Finding Fault: Keys To Confronting Earthquake Risk
What would happen if a major earthquake hit Memphis or St. Louis? It may sound unlikely, but seismic-risk zones run through unexpected areas – ones that may not experience earthquakes often. Indeed, northwestern Albania experienced the deadliest quake of 2019.
More than 200 years ago, a series of earthquakes ripped through the central United States, destroying property and disrupting river patterns. The seismic tremors occurred along the New Madrid Seismic Zone, which runs near the Mississippi River and puts parts of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri, Oklahoma and Tennessee at risk of further quakes.
Despite the magnitude of the 1811–12 earthquakes – which was the equivalent of the January 2010 quake in Haiti – the damages incurred at the time could be considered limited by today’s standards.
Earthquakes recur where they’ve happened before, according to FEMA. And today’s situation in the New Madrid Seismic Zone is different: sitting in the fault zone is the Memphis metropolitan area, with more than 1.3 million residents. By some estimates, human casualties from a major earthquake in the seismic zone could be in the tens of thousands; economic damages could be in the hundreds of billions of dollars.
“The central U.S. has a very sleepy, very dangerous fault system,” says Mike Panfil, managing director of Property Risk Control Solutions at Aon.
The Pacific alone borders significant seismic regions from Alaska and the Pacific Northwest, to the American Southwest and western South America and to Oceania and others. Risks become even greater as population and development in these regions increase. What’s different about the New Madrid Seismic Zone – and areas like Virginia, where an August 2011 earthquake caused damage across the mid-Atlantic – is the low levels of seismic-risk awareness and preparation.
For the past 20 years, earthquakes have been the third-costliest peril, driven by extreme annual volatility. “Seismic risk deals in a much longer geologic timescale that can increase the potential impact from an event as population and exposure grows,” says Steve Bowen, director, meteorologist and head of Catastrophe Insight at Aon. “The generational span between large events in less frequently affected seismic regions only reinforces the need to modernize the current infrastructure.”
Areas with a high frequency of earthquakes tend to be better prepared for the risk than regions like the central U.S., where other catastrophes, such as tornadoes and hail, prevail. Those earthquake preparations can include stricter building codes, emergency response plans and drills. More importantly, they create a culture of risk awareness and resilience.
Base isolation construction – in which buildings are constructed on top of massive shock absorbers to dampen the effects of tremors – is becoming common in many seismically active areas. However, in the U.S., there’s only one private building east of the Rocky Mountains that uses the technology, according to Jeff Crenshaw, president of Continuum Inc., an Aon partner for business continuity and rapid response services.
In 2013, Vancouver developed an Earthquake Preparedness Strategy that identified 56 actions across volunteers, communities, critical services and buildings to reduce the potential impact of an earthquake on the city and its residents.
Earthquake preparation drills range from the annual Great ShakeOut drills conducted across the U.S. to the Shaken Fury tabletop exercise focused on the New Madrid Seismic Zone. Mexico holds an annual earthquake drill as well – the 2017 exercise preceded a major quake by just two hours.
For businesses, reducing earthquake risk requires a commitment from the leaders of the organization to minimize exposures and make the necessary investments. Top executives should thoroughly review results of vulnerability assessments so they can understand the potential return on investment from risk-mitigation strategies.
Technology’s Growing Role In Addressing Seismic Risk
A growing number of technologies help address earthquake risks and responses.
An emerging technology, seismic sensors learn the natural frequency of a building and can predict damage moments after an earthquake occurs.
Data from the sensors can provide information about structural damage, financial loss and recovery time for an individual building or a portfolio of properties. That information can improve senior executives’ situational awareness, helping them set recovery priorities as well as with insurance claims processing.
“Such technology can be considerably more reliable than having an untrained code-enforcement person looking for cracks in a building,” says Crenshaw.
In fact, a recent retrofit of the I-40 bridge crossing the Mississippi River in Memphis included installing motion accelerometers and seismometers.
Artificial Intelligence (AI) And Machine Learning
AI and machine learning can also help determine the extent of damages after an event and provide insights into building safer structures for the future. By comparing baseline satellite images from before an earthquake with those from immediately after, a computer program can assess damages, as well as identify buildings that might have been unaffected or less damaged.
Several at-risk regions are developing early warning systems and apps to notify the public of an impending earthquake. In October, California announced its MyShake smartphone app to provide users United States Geological Survey ShakeAlerts in the seconds before an earthquake hits. Likewise, in its effort to improve earthquake preparation, Mexico City has updated its emergency app to send earthquake alerts to users.
Partnering To Protect Critical Infrastructure
The nature of earthquake risk puts a premium on public–private partnerships. Neither businesses nor governments can completely address the risk alone.
Insurance coverage typically focuses on buildings, not infrastructure. A business can take proper steps to protect its facilities, but it can still be disrupted if there is damage to key infrastructure such as roads, bridges, airports or even power or phone lines. Add to that increasingly connected networks, and an impact to a supplier or third party could also disrupt business operations.
“A major quake in the central U.S. could likely affect every business in the country,” says Crenshaw.
The risk to critical infrastructure highlights the need to look beyond traditional channels to help mitigate exposures.
The Christchurch earthquake in February 2011 underscored the potential impact of a seismic event on infrastructure. “All of a sudden you can’t use systems critical to everyday life, such as turning on water to cook or bathe,” says Sam Ketley, senior executive director at Aon New Zealand.
The event further demonstrated the protection gap – economic losses versus what was covered by insurance. “The level of damage was unforeseen,” Ketley says. “The declared loss expectancy for Christchurch pre-event was about $40 million. The total loss was actually more than $1 billion for infrastructure.”
Since the 2011 quake, municipal councils in New Zealand have successfully worked alongside their insurance partners and third-party experts to understand the risks their cities face and discern what sort of protection is available from insurance markets.
“The subsequent aftershocks have given us vast amounts of data around the amount of damage caused to horizontal infrastructure that we’ve been able to apply to other parts of New Zealand to better protect our communities,” Ketley says.
On the other side of the ocean, Mexico, Chile, Colombia and Peru have been hit by 68 earthquakes at 6.8 magnitude or higher over the past 25 years. These countries, which align a major fault line, form the Pacific Alliance and have been working with the World Bank to arrange emergency financing in advance of a catastrophe.
The mechanism behind that financing involved the World Bank issuing the world’s second-largest earthquake catastrophe bond in 2018 to back nearly $1.4 billion in earthquake insurance for the four countries. Investors who purchased the bonds received a return commensurate with the risk. During the term of the bonds, the World Bank uses the funds to finance its sustainable development goals around the world.
Translating Seismic-Risk Awareness Into Better Preparation
It’s human nature to be more aware of a frequent risk. Yet with the potential scale of earthquake losses around the world, it’s essential to prepare whether earthquakes happen regularly or rarely.
Businesses, governments and other organizations can work together to use new technologies and financing techniques to help address earthquake risks, thus reducing losses and speeding recovery time when seismic events do occur.