When looking at photos of a destroyed San Francisco in 1906, the question inevitably arises as to whether the insurance industry is financially capable of surviving a similar earthquake in today's Bay Area.

A quake equal to 1906's 7.9-to-8.3 magnitude striking the San Francisco Bay Area today could cause over $200 billion in losses–with as much as $60 billion of that insured, according to a report by Swiss Re.

An even higher assessment was delivered by AIR Worldwide Corp., a risk modeling firm based in Boston, which said a recurrence of the 1906 San Francisco earthquake would result in almost $80 billion of insured property losses, based on total property losses exceeding $300 billion.

“If the recurrence were to happen during working hours, AIR estimates approximately $7 billion in workers' compensation losses,” added the firm, estimating as many as 5,000 fatalities and more than 50,000 injured.

“San Francisco is one of the most vulnerable parts of the country,” said Loretta Worters, vice president of communications at the Insurance Information Institute in New York. She noted that much of the city's building stock is older and built on landfill.

Although much has been done since 1906 to help mitigate the threat of an earthquake, the city still has a “pretty fragile infrastructure” and concentrated areas of business, she said.

The state of California ranks as approximately the fourth-largest economy in the world, while the San Francisco Bay area's “Silicon Valley” would by itself stand in the top 20, noted Andre Castaldi, a senior vice president heading up the catastrophe perils team at Swiss Re America and one of the authors of a report on the quake.

Representatives at Fireman's Fund and Lloyd's of London, as well as Mr. Castaldi at Swiss Re, expressed confidence that their organizations have adequately modeled their potential exposure to a severe earthquake in San Francisco and that they would be able to pay all legitimate claims.

“It would be irresponsible if we didn't,” said Chris Heidrich, vice president of marketing for personal insurance at Fireman's Fund, based in Novato, a suburb of San Francisco.

Thor Valdmanis, vice president of communications for Lloyd's in New York, said his market runs “realistic disaster scenarios.” Although he would not disclose the exact exposure Lloyd's faces, its participating syndicates would pay their claims just as they did after the 1906 earthquake. “We're in the insurance business. It's what we do,” he said.

Perhaps the larger concern, however, is not the industry's ability to pay claims, but the people who would be making them.

The take-up rate for earthquake coverage in California stands at approximately 13 percent of residential consumers, according to Ms. Worters–down from 30 percent in 1996, two years after the Northridge Earthquake, which caused over $17 billion in damages in 2005 dollars. The trend, she noted, is not surprising as consumers start to feel they no longer need coverage the further into the past a major event moves.

“People buy coverage a year or two after a major event,” she said, and then simply drop it as their sense of risk fades.

Price might be another factor, as well as the coverage offered, industry observers say.

Whatever the reason, most Californians know they are not ready for another quake. A poll sponsored by Fireman's Fund and the Insurance Information Network of California conducted in February showed only 22 percent of residents in the state believe they are “prepared” or “well prepared” for a catastrophe. In the Bay Area, the poll showed only 44 percent saying they are prepared or well prepared for an earthquake.

Some within the insurance industry are pushing for a more national system of disaster preparation. ProtectingAmerica.org–an advocacy group originally formed by Allstate to promote the formation of state catastrophe funds backed by a federal pool–is taking part in events marking the quake's centennial as a means of reminding Americans about natural disaster risks.

“The commemoration of the San Francisco earthquake is an opportunity when all of America's eyes will be focused on San Francisco,” with all its insurance implications, said Peter McDonough, a representative for the group.

Although San Francisco is known for its vulnerability to earthquakes, Mr. McDonough said his group also wants to spread the word about other dangers, such as the New Madrid fault line running from the Missouri-Illinois border down into Arkansas.

A quake roughly equal to the 1906 San Francisco event hit along that fault line in December 1811–and over a much larger area–but is far less well known because the region was not as well populated. That earthquake changed the flow of the Mississippi River, he said, and another like it striking today could cause severe damage to cities such as St. Louis and Little Rock.

“This is an opportunity for us to say that this doesn't just happen on the West Coast–it happens in the heartland,” he said.

Swiss Re's Mr. Castaldi advised a more cautious approach for any national catastrophe insurance system, however, noting that the financial losses from an earthquake must be felt somewhere, and that any system must be actuarially sound.

“Somebody's going to pay,” he said. “It's not free, whether it's the taxpayer or the policyholder who's paying through premiums.”

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