A magnitude 7.8 earthquake struck New Zealand on Sunday, late at night local time, causing a tsunami warning and was followed by a number of major aftershocks. The earthquake struck around 95km from Christchurch but shaking has been widely experienced including in Wellington.
Two fatalities have been reported, but it is now early in the morning in New Zealand and the true extent of the damage from this earthquake remains unknown, with some areas being unreachable by road due to landslides.
Of course New Zealand suffered significant damage from the Canterbury earthquakes in 2010 and 2011, which the insurance and reinsurance industry estimated to have cost $19 billion at least in paid claims. That quake also demonstrated the longer-tail of earthquake risk, with claims still to be settled and so that loss set to rise.
This magnitude 7.8 earthquake was larger than the 2011 incident, striking at a depth of 23km and with strong shaking felt over a wide area.
A tsunami warning went into effect shortly after the earthquake and reports state that a tidal gauge at Kaikoura 181km north of Christchurch measured a wave as high as 2.5m. There are currently no reports of coastal damage, but it remains early in New Zealand’s morning. The tsunami warnings were subsequently lifted for the rest of the coast.
The USGS’ PAGER (Prompt Assessment of Global Earthquakes for Response) tool estimates that a 34% chance of an economic loss in the range of $100m to $1 billion, and a 32% chance of a loss from $1 billion to $10 billion.
Local news outlets report two fatalities and structural damage to some buildings in the area around the earthquake epicenter, to infrastructure such as bridges, and as far away as Wellington, with reports also suggesting some evidence of liquefaction which can make structural damage harder to see immediately.
For the insurance and reinsurance industry, after the experience of the Canterbury quakes, there is bound to be some nervousness about the potential for industry losses from this latest M7.8 quake event.
Residential insurance claims in New Zealand will likely largely fall to the Earthquake Commission (EQC), the government-backed insurer of homeowner earthquake risk in the country. The EQC pays for NZ$100,000 worth of residential property damage and NZ$20,000 worth of contents, after which private insurance protection typically kicks in.
The EQC has a large reinsurance program, amounting to around NZ$4.7 billion of reinsurance protection sourced from global reinsurers. The EQC said that it has received more than 600 claims from the quake as of Monday.
Analysts have said Monday morning that the impact to reinsurers and Lloyd’s insurers is not anticipated to be significant, although it’s important to note that it is still very early to make any assessment of the damage and large aftershocks continue to strike the region.
It seems likely that the Earthquake Commission (EQC) would be the most likely source of reinsurance losses, considering its reinsurance program will kick in relatively early to help pay for losses. The EQC’s cash reserves have been depleted by the 2011 earthquakes meaning that the reinsurance layer could be required for this event. Other primary insurers may retain most of this loss, although some reinsurance support could be called on.
A QBE spokesperson told Reuters, “We have a reinsurance programme in place and expect this event to fall within our net large risk and catastrophe allowances.”
At this time it is too early for any true picture of the extent of any damage to be available, but the early reports certainly suggest that the insurance industry will be on the hook for more claims, at a time when it is still settling claims from five years ago. Whether the reinsurance sector could face any losses from this latest New Zealand earthquake is unclear at this time.
Risk modelling firm AIR Worldwide provided the following update:
New Zealand’s South Island Rocked by M7.8 Quake
BOSTON, Nov. 13, 2016 – According to catastrophe modeling firm AIR Worldwide, a powerful magnitude earthquake struck a relatively sparsely populated area of New Zealand’s South Island just after midnight, local time, about 93 km north northeast of Christchurch, a city still recovering from a pair of earthquakes in late 2010 and early 2011. New Zealand’s GeoNet has estimated the magnitude at 7.5. The US Geological Survey (USGS) initially estimated the magnitude at 7.4 but later revised it to 7.8.
Shaking was felt as far away as the nation’s capital, Wellington, at the southern end of the North Island and 215 km (133 mi) from the epicenter. Photos in Wellington show broken shopfront windows and residents gathered on the streets after fleeing their homes.
Communications with towns closer to the epicenter have been difficult, but aerial images show a tunnel along the coastal highway to Kaikoura covered by a landslide. Other photos show large cracks in roads, goods knocked off shelfs, and broken glass. Images show some structural damage and considerable damage to contents.
Schools and businesses throughout the country are closed Monday so that buildings can be assessed for safety.
According to AIR, seismic design codes in New Zealand have set stringent requirements for new buildings, and many cities have initiated a comprehensive policy to identify vulnerable pre-1976 buildings with the goal of retrofitting them. Non-engineered buildings such as unreinforced masonry structures are the most vulnerable types in this region.
New Zealand’s Earthquake Commission (EQC) covers the first $100,000 of damage to residential properties and land, and up to $20,000 for damaged contents. Private insurers cover damage beyond that level. Commercial property damage is not covered by the EQC; however, because the earthquake occurred in a sparsely populated area of New Zealand, the total insured value of commercial and industrial exposure is estimated to be relatively low.
Although today’s event had a strike-slip component, it was a primarily a thrust earthquake, suggesting that it might be a subduction-type earthquake, although the dip angle of 38 degrees is larger than the typical subduction zone event.
According to AIR, this earthquake happened in a seismically complex area where the Hikurangi subduction zone is transitioned into Alpine crustal fault through the Marlborough fault system.