tsunami in terms of size. The 2011 quake and tsunami caused $35.7 billion in insured damages, according to Swiss Re.

In a research note, Jay Cohen, analyst at Bank of America Merrill Lynch, said the quakes should not change the market much:

“Based on the early information from Japan, we would not expect these quakes to have a material impact on reinsurance pricing.”

And:

“In addition, we do not believe that such events will cause insurers or modeling companies to reassess their catastrophe models.”

One variable is potential business interruption and even contingent business interruption losses.

The second quake caused production to be halted at various factories of leading manufacturers such as Toyota, Sony, Honda and semiconductor manufacturer Renesas Electronics.

Cat modeling firm AIR Worldwide notes that Kumamoto prefecture, in the heart of Kyushu Island, is home to roughly 25 percent of Japan’s semiconductor production. There are also more than 100 semiconductor-related enterprises located in the prefecture. In fact, Kyushu is informally known as “Silicon Island.” The area also has automobile, steel and ship manufacturers, AIR Worldwide says.

The extent of any business interruption losses and further impact on supply chains would depend on how long the factories are closed, analysts note.

Earthquake insurance for commercial risks in Japan is purchased from the private reinsurance/insurance markets. Artemis blog reports that after the second more damaging quake, it looks more likely that Japanese insurers may seek reinsurance support for losses. Some catastrophe bond exposure is also possible, though most attach at a fairly high layer.

The standard dwelling policy in Japan does not cover earthquake but policyholders can choose to add the coverage. Earthquake insurance for dwelling risks is backed by the government via the Japan Earthquake Reinsurance Co (JER). The JER protects all residences that purchase earthquake insurance. More information on earthquake insurance in Japan is available here.

These earlier posts (here, here, and here) by Insurance Information Institute chief actuary James Lynch on the 2011 Japan earthquake and tsunami are useful.

Read up on the importance of understanding earthquake insurance options in the U.S. here.

Alerting You to Earthquakes… and Insurance

Earthquake resilience was  in the spotlight as the Obama administration gave its support for an earthquake-alert system on the West Coast at a White House summit Tuesday.

President Obama also signed an executive order establishing a federal earthquake risk management standard which will improve the capability of federal buildings to function after a quake.

The order requires federal agencies to ensure that federal buildings are constructed or altered using earthquake-resistant design provisions in the most current building codes.

A 2015 scientific assessment from the U.S. Geological Survey shows that more than 143 million Americans could experience potentially damaging earthquakes, nearly double the prior 2006 estimate.

The ShakeAlert early warning system being developed and tested in the West would warn  residents and businesses from at least a few seconds to a few minutes before the shaking starts.

This would be  enough time to slow and stop trains and taxiing planes, and to prevent cars from entering bridges and tunnels, for example.

A common misperception among Americans  is that earthquake coverage is provided in a homeowners or business insurance policy.

However, standard homeowners, renters and business insurance policies do not cover earthquake damage. Coverage is available either in the form of an endorsement or as a separate policy.

Residential earthquake insurance in California is sold through the California Earthquake Authority, a privately funded, publicly managed organization.

Some 85 percent of U.S. homeowners said they do not have coverage for earthquake damage in response to the Insurance Information Institute’s (I.I.I.) annual Pulse Survey.

The I.I.I. Pulse results showed significant variations in the number of consumers that have earthquake insurance across the U.S.

That number was greatest in the earthquake- prone West, where 18 percent of homeowners said they had purchased separate earthquake insurance coverage.

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Information on reducing earthquake damage to homes and businesses is available on the Insurance Institute for Business and Home Safety (IBHS)  website.

The  I.I.I. also offers facts and statistics on earthquakes and tsunamis here.