The Next S.F. 'Big One' Predicted As A $30B Loss

If a big quake hits the fault line including San Francisco Bay it would cause $200 billion in damages, of which only $30 billion would be covered by insurance, a catastrophe modeling firm said today.

Newark, Calif.-based Risk Management Solutions said that finding came from a study analyzing the impact of a major earthquake on the Hayward Fault.

RMS noted that its study was being released in the same month as the anniversary of the 1868 Hayward Earthquake, which broke the southern section of the fault 140 years ago on Oct.21.

RMS said the study was conducted with research seismologists led by the U.S. Geological Survey.

It found that a magnitude 7.0 earthquake rupturing the entire length of the Hayward Fault would result in economic losses between $210 billion and $235 billion, with only up to $30 billion likely to be insured.

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 and $122 billion, of which $11 billion to $13 billion would be insured, said RMS.

The 1868 Hayward Earthquake ruptured a section of the fault from Fremont to just north of Oakland and caused extensive damage to small farming communities along the fault. Strong ground shaking and liquefaction also destroyed unreinforced masonry buildings in Oakland and San Francisco.

Patricia Grossi, senior research scientist at RMS, said, "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."

"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," said Ms. Grossi.

RMS said its 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," said Mary Lou Zoback, vice president for earthquake risk applications at RMS, "is beyond what has been experienced in recent California history, with less than 15 percent of the losses likely to be covered by insurance. This is in notable contrast to Hurricane Katrina, for which about 55 percent of the total economic loss was covered by insurance payments."

Ms. Zoback 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."

Copies of the RMS special report, "1868 Hayward Earthquake: 140-Year Retrospective," are available online at: HYPERLINK "http://www.rms.com/Publications/1868_Hayward_Earthquake_Retrospective.pdf" http://www.rms.com/Publications/1868_Hayward_Earthquake_Retrospective.pdf