Property Insurance Coverage Issues Flow from Kilauea

The photos and videos of Hawaii’s Kilauea volcano eruption have been mesmerizing and terrifying. Lava flows with unstoppable power devour homes, cars and anything else in their path. Bright red lava pools churn and bubble and launch scorching hot lava “bombs” high into the air. Towers of ash are propelled miles into the sky. 

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Natural Disasters in Latin America: A Look Back at 2017

2017 saw approximately USD 330 billion in losses from natural disasters worldwide, of which around USD 135 billion were insured, according to a Munich Re report. It was the second costliest year on record, only surpassed by 2011. Latin America was no exception to the trend, as a number of natural catastrophes hit the region last year.

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Earthquake Experts Urge Acceleration of California Retrofitting Requirements

On September 19, 1985, more than 5,000 people in and around Mexico City lost their lives when the 8.0 magnitude Michoacán earthquake collapsed 412 buildings and seriously damaged several thousand more. Many of the buildings that collapsed were older structures built of unreinforced masonry. But newer multi-story buildings built of reinforced concrete actually fared the worst.

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Earthquakes & Hurricanes in Mexico (Any End in Sight?): Tips for International Insurers

A powerful 8.1 magnitude earthquake struck southern Mexico late Thursday, September 7, 2017. According to the U.S. Geological Survey, the epicenter of the earthquake was in the Pacific Ocean off the coast of the state of Chiapas – the southernmost state in Mexico. Because of the magnitude of the quake, its effects were felt throughout Mexico and as far north as Mexico City – 600 miles from its epicenter. Approximately 50 million people across Mexico felt the tremors from the quake. The earthquake, one of the most powerful ever recorded in Mexico, toppled hundreds of buildings, and killed at least 61 people.

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SINKING CITIES: Not Just at Sea Level Anymore

When the Mexica people founded the city of Tenochtitlan in the fourteenth century, they built it on an island in the center of an inland lake in the fertile Valley of Mexico. Over seven centuries, the population of the city – now called Mexico City – grew to 2 million in the 1940s, before exploding to over 20 million people today in the city and surrounding metropolitan area. With the population explosion came an exploding demand for water which, since the nineteenth century has been drawn from wells tapping the aquifer beneath the ancient lake. Today, many families in Mexico City pay dearly for the water trucks haul from those wells to their neighborhoods. But the entire city pays for that water in another way, as its buildings shift, settle, and sink into the ground.

A House of Cards

 

The geology of subsidence caused by groundwater extraction is analogous to a house of cards. As this graphic from TRTWorld illustrates, when the ground is full of water, the spaces between the cards are full, the cards are supported, and the city stands on top. Groundwater extracted at a moderate pace is replaced by water filtering back into the aquifer, maintaining stability. But when groundwater extraction increases to rates that lower the water level in the aquifer, the spaces between the cards are emptied, the cards collapse, and the city sinks.

TRTWorld.com

Mexico City is a prime example. With thousands of wells sucking water from beneath it, most of the city sinks at a rate of a few centimeters per year. But some areas in Mexico City have sunk faster. The Mexico City Metropolitan Cathedral has tilted, underground sewers and water pipes havebroken, and the magnificent Palacio de Bellas Artes has sunk so far that its original ground floor is now the basement. 

Subsidence in Non-Coastal Areas – A Global Phenomenon

The global-warming narrative of rising sea levels, and the threat to coastal cities and their millions of inhabitants, have become familiar. Also familiar is the fact that many of these same cities are sinking into the soft coastal soils they’re built on, creating a double threat. (New Orleans, for instance, was sinking at a rate of about an inch per year in 2006, and its levees were sinking even faster.) Less well known is the phenomenon of non-coastal cities subsiding as extraction of water from the aquifers beneath collapses the geology that supports them. This slow-motion catastrophe (which by geological standards is hurtling along at breakneck speed) threatens the stability of buildings and infrastructure on a sobering scale, and makes these non-coastal cities more vulnerable to the same natural disasters that threaten their coastal cousins.

TRTWorld.com

Mexico’s sprawling capital, which lies a mile and a half above sea level, is not alone. Wherever surface water is scarce, and groundwater is the primary source, subsidence tends to follow. Researchers at Arizona State University have reported that parts of Phoenix, which is more than 1,000 feet above sea level, are sinking due to groundwater extraction. They predict that, as the phenomenon progresses, fissures forming in the ground will threaten canals, utility lines, water mains, storm drains, sewers and building foundations.

 

German geoscientists studying subsidence in Iran have noted that in Tehran, which is located almost 4,000 feet above sea level, subsidence has caused cracks in buildings, roads, and pipelines. Geotechnical studies have found that Bogota, Columbia, at 8,700 feet, is sinking about an inch per year due to extraction of groundwater. The phenomenon has been noted in many other non-coastal cities well above sea level –  including Dehli, India; Sao Paulo, Brazil; Las Vegas; and Riyadh, Saudi Arabia – to name a few.

TRTWorld.com

Subsidence Relates to Other Risks

Physical damage to buildings and infrastructure caused by subsidence and earth movement is typically excluded from coverage under first-party property insurance policies. However, insurers should be aware that subsidence can increase the risk of physical damage caused by other perils, and monitoring subsidence trends may be one way for insurers to gauge increasing exposure risks. For instance, scientists studying subsidence in Houston have found that groundwater extraction caused the soils beneath the 6,000-acre Meyerland neighborhood to sink about 18 inches during the 1980s and 90s, which is more than in the surrounding areas. The storm sewers designed to drain the area sunk as well, decreasing their capacity. As a result, heavy rains are more likely to pool in Meyerland, and less likely to drain away without causing flood damage. The appearance of the Meyerland basin shows that insurers who provide coverage for flood damage would be wise to monitor subsidence trends, even if their policies exclude coverage for physical damage caused by subsidence, because the presence of the excluded peril may indicate an increased risk of physical damage that could be caused by or result from a covered peril. Meyerland also provides an example of the complex causation analysis that could arise where subsidence, an excluded peril, arguably causes a covered peril to occur like flooding – which results in physical damage.

Insurers who provide earthquake coverage should also keep tabs on subsidence trends as an indicator of potential exposure. The house-of-cards analogy above illustrates how soils saturated with groundwater are inherently more stable. Soils destabilized by groundwater extraction, on the other hand, are more likely to shift – and to shift more dramatically – when an earthquake strikes. That means that for a quake of a given magnitude, the resulting physical damage will likely be greater in areas where subsidence has occurred because subsidence is a manifestation of less stable subsurface geology. Thus, it may be possible to anticipate increases in earthquake-coverage risk exposures by monitoring subsidence caused by extraction of groundwater in earthquake-prone areas.

Conclusion

Broad scientific agreement that groundwater extraction causes subsidence has led to broad agreement on another point: subsidence is here to stay. The only proven way to slow or stop it is to slow or stop groundwater extraction. But population growth in arid urban areas shows no signs of slowing, and demand for water will inevitably increase. As this cycle accelerates, insurers will face increasing – and increasingly uncertain – risks. Monitoring subsidence trends in both coastal and non-coastal urban areas could be highly useful in coping with the increased risk exposures presented by subsidence.

Posted by Patricia St. Peter and Dennis Anderson

Can You Predict Earthquakes? Well, Sort Of

Followers of the CAT-Law Navigator know that our blog posts often address recent earthquakes around the world. As catastrophes go, a massive earthquake is about as bad as it gets so it’s a natural topic for us. And if earthquakes are of interest to you, we recommend you check out Temblor. Temblor refers to itself as “a tech company providing a personal, immediate and credible source of seismic risk understanding and solutions for everyone.” We find Temblor to be a great source of information on earthquakes and earthquake-related news and analysis.

With all of the work the folks at Temblor and others are doing to better understand earthquakes and seismic risks worldwide, can we now predict earthquakes like meteorologists predict storms? Unfortunately, no, but Temblor’s website does reflect a few interesting “predictions” related to earthquake activity. First, you can use the website to find all earthquakes worldwide in the last 30 days, or 7 days, or 24 hours. And you can tailor your search based on the magnitude you are interested in (greater than 5.0, greater than 6.0 or greater than 7.0). And guess what? In the last 24 hours alone, there have been seven earthquakes at or above a magnitude 5.0 (four of which were in Central Italy – and Temblor has closely followed the uptick in seismic activity in that region of late). So while we can’t predict or forecast the next earthquake, it is apparent from Temblor’s data that quakes are happening every day.

You can also use your location on the Temblor site and review your current seismic risk on a scale of 1 to 100, and get a sense of the likely magnitude of property damage to your home in the next 30 years. Temblor even tries to forecast the likelihood of you receiving an insurance payout after an earthquake(!). But as Temblor notes, “we are not” predicting earthquakes; instead, Temblor is forecasting your risk “based on the long term behavior of faults, using the best public scientific data available.”

Temblor does, however, identify one type of earthquake that absolutely, positively CAN be predicted. On certain Sundays in September, October, November, December, and sometimes January, there will be small magnitude earthquakes in Seattle. How does Temblor know this? It all started on January 8, 2011, when Marshawn “Beast Mode” Lynch electrified a stadium full of Seattle Seahawks football fans with a powerful 67-yard touchdown run. As Temblor describes it, “the combination of fans jumping, stands reverberating, and ground vibrating was enough to set off a local seismometer, which registered the shaking as a M=2 earthquake. While not substantial, this truly was a man-made earthquake.” In the years since that wild run by Lynch, seismometers have been installed in and around the stadium to track the seismic activity on game days. And when the Seahawks are rolling, you can predict with absolute certainty that there will be a (very small) earthquake.

Posted by Dan Millea

Fracking, Earthquakes and Civil Authority

In last week’s post, we discussed the rapid development of the hydraulic fracturing (“fracking”) industry in the United States, and some of the innate risks presented by those operations. In particular, the post focused on a recent study that has found a causal link between wastewater disposal/injection, a by-product of fracking, and earthquakes occurring around high-fracking areas in the United States. Initially, it was speculated that earthquakes were caused by fracking itself, a process whereby millions of gallons of water, sand and chemicals are injected underground to break apart rocks to release gas.  However, it has now been proven that most of these earthquakes are caused by the underground injection of disposal water (see original post for more detail).

The popularity of fracking as an extraction method has extended beyond the United States, and has been readily adopted in countries like Canada, Argentina and Australia with huge shale oil and gas potential. In Canada, the provinces of British Columbia, Alberta and Saskatchewan have the highest concentrations of (fracking) wells. A group of scientists from the University of Calgary has recently released a study evaluating whether there is a causal connection between fracking in western Canada, and an increase in seismic activity around the well-sites. The study revealed that unlike the United States, where earthquakes are induced by the subsoil disposal of wastewater, a series of earthquakes in Alberta within the last five years has been attributed to fracking, or hydraulic fracturing, in which water, chemicals and sand are injected at high pressure into a well drilled in a shale formation to break up the rock and release oil and gas.

According to the study, the quakes were induced in two ways: by increases in pressure as the fracking occurred, and, for a time after the process was completed, by pressure changes brought on by the lingering presence of fracking fluid. To the east in the fault zone, the earthquakes occurred during the fracking process itself, which continued for up to a month after the fracking process was completed. To the west, most earthquakes occurred intermittently over several months after the fracking ended. While Alberta and other affected areas do not have the infrastructural density that Oklahoma has, several major pipelines and operations are found within the proximity of Fox Creek, where these earthquakes have been occurring.

Last week we discussed earthquake coverage and how it may respond to losses caused by human-induced earthquakes. Another, often-forgotten, coverage that may become relevant in the next few years as the risk of earthquakes increases in these areas is Civil Authority coverage. Civil authority provisions are usually written as additional coverage provisions, not exclusions, and provide coverage for lost business income due to an action taken by a civil authority. So, how do civil authority clauses and earthquakes interact? Generally, civil authority claims arise out of the loss of business income due to mandatory curfews, evacuations, or restrictions of access (e.g. Hurricane Katrina, 9/11, etc.).

Following the occurrence of a MW 3.9 earthquake on 23 January 2015, the Alberta Energy Regulator, introduced new regulations for the notifications and monitoring of earthquakes around well areas.  Included among them, was the implementation of a “traffic light protocol” that requires the immediate shutdown of hydraulic fracturing operations following an earthquake of local magnitude 4.0 or greater within 5km of an affected well. While these shutdowns tend to be temporary, an increase in occurrences or severity may result in a long period of operational shutdown. Failure to comply with these procedures may result in an enforcement action which could include the prolonged shutdown of operations.

Other jurisdictions have implemented similar protocols, and some U S. states, and countries have banned this type of operation altogether.

While it is hard to predict the likelihood of a catastrophic event resulting from a fracking-induced earthquake, several of the areas affected by this peril are pipeline and oil/gas hubs. A large enough earthquake or series of earthquakes could result in a prolonged shutdown of operations by order of the relevant regulatory body, thus causing severe business interruption losses to well and pipeline operators. Traditional civil authority provisions read: we will pay for the actual loss of Business Income you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any Covered Cause of Loss. Most often, these clauses are also subject to the BI waiting period, and only offer coverage for limited periods of time.

For coverage under Civil Authority provisions, an insured is usually required to demonstrate that the physical damage to its property is the result of a peril covered under the policy. And, as discussed in our last post, insureds will first have to demonstrate that earthquake is a covered peril under the policy, and the denial of access or “action” must be the proximate cause of a loss of business income.

As the risk of fracking-induced earthquakes increases, regulatory authorities may take a harder stance against widespread fracking in the future. In the short-term, a significant enough earthquake may result in the interruption of operations of wells and pipelines surrounding the quake-affected areas. While most of the coverage issues will have to be sorted out on a case-by-case basis, insurers should be aware of this new, or at least unconventional, risk that may affect their insureds’ business operations.

Posted by Hernán Cipriotti

Fracking, Earthquakes and Insurance. What the Frack is Going on?

The advances and proliferation of hydraulic fracturing (“fracking”) in oil and gas exploration and extraction have provided the United States with tremendous benefits with respect to previously unaccessible fossil fuels. Those benefits, however, come with a price. Among other complaints about the negative impacts of fracking, it now seems certain that the wastewater injection process associated with fracking can and will cause earthquakes of varying degrees of severity. In a study published in the September 2016 issue of Science, Stanford University researchers demonstrate a causal connection between the fracking wastewater disposal/injection process and a series of earthquakes in east Texas, including the largest earthquake ever recorded in that region. A study published earlier this year found that fracking itself was inducing earthquake activity. The authors of the study concluded that the danger of earthquakes caused by “hydraulic fracturing has received less attention than that from wastewater disposal, but it is clearly of both regional and global importance,” and that “the likelihood of damaging earthquakes and their potential consequences needs to be carefully assessed.”

While the United States Geological Survey has been traditionally more reluctant to confirm that fracking and wastewater injection are responsible for the rash of seismic activity in and around the areas where fracking is taking place, they have at least officially acknowledged that at least some of the observed earthquakes have been caused by fracking wastewater injection. In a study released in April 2015, the USGS identified 17 areas within Alabama, Arkansas, Colorado, Kansas, New Mexico, Ohio, Oklahoma, and Texas, as showing sharp increases in seismic activity due to injection of wastewater in deep wells.

And it stands to reason that fracking operations are triggering earthquakes. Earthquakes are now just as likely to occur in Oklahoma as they are in California. Just last week, Cushing, Oklahoma sustained an earthquake of a 5.0 magnitude. Cushing is the largest oil storage hub in the world, holding billions of dollars worth of oil, and is nicknamed the Pipeline Crossroads of the World. While the storage infrastructure and pipelines did not sustain major damage, more than 40 buildings in Cushing sustained severe damage spread over a 16-block area and dozens of people were displaced. Oklahoma regulators said they would shutdown some disposal wells and reduce volume in others following the earthquake. 

The earthquake in Cushing was just the sixth 5.0 earthquake to hit Oklahoma since 1882, but 3 of those 6 major earthquakes occurred in 2016, including the strongest earthquake in Oklahoma history, a 5.8 Mw earthquake in September. In 2016, Oklahoma sustained 518 earthquakes of 3.0 magnitude or higher. From 2004 to 2008, right before the fracking oil boom hit, there was a total of nine. George Choy, a geophysicist with the U.S. Geological Survey, was quoted by USA Today as saying "The oil companies have said for a long time that these are natural earthquakes, that they would have occurred anyway, but when you look at the statistics, that argument does not fly."

Generally speaking, losses due to the peril of earthquake/earth movement, are typically excluded from coverage under standard commercial all-risk property policies. However, most carriers will give policyholders the option to purchase this coverage through an endorsement to the policy. And, in historically seismically stable areas, such as Oklahoma, such an endorsement might have been offered at a premium price that no longer corresponds to the risk. 

Some insurance regulatory bodies are taking proactive steps to prevent uncertainty regarding property insurance coverage for fracking-related earthquake damage. The Pennsylvania insurance commissioner has prohibited insurance carriers from denying homeowners insurance claims for earthquake damage on the basis that the quake was caused by fracking. In Oklahoma, the insurance commissioner required insurers to give official notice to policyholders as to whether or not coverage extends to earthquakes resulting from fracking. 

Despite these steps, it presently appears that most of the coverage questions surrounding fracking-related earthquake damage have yet to be answered. Given the variation in property insurance policies, the first questions will center on whether or not earthquake damage is covered or excluded under the policy wording. If earthquake damage is excluded, perhaps there is supplemental coverage for a resulting fire or water damage by virtue of a covered ensuing loss provision? Or coverage might be eliminated completely by an anti-concurrent causation provision? Perhaps the policy/endorsement covers earthquakes but excludes earthquakes or earth movement caused by non-natural or man-made causes such as fracking. What evidence might an insurer need to bring to court to prove that some earthquake damage was definitively induced by fracking operations as opposed to natural seismic activity. Additionally, if an insurer pays insurance proceeds under any of the coverage scenarios outlined above, what evidence will be required to make a recovery from the oil and gas extraction firm through subrogation?

While these issues will need to be sorted out on a case-by-case and policy-by-policy basis, it seems that it would behoove property insurance carriers to make certain they are aware of the new seismic coverage risks they face in traditionally stable areas in North America.

Posted by Matt Gollinger

Newly Discovered Fault Connections Raise San Francisco Major Earthquake Risk

While San Francisco is no stranger to the ever-looming threat of a catastrophic earthquake, a recent discovery of intersecting faults under San Francisco's San Pablo Bay has dramatically increased the risk of a major earthquake in the next thirty years.

Scientists at the U.S. Geological Survey published their discovery this week in Scientific Advances. The Hayward Fault has long been considered a threat because it runs under densely populated neighborhoods east of San Francisco. The study found that beneath San Pablo Bay, it joins with a Rogers Creek fault, a less active underground fracture to the north. This newly discovered direct link between the faults raises the possibility of a simultaneous rupture of the Hayward and Rodgers Creek faults, a scenario that could result in an earthquake up to a magnitude of 7.4 that would cause widespread property damage, extensive loss of life, and far-reaching ripple-effects on the global economy.

The relationship between these two faults had long been unknown.  Detailed subsurface imaging, geophysical interpretation and kinematic modeling by the U.S.G.S. team demonstrate that the Hayward and Rodgers Creek faults are directly connected at the surface.  The Hayward and Rodgers Creek faults combine to represent a continuous 118 mile-long fault.  If they were to break simultaneously, they could produce a magnitude 7.4 quake. 

An earthquake of this magnitude would be more than five times stronger than the 1989 Loma Prieta quake on the San Andreas Fault that killed over 60 people and caused an estimated $6 billion in property damage.  In addition, the epicenter of the 1989 Loma Prieta earthquake was located 60 miles southeast of San Francisco while the Hayward-Rogers Creek faults run directly beneath the city.  David Ponce, a scientist with the USGS research group, was quoted by Popular Mechanics on this risk:

“You have to understand that there are over 2.4 million people living right along this fault, and the population of this whole area is around 7.5 million. It also turns out that major transportation, gas, water and electrical lines cross this fault. So when it goes, it's going to be absolutely disastrous."

Mr. Ponce was also quoted as saying that there is a 32% chance that such a quake could occur in the next 30 years.

Speculation regarding California earthquakes and “the next big one” is hardly anything new, but with the Hayward-Rodgers Creek discovery this week, it appears we have a new front-runner for how that “big one” could originate.

Posted by Matt Gollinger

A Look Back, and Ahead, to the “California Shakeout”

Two weeks ago, the CAT-Law Navigator reviewed an Earthquake Advisory issued by the California Governor’s Office, which directed the public to prepare for an increased probability of earthquakes through October 7. The Advisory was issued following the observation of an “earthquake swarm” near Bombay Beach, California, that started on Sept. 26, 2016, beneath the Salton Sea, near the southern end of the San Andreas Fault. The U.S. Geological Survey had calculated that there was up to a 1 in 100 chance of a magnitude 7 or greater earthquake occurring on the southern San Andreas Fault through October 4 (later revised to up to a 1 in 500 chance of such an earthquake through October 7). Given those odds, it’s no surprise that a major earthquake did not in fact materialize, but the U.S.G.S. calculation and the Governor’s Advisory reminded us of The Great Southern California Shakeout Scenario, first published by the U.S.G.S. in 2008, which modeled a similar event. 

The goal of the 308-page 2008 Shakeout Scenario was “to identify the physical, social and economic consequences of a major earthquake in southern California and in so doing, enable the users of our results to identify what they can change now—before the earthquake—to avoid catastrophic impact after the inevitable earthquake occurs.” (Shakeout Scenario at p. 2) In service of that goal, the authors outlined the magnitude and locus of an imagined Southern California earthquake along the San Andreas Fault, and then estimated the resulting physical damage, the impact on social systems, and the actions that can still be taken to prepare for and minimize the impact of a Southern California earthquake.  

The authors of the Shakeout Scenario noted that although the particular earthquake scenario they modeled “may never happen . . . [b]ig earthquakes on the San Andreas Fault are inevitable, and by geologic standards extremely common, but probably will not be exactly like this one. The next very damaging earthquake could easily be on another fault.  However, lessons learned from this particular event apply to many other events and could provide benefits in many possible future disasters.” In other words, the earthquake scenario the Shakeout authors imagined is not their prediction, but it provides a thorough analysis of one possible scenario, and the author’s findings have broad application for those interested in the subject.

There is a wealth of information in the extensive Shakeout Scenario document, but here are some headline findings of particular interest to the insurance industry: the authors modeled a magnitude 7.8 earthquake along the southernmost 200 miles of the San Andreas Fault, from the Salton Sea to Lake Hughes (South and East of Los Angeles); the earthquake involves extensive and widespread ground shaking, surface level fault offsets of 30 feet, liquefaction of the earth and landslides in isolated areas, but no tsunami activity due to the distance of the event from the Pacific Ocean. All told, the authors anticipated 1,800 deaths and over $200 billion in economic losses (with property damage of $112.7 billion and business interruption losses of $96.2 billion).  For comparison, the total amount of insured losses (in 2015 dollars) stemming from Hurricane Katrina was $49 billion, still the most expensive insurance catastrophe in U.S. history. The 9/11 Terrorist Attack involved insured losses of $24.6 billion; the 1994 Northridge, California earthquake’s insured losses were $18.6 billion. 

We will return to the Shakeout Scenario in subsequent posts, exploring the authors’ breakdown of the nature and scope of the event itself, the predicted damage to residential and commercial buildings, the impact on California’s infrastructure, and the broader business interruption implications. We will also consider the overall social impact and the authors’ advice for steps that can be taken now to reduce the physical and societal damage of a major earthquake along the San Andreas Fault and other California faults.  

Posted by Dan Millea

Cal OES Issues Earthquake Advisory Notice for Southern California

Late last week, the California Governor’s Office of Emergency Services issued an Earthquake Advisory notice directing the public to prepare for an increased probability of earthquakes over through October 7. 

The Advisory was unusual and was issued following the observation of an “earthquake swarm” near Bombay Beach, California, that started on Sept. 26, 2016, beneath the Salton Sea, which lies near the southern end of the San Andreas Fault.  The initial earthquake swarm was made up of almost 100 earthquakes, including three exceeding magnitudes of 4.0 on the Richter scale.  

On September 27, the U.S. Geological Survey announced preliminary calculations showing that there was up to a 1 in 100 chance of a magnitude 7 or greater earthquake occurring on the southern San Andreas Fault through October 4.  The USGS subsequently revised these calculations on September 30 to indicate up to a 1 in 500 chance of such an earthquake through October 7.  The probability revisions corresponded to a decrease in earthquake swarm activity. These estimates are made using the Uniform California Earthquake Rupture Forecast model (UCERF3), combined with the most recent probability modeling of the likelihood that an earthquake aftershock could be larger than its 4.0+ magnitude mainshock.

The initial Advisory was issued the same day that California Governor Jerry Brown signed legislation designed to advance the development of the earthquake early warning system in California.  In 2013, California previously enacted legislation mandating the creation of an earthquake warning system led by Cal OES in concert with the California Integrated Seismic Network, the USGS and others in both the private and public sector. The legislation signed on September 29 of this year, SB 438, establishes the California Earthquake Early Warning Program and Advisory Board within the California Governor's Office of Emergency Services to advance the implementation of the program and to encourage further investment in the early warning system.

Though the 1% risk of a 7.0 quake was ultimately downgraded to a 0.2% risk, the Director of the Cal OES took the opportunity to remind Californians of the need to be prepared.  “California is earthquake country. We must always be prepared and not let our guard down,” said Mark Ghilarducci. “The threat of an earthquake on the San Andreas Fault hasn’t gone away, so this is another important opportunity for us to revisit our emergency plans and learn what steps you need to take if a significant earthquake hits.”

The risk of a San Andreas-based earthquake causing catastrophic losses hardly needs explanation to even the most casual reader.  Both the 1906 San Francisco earthquake and the 1989 Loma Prieta earthquake were caused by movement along the San Andreas Fault.  Beyond the loss of life, the loss of real and personal property, public infrastructure, and related economic losses added up to billions upon billions of dollars.

More recently, the USGS predicted that a magnitude 7.8 earthquake along the southern San Andreas Fault, an event consistent with the Cal OES Advisory issued last week, could cause about 1,800 deaths and substantially more than $200 billion in property and economic losses.

While an early warning system might only provide a handful of seconds advance notice of an earthquake, even such a tiny amount of time could save lives and vast sums in property and economic losses.   Mexico and Japan have invested in early warning systems and related automated safety/loss mitigation systems that have delivered positive results.

With experts predicting the risk of “the next big one” to be on the rise, it would appear that we will have the opportunity to evaluate the effectiveness of California’s investments in its early warning systems sometime in the not-so-distant future. 

Posted by Matt Gollinger

Earthquakes and Volcanoes

According to recent scientific research, the Earth may be experiencing increased earthquake and volcanic activity. While there is some debate that this may be a statistical anomaly because of better recording, rather than a real increase, there is no debate that earthquakes and volcanoes remain some of the scariest and least predictable of natural catastrophes.

Interestingly, there is now a belief that humans may be responsible for some of the increase in seismic activity. There is data that suggests that fracking and waste water injection into the subsurface of the earth have been responsible for increased seismic activity in the Central United States, and Oklahoma in particular. While there may be no consensus on what is causing this increased activity, the fact remains that Oklahoma can now expect to experience seismic activity on par with California.

While standard homeowners and commercial property policies typically do not cover direct damage from earthquakes, policies may cover some resulting damage from causes of loss such as fire and carriers will often offer earthquake coverage as an additional coverage. For minor earthquakes the exposure for insured losses remains small, but for major earthquakes there is the potential for large insured losses. For example, major earthquakes in Japan and New Zealand in 2011 resulted in insured losses that have been reported as high as $40 billion and $16 billion respectively. More recently, the April 2016 7.8 magnitude earthquake that struck Ecuador had insured losses estimated between $325 million and $850 million.

Surprisingly, in the face of this increased earthquake risk, it appears that many homeowners may be foregoing earthquake insurance. In fact, since the 1994 Northridge earthquake in California, the percentage of homeowners with earthquake coverage has reportedly decreased from 30% to about 12%. More than likely this is driven by the fading memories of the damage caused by the Northridge earthquake and the high cost of earthquake insurance. However, with increased seismic activity in the Central United States and the projections of a major earthquake in California increasing, those numbers may increase. 

While coverage for damage caused by volcanoes is more common in insurance policies, volcanoes tend to be more remote and have less direct impact on inhabited areas. For example, while the 2010 eruption of Eyjafjallajökull volcano in Iceland caused a dramatic shutdown of air travel in and out of much of Europe, the incidence of insured loss was not great due to the limited direct physical damage caused by the ash cloud. Typically, coverage for business interruption requires that the interruption arise from direct physical loss to insured property or to a dependent or contributing property for contingent business interruption coverage. Therefore, the absence of direct physical damage from the eruption meant that insured losses were minimal. However, as the population of the Earth continues to grow and more development encroaches on areas prone to volcanic activity, it can be expected that major eruptions may bring more insured damage.

Posted by Jonathan MacBride

Man-Made Cats

“The industrial world destroys nature not because it doesn’t love it but because it is not afraid of it.” 

- Mary Ruefle, American Poet

Most of the major catastrophes we read about, think about and worry about are natural occurrences:  hurricanes, floods, earthquakes, volcanic eruptions.  But man-made catastrophes do their own share of damage.  When they strike, they often grab their own share of attention.  The 9/11 terrorist attack stands as one of the largest insurance catastrophes in history – not to mention its far more devastating human impact.  But most man-made catastrophes are smaller in scale compared to what mother nature can deliver.  They can also stay under the radar, without headlines, without clear cause and effect, without a clearly defined impact.  They can be harder to trace and harder to quantify.  When an earthquake strikes, the resulting damage is apparent and the cause and effect are obvious.  Not always so with man-made events.

Case in point:  in 2015, forest fires and resulting haze in Southeast Asia were unusually widespread and extreme, and researchers this week released a study finding an incredible death toll:  “The forest fire and haze disaster in Southeast Asia last year may have led to the deaths of more than 100,000 people,” the New York Times reported.  “The vast majority of the cases were in Indonesia, where fires were deliberately set to clear land for agriculture.”  In 2015, the Indonesian government claimed only 19 of its citizens had perished due to the fires and haze.  The report released this week finds a much higher figure:  91,600 in Indonesia alone.

The study was published in Environmental Research Letters.  The study’s authors explained the root cause of the fires in 2015 and the resulting impact on human life:

 

Across Indonesia, fires are frequently used to burn agricultural residue, clear forest, or prepare land for plantations and smallholder farms. . . .   Fire emission levels are greatest from degraded peatlands, especially in dry years (Marlier et al 2015a, 2015b). In 2006, burning in industrial concessions to clear land for oil palm and timber plantations accounted for ~40% of total fire emissions in Sumatra and ~25% in Kalimantan (Indonesian Borneo) (Marlier et al 2015c).  

 

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The degraded peatlands that typically burn during such episodes contain significant combustible organic material and so release large amounts of fine particulate matter (PM_2.5), the leading cause of global pollution-related mortality (World Health Organization 2009, Lelieveld et al 2015). As in previous episodes, the prevailing winds in 2015 transported the smoke to densely populated areas across Indonesia and the Malay Peninsula, including Singapore and Kuala Lumpur.

 

Did most of us hear, in 2015, about the fires, the smoke, and the heavy presence of deadly particulate matter in population centers in Southeast Asia?  Did we hear that deaths were mounting, in the tens of thousands and as many as a hundred thousand?  No.  Nor, apparently, was that reality recognized anywhere before the release of the study in Environmental Research Letters. 

 

Similarly, the predictions of dire consequences for life and property as a result of Climate Change relate not only to high profile catastrophic events – like stronger and more frequent hurricanes – but to the more insidious long-term effects, including slowly rising seas, widespread droughts, and extremes of temperature, all of which cause death and damage that are not as visibly and obviously connected to the “catastrophe.”  But to the victims, the results are just as final.

Posted by Dan Millea