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RMS
Study Estimates over $200 Billion of Economic Losses from a Major
Earthquake on California's Hayward Fault
Only
$30 Billion of Total Losses Likely to be Insured Newark, CA –
October 30, 2008 – Risk Management
Solutions (RMS), the world’s leading catastrophe risk expert, has
announced the results of a study analyzing the impact of a major
earthquake on the Hayward Fault. The study marks the anniversary of the
1868 Hayward Earthquake – which ruptured the southern section of the
fault 140 years ago this month – and was conducted in collaboration with
research seismologists led by the U.S. Geological Survey. Results
revealed that 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-$122 billion, of which $11-13 billion would be insured. The study
also revealed that a magnitude 7.0 earthquake rupturing the entire
length of the Hayward Fault would result in economic losses between
$210-$235 billion, with only up to $30 billion likely to be insured.
The Hayward Earthquake occurred on October 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 seven 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, senior research scientist at
RMS.
"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 following a major earthquake on the Hayward Fault. They also account for the effects of
"loss 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.
“The
impact of a major earthquake on the Hayward Fault is beyond what has
been experienced in recent California history, with less than 15% of the
losses likely to be covered by insurance,” stated Dr. Mary Lou Zoback, vice
president for earthquake risk applications at RMS. “This is in notable
contrast to Hurricane Katrina, for which about 55% of the total economic
loss 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 twenty 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."
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