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25 Years After Loma Prieta, San Francisco Bay Area Faces Increased Earthquake Risk; Next “Big One” Could Cause $200 Billion in Losses
NEWARK, Calif. -
October 13, 2014 -
According to RMS, the world’s leading catastrophe risk
management firm, earthquake risk in the San Francisco Bay Area is on the rise
while earthquake insurance penetration statewide has dropped significantly
since the Loma Prieta earthquake that rocked the Bay Area 25 years ago, causing
nearly $6 billion in economic losses. As a result, the next “big one” has
potential to be financially devastating to the Bay Area economy, according to
magnitude 7.9 earthquake on the San Andreas Fault could strike an urban center
with 32 times the destructive force of Loma Prieta, potentially causing
commercial and residential property losses over $200 billion. Residential earthquake
insurance penetration in California, which would be vital to facilitate
rebuilding after an earthquake, has dropped by more than half since Loma Prieta,
with only 10 percent of households currently covered. Without insurance,
homeowners may walk away from their homes after an earthquake if the residual
value of their property is less than the outstanding value of their mortgage.
Even those with insurance are likely to struggle to meet high deductibles,
potentially leading to significant blight and disrepair in badly damaged
“The Bay Area has made significant progress in terms
of infrastructure preparedness and retrofitting, but without significant
earthquake insurance penetration to facilitate rebuilding, the recovery from a
major earthquake will be considerably harder,” said Dr. Patricia Grossi,
earthquake expert and senior director of model product management, RMS. “Now is
the time for Bay Area residents to come together to develop innovative
approaches and ensure resilience in the face of the next major earthquake.”
The magnitude 6.9 Loma
Prieta earthquake on October 17, 1989 caused 63 deaths, injured 3,757 people,
destroyed more than 11,000 homes leaving 12,000 individuals displaced and
caused $6 billion in property damage.
It was an unusual
event; while the earthquake was centered almost 50 miles from San Francisco, liquefaction
of reclaimed land in parts of San Francisco and Oakland elevated the impact and
proved a significant factor in the overall $6 billion in loss. Liquefaction from
earthquakes still poses a significant threat to buildings situated around the
San Francisco Bay.
There is a 63
percent chance that a magnitude 6.7 or larger earthquake will hit the Bay Area
over the next 30 years, according to the United States Geological Survey. The
next major earthquake could strike much closer to urban centers than Loma
Prieta, with more destructive force.
According to RMS
modeling, the most likely location of the next big earthquake to impact the San
Francisco Bay area is on the Hayward fault, which could reach a magnitude of
7.0. The area is also at risk of an earthquake on one of the many other
faults in the area. For example, an earthquake on the San Andreas fault could
reach magnitude 7.9 could cause commercial and residential property losses surpassing
$200 billion. A cluster of smaller earthquakes could also impact the area,
which, sustained over months, could have serious implications for the local
While the Bay Area
has become more resilient to damage from shaking, liquefaction still presents a
very major risk, in particular in low-lying parts of San Francisco and Oakland.
The risk for loss of
life, property and prosperity are higher than ever in the San Francisco Bay
Area. Since 1989, the population of the region has grown 25 percent, the value
of residential property has sky rocketed 50 percent, reaching $1.2 trillion,
and commercial activity has significantly expanded. The Bay Area is now the
most productive economy in the U.S. with a gross domestic product of $535
billion, ranking 19th in the world compared to national economies.
insurance penetration remains low, a magnitude 7.0 earthquake rupturing on the
Hayward fault could produce $25 billion in insured loss across residential and
commercial lines of business. Commercial earthquake policies provide cover for
damage to buildings, contents and business interruption. Substantial claims
could also arise under other lines of coverages, however, such as fire, workers
compensation and even general liability.
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