A magnitude 6.8 earthquake similar to the one that hit the San Francisco Bay area 140 years ago would result in economic losses of between US$112-US$122 billion, according to new research.
According to catastrophe risk experts at Risk Management Solutions, a magnitude 7.0 earthquake on the Hayward Fault, rupturing its entire length, would result in economic losses between $210-$235 billion, of which $30 billion is likely to be insured.
The last Hayward Earthquake occurred on October 21, 1868, rupturing a section of the fault from Fremont to just north of Oakland.
Strong ground shaking and liquefaction also destroyed unreinforced masonry buildings in Oakland and San Francisco.
Today, with more than seven million people living in the fault zone and surrounding areas - over 25 times the population at the time of the 1868 earthquake – the devastation would be much worse.
“As the southern section of the fault has ruptured, on average, every 140 years for the past 700 years, the anniversary highlights the need to continue investing in both short and long-term mitigation as well as preparedness initiatives before the next event occurs,” Dr. Patricia Grossi, senior research scientist at RMS, warned.
Insurance availability
Earthquake insurance is available to homeowners through the California Earthquake Authority. But take-up is low as the CEA’s cover is considered to be expensive and limited in scope.
“Like most Americans, they assume (despite evidence to the contrary) that in the event of a major earthquake the federal government will come in and ‘make them whole’,” says Mary Lou Zoback, earthquake risk specialist at RMS.
The uptake for commercial insurance is much higher, Ms Zoback told lloyds.com, at a level of around 20-25% around the state - but is not large enough.
“Many companies have done retrofits and strengthening to protect their businesses,” she says. “But they are still vulnerable to infrastructure failures and damage to their suppliers and customers.”
Probabilities and risks
The level of complacency is worrying. The highest likelihood for a damaging earthquake in the Bay Area is on the Hayward Fault system.
The 30 year probability for a magnitude 6.7 or larger earthquake is 31%, the second highest value in the state.
The highest 30 year probability in California is 59% for a M6.7 or larger on the southern San Andreas east and south of the Los Angeles area.
The deadly San Francisco earthquake of 1906 was caused by a rupturing of the San Andreas fault, creating a ‘quake of M7.8. Over 3,000 people died in the disaster.
A major ‘quake in the New Madrid seismic zone in the southern and mid-Western states could be far more devastating than a Californian event, according to Ms Zoback.
“Central US building codes are not as stringent as those in California and many homes, schools, forestations and public buildings are built of unreinforced masonry,” she says. “This is a seismologist's worst nightmare.”
Scenarios
That’s why Lloyd’s asks its syndicates to run Realistic Disaster Scenarios for the New Madrid seismic zone as well as different earthquake scenarios for San Francisco and the Los Angeles area.
“A devastating earthquake in California is a real and major threat that our syndicates need to, and are, aware of,” says Paul Nunn, head of exposure management at Lloyd’s. “We currently stress test the market for two California earthquake events – one in San Francisco and another in Los Angeles – both with insured losses of US$69bn.”
Lloyd’s has a long history of paying out for earthquake damage. The San Francisco disaster in 1906 cost Lloyd’s more than US$50m – the equivalent of US$1bn in today’s money.
This event enhanced Lloyd’s reputation by demonstrating its ability to pay all valid claims.
