18 JOURNAL VOL. 34 NO. 05 NEW ZEALAND EARTHQUAKE – THE AFTER IT WAS ANNOUNCED IN AUGUST THAT THE EXPECTED COST OF CLAIMSS THE EARTHQUAKE COMMMISSIOS N (EQC) FEATURE FACESE FROM THE CANTERBURY EARTHQUAKES HAD RISEN FROM $3 BILLIONO TO $7.11 BILBI LION. INN ADDAD ITION, THE HIH GH COURT HAS RULED THAT THE EQC IS RESPONSIBLE FOR MULTIPLEL CLAIMS ONN ONE PROPPERTY RESULTINGN FROM THEH MULTIPLE EVENTS THAT HAVE OCCURRED. THE PRIME MINISTER HAS SUGGESTEDE THIS DECISION COULD ADD A FURTHER $1 BILLION OF CLAIMS COST TO THE EQC.C IN THIS ARTICLE, JOHN SMEEDD EXAMINES THE BACKGROROUND OF SEISMIC ACTIVITY IN NEWW ZEALAAND,NDD THE DEVDED ELOEL PMENT OFO THET EQC AND PROVIDES A BRIEF REVIEWW OFO THE CAC NTERBURYY EAREA THQUAKES.S HEE THHENE LOOKS AT THETH APPPROPR ACHES TO EARTHQUAKE COVER ADOPTEDD IN JAPAN AND CALIFORORNIA. Seismic Activity in New Zealand New Zealand is not unique in its anywhere in the world over the New Zealand experiences thousands exposure to earthquakes, and along 12 month period. Due to the low of earthquakes a year, most of which with a number of other countries, sits population density in the area are too small to feel. However, since in what is widely known as the “Ring there were only 5,219 claims 1990 there have been more than of Fire”. About eighty per cent of the at a cost of $6.1 million. world’s largest earthquakes occur seventy recorded earthquakes in A list of signifi cant New Zealand New Zealand measuring at least along the Ring of Fire. This zone is a direct result of plate tectonics, earthquakes (most recent fi rst) is John Smeed, Principal, 6.0 on the Richter scale. Geologists on page 20. A notable feature is Finity Consulting. have estimated, based on historical and the movements and collisions of these plates form the boundaries of the apparent clustering of these trends, that each year New Zealand earthquakes over fi ve-year periods can expect several earthquakes of the ring. New Zealand sits on top of the boundary of the Indo-Australian in the past century: 1929–1934 and magnitude 6.0, one magnitude 7.0 2007–2011. every ten years, and a magnitude and the Pacifi c plate. 8.0 earthquake every century. As a result of movement in the As we can see from the list, the plates, New Zealand has signifi cant recent Canterbury earthquakes are fault lines running through the not unique events. The key feature country. The largest central fault of the Canterbury earthquakes is that they occurred close to a major G OF FIRE line is known as the “Alpine Fault”, RIN forming the spine of the South city and, as a result, the impact and Mt. Garibaldi subsequent cost to both life and Aleutian trench Mt. St. Helens Island. The other main fault system Kurile trench runs through the North Island from property has been much greater Japan trench than for other large earthquakes Izu Ogasawara trench Wellington to the Bay of Plenty. Ryuku trench Puerto Rico trench in New Zealand. Philippine Mt. Pinatubo trench It is interesting to review the EQC’s Marianas trench Mt. Mayon Middle America The Earthquake Commission trench Annual Report for the year ended Challenger Deep Equator June 2010 – for a reminder of life As a result of the Canterbury Krakatoa Bougainville trench before the Canterbury quakes. It earthquakes, there has been Java (Sunda) trench reminds us that large earthquakes considerable focus on the Peru-Chile trench Tonga trench frequently hit un- or lowly-populated Earthquake Commission (EQC) Kermadec trench areas of New Zealand. In July 2009, over the past 12 months. a 7.8 magnitude earthquake struck South Sandwich trench Fiordland. This was one of the fi ve largest earthquakes recorded www.theinstitute.com.au 19 MATH The EQC was established in 1945 per dwelling, recently increased a compromise between the assessed EQC’s Financial Position originally as the “Earthquake and to 15 cents + GST for every $100 optimal program ($3 billion of A summary of the 2012 budget War Damage Commission”. A series insured, capped at $207 p.a.). cover with excess $1 billion), and (published June 2011) is presented of earthquakes including Murchison For properties that have home and affordability. Before the Darfi eld in Table 1 on page 20. This highlights (1929), Hawke’s Bay (1931), and contents insurance, EQC provides earthquake in September 2010, that the premium income is just two Wairarapa earthquakes (1942), cover of up to $100,000 for homes the fund was worth approximately suffi cient to cover the reinsurance demonstrated New Zealand’s (residential, fl ats and holiday homes), $6 billion. premium and “normal” claims vulnerability to earthquakes and $20,000 for personal belongings and associated with minor events. The reinforced the need for a government unlimited cover for land the homes The broad structure of the NDF is set out in the chart on page 20. budgeted reinsurance premium is a entity to enable access to affordable are on within specifi ed boundaries. one hundred per cent increase over insurance for homeowners. Since its These limits were set in statute in It has been announced recently the premium paid in 2009/10 and the creation, EQC has evolved to include that the latest estimated cost of budget for 2010/11. cover for other natural disasters 1993 and the dwelling limit was set to refl ect the replacement cost of a the February earthquake in (Landslide, Volcanic Eruption, Christchurch is likely to exhaust The Crown Underwriting Fee is the Tsunami, etc) and no longer “modal” or average home. The limits fee determined by the Minister of have not changed since 1993 and this fund and its reinsurance cover provides cover for war damage. and therefore the government Finance for provision by the Crown adjusting for infl ation since then of the Crown Guarantee. Section 16 The three key functions of the would more than double them. guarantee will be called upon. EQC are to: of the Earthquake Commission Act Natural Disaster Fund Research and education 1993 states: “If the assets of the ¤ provide natural peril Commission (including the money for EQC is required to administer the The EQC supports research into insurance cover the time being in the Fund) are not Natural Disaster Fund (NDF) and natural disasters, including Geonet ¤ administer the Natural Disaster suffi cient to meet the liabilities of the to protect its value. Established in which is a collaboration between Fund (investment and reinsurance) Commission, the Minister of Finance 1945, the fund collects premiums, EQC and GNS Science (a research shall, without further appropriation ¤ facilitate research and education earns investment income, and pays institute owned by the New Zealand than this section, provide to the for natural disasters. claims. The NDF investment policy Government). The purpose of the Commission out of public money such is agreed from time to time with the research and education is to reduce Natural Peril Insurance sums by way of grant or advance Minister responsible for the EQC the damage and disruption caused as may be necessary to meet the EQC cover is paid for by all holders of (the Minister of Finance) and the following a natural disaster, and to defi ciency upon such terms and private home or contents insurance. A EQC uses reinsurance for protection improve the levels of understanding conditions as the Minister of Finance proportion of premium is collected on against extreme events. The current of the EQC’s role. determines”. For the year ended 30 behalf of EQC by the private insurers reinsurance program (cover of $2.5 June 2010 this fee was $10 million, (fi ve cents + GST for every $100 billion with excess of $1.5 billion), is insured, capped at $67.50 per year, as it had been for a number of years. 20 JOURNAL VOL. 34 No. 05 Signifi cant New Zealand Earthquakes Size and Location Date Impact Over the period from 2003 to 2010, 22 February 2011 The city of Christchurch experienced a series of major earthquakes the EQC has paid total claims of 6.3 Canterbury – 13 June 2011 centred around the city; severe damage and casualties occurred. $247 million, with earthquakes averaging $10.2 million per annum This earthquake caused severe building damage in and storm/fl ood and landslips $25.1 7.1 Darfi eld (Canterbury) 4 September 2010 mid-Canterbury, and to the city of Christchurch. million – see Table 2 on page 21. Prior to the Christchurch series of This earthquake in Fiordland was New Zealand’s 7.8 Dusky Sound 15 July 2009 events, the previous largest event largest for nearly eighty years. was Gisborne in December 2007 with more than 6,200 claims. This offshore event caused buildings to collapse 6.8 Gisborne 20 December 2007 in the Gisborne CBD. Canterbury earthquakes Much has been written about Christchurch already. On whatever 6.5 Edgecumbe 2 March 1987 The shallow origin of this earthquake made it very destructive. scale you look at the Canterbury earthquakes, they are a very The 1968 Inangahua earthquake on the South Island’s West coast, signifi cant series of events. 7.1 Inangahua 24 May 1968 caused widespread damage and was felt over much of the country. Here is a brief summary of the events and key statistics. The shock that struck the Wairarapa Region on August 2 was nearly 7.0 Wairarapa II 2 August 1942 ¤ Since the 7.1 quake near Darfi eld as severe as the disastrous June 24 earthquake fi ve weeks earlier. on 4 September 2010, there have been a further 29 earthquakes of This earthquake severely rocked the lower North Island on June 24 7.2 Wairarapa I 24 June 1942 magnitude 5.0 or greater.