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It is now exactly a quarter of a century, on January 17, 1994, since the last significant U.S. earthquake disaster. A previously unknown blind thrust ruptured beneath Northridge, in the San Fernando Valley north of Los Angeles. Casualties were fortunately modest (57 deaths) because the Mw6.7 shock happened at 4.30 a.m. local time, but the damage was significant – estimated as at least US$30 billion in 1994 prices, as the fault lay directly underneath the city.

Sooner or later California will experience another Mw6.7-7.5 earthquake disaster, in the highly populated San Francisco Bay Area or under sprawling greater Los Angeles. Year-on-year, while the probability rises, the proportion of the affected population with any previous disaster experience dwindles. When it happens, in all senses of the word – it will be a great shock.

One prediction is inevitable: after the next big Bay Area or LA earthquake, there will be large numbers of uninsured homeowners, landlords and small business owners looking for compensation. Given the high deductible and low take-up rates for earthquake insurance, as much as 90 percent of the residential losses will not be covered by insurance payouts: a far higher percentage than in 1994.

And the question is then, will the Federal Government response match that which followed Hurricane Maria, or can we expect it to be more like the aftermath of Hurricane Katrina. Or to put it another way: will California be “Puerto Rico” or “New Orleans”?

quake damage
Collapsed car park at California State University, Northridge, six months after the earthquake, Image: Wikimedia Commons

The federal response that followed Hurricane Katrina in 2005, became increasingly generous as it was recognized that the disaster owed much to the inadequate government funding of flood walls, and misleading mapping of the “100-year” flood zone. The National Flood Insurance Program payments amounted to US$17 billion while the total insurance bill was US$57 billion. Compensation arrangements for uninsured losses started within two months of Katrina and reached more than US$14 billion. Another US$14 billion was authorized to be spent on “The Wall” (to keep the invading sea from flooding New Orleans). FEMA received US$50 billion for disaster management. The total insurance, compensation and economic development package was close to US$170 billion.

In contrast, Puerto Rico was more or less abandoned after the direct hit from Cat 4 Hurricane Maria in 2017. The local agencies struggled to reinstate the collapsed electricity supply network, water supplies and road access, alongside the tens of thousands of damaged and destroyed houses. The island suffered by far the longest super-blackout in U.S. history, which through its impact on healthcare directly contributed to a death rate now estimated as close to 3,000.

There was US$3 billion in FEMA funding, but that was only six percent of the Hurricane Katrina total. In one town, it took four months for FEMA to have enough tarps to protect the damaged roofs. FEMA paid for hotels for some of the displaced but did not have sufficient funds to support recovery: after turning down 335,748 applications for assistance, only 7,500 were granted on appeal.

Retail complex in Guayama, Puerto Rico, after Hurricane Maria. Image source: RMS

The difference between the aftermath of 2005 Katrina and 2017 Maria reflects attitudes at the center. Both disasters happened on U.S. territory but with the response to one led by a president who felt scarred by the neglect that had preceded the disaster and another by a president who may have acted as if people should be punished for their willful (and indebted) ways.

Such attitudes will also influence what federal agencies pay out after the next big Californian earthquake.

For the next two years at least, in forecasting that a California disaster would be more like “Puerto Rico”, one might be influenced by the detachment of the current administration, the fact that this is a Democrat state and the attitude among the rest of the U.S.: that wealthy California should sort out its own problems. For those who think this will be more like New Orleans, there is the publicity the disaster will receive and the fact that this is not some far-flung, semi-colonial outpost but a core region of U.S. growth, under an international spotlight.

If California does become “Puerto Rico”, then the losses will bleed over into the local economy; the ability to sell houses, defaulted home loans – into blight in poorer areas, where properties remain unrepaired and where crime rises. Insurance policies that were not anticipating the hit will pick up losses, whether from professional lines, or liability class actions.

Yet even “Puerto Rico” has eventually become a little more like “New Orleans”. Eight months after Maria, the U.S. Department of Housing and Urban Development arrived on the island with US$18.5 billion of funding on top of US$1.5 billion already provided in February (still less than half what had been requested). Of that total: half was intended to support reconstruction and 40 percent for work to attempt to mitigate future hurricane impacts. It was as if the island first needed to be punished before eventually, after eight months of neglect and abandonment, it would be helped to recover.

Given the uncertainty, it would be worth Californian insurers, big employers, banks, and regulators planning for either outcome of federal funding: “New Orleans” or “Puerto Rico”. As in Puerto Rico, it may be the number of accompanying casualties that ultimately determines the level of response.

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Robert Muir-Wood
Robert Muir-Wood
Chief Research Officer, Moody's RMS

Robert Muir-Wood works to enhance approaches to natural catastrophe modeling, identify models for new areas of risk, and explore expanded applications for catastrophe modeling. Robert has more than 25 years of experience developing probabilistic catastrophe models. He was lead author for the 2007 IPCC Fourth Assessment Report and 2011 IPCC Special Report on Extremes, and is Chair of the OECD panel on the Financial Consequences of Large Scale Catastrophes.

He is the author of seven books, most recently: ‘The Cure for Catastrophe: How we can Stop Manufacturing Natural Disasters’. He has also written numerous research papers and articles in scientific and industry publications as well as frequent blogs. He holds a degree in natural sciences and a PhD both from Cambridge University and is a Visiting Professor at the Institute for Risk and Disaster Reduction at University College London.

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