Seismologists predict a major earthquake, similar in size to the 1906 quake, can hit the San Francisco area at any time. With inflation and exposure added, the total property loss if such an event occurred today could be well over $200 billion and the insured loss would range between $30 to $60 billion.
“The likelihood that there will be a major earthquake along the San Andreas Fault in California is very high,” said Markus Treml, natural catastrophe expert and seismologist at Allianz Re. “According to a scientific study in 2008, the chance of having one or more magnitude 6.7 or larger earthquakes in the San Francisco region over the next 30 years is greater than 63 percent; for the whole state, it is greater than 99 percent.”
For this reason, Fireman’s Fund, one of the main California insurers in 1906 and a major property insurer today, has compared the change in population, values, and losses to form a picture of what the 1906 earthquake might look like today.
“The potential cost of earthquakes has been growing because of increasing urban development in seismically-active areas,” said Doug Franklin, chief risk officer of Fireman’s Fund, a U.S. subsidiary of Allianz, one of the world’s largest insurers.
An earthquake today would affect more people: San Francisco has doubled in size since 1906, and Northern California as a whole has increased in population from 1 million to more than 15 million people.
However, insurers today are better prepared: In 1906, 27 percent of Northern California’s population was concentrated in San Francisco — today it is only 6 percent.
Today’s more geographically-diverse population helps spread the potential risks for insurers, as illustrated in the maps below.
Insurers have also been improving their underwriting to more broadly diversify their portfolios and have put greater emphasis on adequate reinsurance.
In 1906, the total property loss was $525 million and the insured loss was $235 million. Today, this ratio would be lower. Potential losses today from the exact same earthquake as happened in 1906, could be well over $200 billion and insured losses are expected to range between $30 and $60 billion.
Fewer people and businesses have been purchasing earthquake insurance. A 2006 poll by the Insurance Information Network of California and Fireman’s Fund, found that only 22 percent of Californians consider themselves to be prepared or very prepared for a disaster in their area.
“Only about 12 percent of homeowners in California purchase earthquake coverage,” said Franklin. “Despite California’s history of catastrophic earthquakes, wildfires and floods, many people feel that the West Coast offers them a relatively safe environment.”
Since the recent earthquake in Japan, A.M. Best reports a few thousand more earthquake policies have been purchased.
Experts believe that proper prevention, preparation and information are key to decreasing potential losses. Fireman’s Fund employs a significant number of risk prevention experts who help customers improve their buildings to keep risks as low as possible.
“The risks that earthquakes mean for society, including loss of lives, injury, and economic loss, can be greatly reduced by better planning and mitigation practices beforehand and providing timely information to improve response after they occur,” said Franklin.
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