Earthquakes Expect a Big One

Alexander Allmann Munich Re expert on earthquakes

6 Munich Re Expect the unexpected Earthquakes

Earthquakes in Australia is not known as an Our models show that regions of ele- ­earthquake hotspot – but neither vated seismicity are in close proxim- Australia are infrequent was Christchurch in New Zealand. ity to most of the major conurbations and mostly moderate in As it turned out, in Christchurch in (Perth, Adelaide, Melbourne and 2010/2011 an unexpected series of Sydney). For each individual area, the size. At first glance, this severe earthquakes with a magni- seismicity is too low for a robust appears to be a much tude of up to 7.1 surprised even the ­statistical analysis of the probability experts and destroyed large parts of a severe event right underneath a more comfortable of the city – it was one of the most city or the maximum size of such an situation than in New expensive insured natural catas­ event. What we do know is that each trophes in history. Since Australia is of the cities has the potential to be Zealand, Japan or the not located at the margins of tectonic hit by earthquakes bigger than a United States. However, plates, where 90% of the world’s magnitude of 6. Earthquakes like seismicity occurs, many Australians those in Christchurch should not on closer examination are not aware that this is a peril we come as a surprise and are very real- the picture looks need to worry about – but maybe we istic scenarios. should. different: earthquakes Many buildings will not survive in Australia could cause The Australian continent experiences strong ground motions small earthquakes all the time insured losses in the because the Indo-Australian tectonic A few small to moderate earthquake same order of plate is being pushed north and thus events have provided data that have collides with other plates. This leads helped us to constrain our modelling magnitude as in the to a build-up of mainly compressive of the potential ground motions that highest-exposed stresses that are released in shallow can be expected in Australia. Overall, earthquakes. Although earthquakes the data set is still very limited and regions worldwide. can occur anywhere in Australia, this there are barely any data for bigger seismicity is spatially heterogeneous; events. The uncertainty associated some regions have significantly with these ground motion estimates increased seismic activity. Statistical is high. Fortunately, the soil conditions analyses on recorded earthquakes in cities like Sydney are much better show that events with a magnitude than in Christchurch. Although ground similar to or higher than that in New- motion amplification is expected in castle in 1989 (magnitude 5.6) can some regions that have soft soils, no be expected every two years, with a widespread liquefaction is expected. magnitude of 6.0 or more every five years on average. Fortunately, most Given the moderate earthquake haz- of them happen in unpopulated or ard in Australia, buildings are not sparsely populated regions. constructed to resist very strong ground motions. The moderate New- castle event in 1989 provided a good #Earthquakes in Aus- illustration of the very poor behaviour tralia? It could happen of structures such as unreinforced close to every major city: masonry buildings. Should a severe low probability, high earthquake occur underneath one of consequences #seismic the major cities, the ground motions activity, #lessons will significantly exceed the design learned, #Christchurch ground motion in the building codes. This will inevitably lead to very high loss levels close to the earthquake epicentre. In Christchurch, the design ground motion was exceeded by more than a factor of three. The Central Business District (CBD) had to be cordoned off for years, and many buildings suffered a total loss.

Munich Re Expect the unexpected 7 Earthquakes

Exposures will be factors higher The experience from Christchurch than in Christchurch demonstrates that claims handling Historic earthquakes and reconstruction would be a com- in Australia What if the unexpected were to hap- plex and long-lasting process. Such pen? It will happen. We know an unexpected complexities arise after earthquake will hit one of the cities. nearly every major natural catas­ The only questions that remain are: trophe event worldwide. Many when and how severe? So far, we of the challenges following the 5.4 have not experienced a major earth- Christchurch events were associated Magnitude quake catastrophe in Australia. This with the structure of the market – the 2012 is consistent with our expectation of Earthquake Commission (EQC) in Victoria – Moe a low to moderate seismicity. For particular. In addition, legal aspects return periods of several hundred slowed down claims handling. years, this is different. Loss esti- 5.3 mates are very high, with consider­ Prepared for a Big One with Magnitude able uncertainties. They increase Munich Re 2011 sharply for higher return periods. Queensland – Bowen This makes risk management diffi- Australia’s largest earthquake, with a cult for the insurance industry. magnitude of 7.2, occurred in 1941 in Western Australia – far away from 5.6 In Japan, insurance cover is strictly any of the bigger cities. The earth- Magnitude limited and extreme events are quakes in Christchurch have shown us 1989 expected, so that potential losses that even moderate earthquakes can New South Wales – are not likely to be significantly under- cause huge losses for the insurance Newcastle estimated. In Australia, a really industry. Such an earthquake – but unpleasant wake-up call from an with significantly higher losses – is a extreme event is much more likely. very realistic scenario for Australia. 6.3–6.7 Magnitude This is because earthquake insur- 1988 ance penetration in Australia is gen- The vulnerable, highly concentrated Northern Territory – erally very high (above 80%), and building stock has the potential for Tennant Creek risks are covered on a full-value basis extreme losses. A repetition of the with very small deductibles. Most of 1954 Adelaide earthquake (magni- the exposure in Australia is concen- tude 5.7) would result today in 6.2 trated in the big cities. The value multi-billion insured losses. A bigger Magnitude concentration is enormous. If an event closer to Adelaide could cause 1979 earthquake strikes one of the cities, a loss costing tens of billions. Western Australia – the exposure affected by high ground Cadoux motions will be factors higher than in [email protected] Christchurch – and the major part of https://de.linkedin.com/in/ any earthquake loss will be borne by alexanderallmann 6.9 Magnitude the insurance industry. 1968 Western Australia – Challenges for claims handling Meckering

While the local insurance industry has experience with hand­ling mass claims due to cyclones, hailstorms 5.4 Magnitude and floods, the earthquake engineer- 1954 ing community is not very strong. So South Australia – the handling of earthquake losses Adelaide would also be a great challenge for insurers – despite the steep learning curve insurers experienced while 7.2 dealing with the Christchurch earth- Magnitude quakes. 1941 Western Australia – Meeberrie

8 Munich Re Expect the unexpected Earthquakes

Maps of earthquake epicentres in Australia and New Zealand

Earthquake epicentres since 1840

Australia Source: Munich Re

Magnitude 5.0 5.1 – 6.0 6.1 – 7.0 > 7.0

Brisbane

Perth

Adelaide Sydney Melbourne

Earthquake epicentres since 1840

New Zealand Source: Munich Re

Magnitude 5.0 5.1 – 6.0 6.1 – 7.0 Auckland > 7.0

Wellington

Munich Re Expect the unexpected 9