View this article online: https://www.insurancejournal.com/magazines/mag-features/2008/11/16/157358.htm
If a magnitude 7.0 earthquake occurred on California’s Hayward Fault, it would result in economic losses between $210 billion and $235 billion, with only up to $30 billion likely to be insured, according to a study by Newark, Calif.-based Risk Management Solutions (RMS).
A magnitude 6.8 earthquake rupturing the Southern Hayward Fault today — based on San Francisco Bay Area’s 2008 population and property exposures — would result in economic losses of between $112 billion to $122 billion, of which $11 billion to $13 billion would be insured, RMS said.
The study marks the anniversary of the 1868 Hayward Earthquake — which ruptured the southern section of the fault 140 years ago — and was conducted in collaboration with research seismologists led by the U.S. Geological Survey. The Hayward Earthquake occurred on Oct. 21, 1868, rupturing a section of the fault from Fremont to just north of Oakland and causing extensive damage to the small farming communities along the fault. Strong ground shaking and liquefaction also destroyed unreinforced masonry buildings in Oakland and San Francisco.
“More than 7 million people now live in the fault zone and surrounding areas — over 25 times the population at the time of the 1868 earthquake,” said Dr. Patricia Grossi, RMS senior research scientist. “As the southern section of the fault has ruptured, on average, every 140 years for the past 700 years, this particular anniversary highlights the need to continue investing in both short and long-term mitigation, as well as preparedness initiatives before the next event occurs.”
RMS’ loss estimates reflect insurance payments for residential and commercial earthquake coverage, as well as coverage for urban fires that would most likely break out. The estimates also account for the effects of “oss amplification,” including economic demand surge (shortages of builders and materials), repair delay inflation (rain damage), claims inflation (difficulties in insurer’s policing claims costs), and insurance coverage expansion.
Less than 15 percent of the losses are likely to be covered by insurance, stated Mary Lou Zoback, vice president for earthquake risk applications. In contrast, about 55 percent of the total economic loss from Hurricane Katrina was covered by insurance payments.
She added: “While there has been an enormous public investment in mitigating the impacts to infrastructure of a major Bay Area earthquake over the past 20 years, many residential and commercial buildings remain vulnerable. The low level of earthquake insurance coverage means the massive cost of a Hayward Fault earthquake would largely be borne by the residents and businesses in the area, making rebuilding much more expensive and difficult.”