Lloyd’s Warns on Europe Quake Risks

The early morning earthquake that struck Market Rasen in Lincolnshire recently was literally a wake-up call for many people. (See IJ web site – https://www.insurancejournal.com/news/international/2008/02/28/87725.htm). With likely insured losses of between £15 million and £30 million, the magnitude 5.2 ‘quake was small compared to the giant tremblers that have devastated communities in California, Japan, China and Afghanistan in recent history.

“But the quake,” according to an article on the Lloyd’s web site (www.lloyd’s.com), “which was felt across central UK, served as a reminder that Europe, its population and insurers, are not immune to seismic hazard risk.”

Dr. Andrew Sorby, model manager at Risk Management Solutions noted: “In some European countries like the UK, earthquake risk is very low, but because most residential properties are not built to withstand strong ground-shaking, even relatively small earthquakes can cause notable damage.”

Earthquake faults within the so-called stable continental interior of Europe rupture infrequently, with return periods of a few thousand to several thousand years. Modern earthquakes in the vulnerable Rhine Rift valley have not exceeded magnitude 6.0, but experts believe that its border faults could produce a magnitude 6.5 ‘quake with violent ground rupture.

In fact, “the last time that happened was in 1356 when the Swiss city of Basel was destroyed,” said Lloyd’s. “A returning Rhine Rift valley quake would be disproportionately costly in terms of loss of life and property as Swiss property is not built to withstand shaking. RMS estimates that a repeat of the 1356 Basel earthquake would produce total property losses in excess of €50 billion ($80 billion) in Switzerland and Germany.”

The Swiss Insurance Association is currently working on introducing an earthquake insurance pool and legislation is expected soon. In the meantime, Lloyd’s notes, its “syndicates and Swiss brokers continue to provide some of the region’s few private market solutions.”

Strong earthquakes are more common in southern Europe than in North Western Europe and fault lines criss-cross Italy, Greece and Turkey.

This year is the 100th anniversary of the most powerful earthquake ever to hit Europe. On 28 December a magnitude 7.5 earthquake occurred in the Messina Strait, which separates Sicily from the Italian region of Calabria. The effects, combined with a large tsunami triggered by the earthquake, were catastrophic. The ancient city of Messina was destroyed and, although estimates of fatalities vary, as many as 200,000 people may have been killed.

RMS estimates that a repeat of the Messina earthquake would produce total property losses (including business interruption) in excess of €45 billion ($72 billion). RMS released its Italy Earthquake Model in 1996, followed by models for Portugal, Greece and Turkey. In 2007, RMS released earthquake models for Austria, Belgium, Germany and Switzerland.

Professor Bill McGuire, director of the Benfield Hazard Research Centre, was awoken at his home in the Peak District by the “impressive shaking” of the UK’s recent quake. He indicated, however, that attention should be focussed on Greece and Turkey. “Greece has a history of very big earthquakes and will continue to be one of the most active seismic areas on the planet,” he told Lloyds. “Greece will continue to have earthquakes.”

McGuire warned that the most likely place to be hit by an earthquake in Europe is Istanbul, probably in the next 20-30 years. “The North Anatolian Fault lies just south of the city and it is unzipping along a 100km [60 mile] stretch,” he explained. “It is a catastrophe waiting to happen. Everyone knows it is and that is why the Turkish Catastrophe Insurance Pool (TCIP) is such an important initiative.” The TCIP includes mandatory earthquake insurance for residential properties.

Lloyd’s notes that it “employs a range of Realistic Disaster Scenarios (RDS) as part of its catastrophe exposure management. The RDS act as loss modeling tools and provide estimates of syndicates’ exposures to different events.” Paul Nunn, head of exposure management at Lloyd’s, however, noted: “There’s no RDS for a European earthquake event because none could generate losses significant enough to test the Lloyd’s market.”

Source: Lloyd’s