Moderate New Madrid earthquake could be massive insured loss

by Artemis on December 8, 2011

The New Madrid Seismic Zone is one of the most active areas of seismicity in the U.S.. Rates of seismicity today suggest a 28-46% chance of a M6.0 or greater earthquake in the New Madrid region at some point over the next 50 years. A newly published report from risk modeller RMS shows that even a moderate quake of M6.1-M6.5 occuring near to an urban area could generate insured losses of as much as $50 billion.

If a quake hit in the optimal location for damage in this region of the U.S. economic losses could range from $10 to $100 billion and insured losses from $5 to $50 billion. The range depends on degree of ground shaking decay as you move further from the epicentre which RMS says is a key area of uncertainty. The geology of the region makes this hard to predict.

RMS forecast that insurance payments could cover as much as 60%-80% of the economic losses from a New Madrid earthquake, higher than the 45%-55% seen after hurricanes Katrina and Andrew and much higher than the expected figure for a large California quake where it could be as low as 10%-15%. The reason for this will be the levels of insurance penetration and types of residential and industrial operations in the region.

RMS says that  economic losses could be as high as $150 billion for a 1-in-500 year return period type event and losses would be worst from a quake striking the Memphis region.

It’s easy to see why the New Madrid region has become an area where catastrophe bond coverage has been put in place by a number of insurers. This report suggests that the potential exposure in the New Madrid region may be higher than previously understood, although much uncertainty exists, so we could see more re/insurers looking to expand or increase their protection from New Madrid quakes.

Download the full report from RMS: Risk Implications of Alternative Views of New Madrid Seismic Hazard.

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