Catastrophe Risk Models Show January 12 Haiti Quake Presages Future Caribbean Earthquakes

This time the insurance industry responded with charity, but the next Caribbean earthquake could require a massive claims response, given the region’s seismic hazard.

The M7.0 earthquake that struck Haiti on Jan. 12, 2010 is less of an insurance event for some of the same reasons it is more of a human catastrophe. The poverty of the Caribbean nation limits both the amount of property insured and influences the prevailing standard of construction, to say nothing of the scarcity of resources needed for responding to a mass emergency.

The Insurance Information Institute (iii) reports that total annual P&C premium in Haiti is about $20 million, about half of which is for auto insurance. A recent iii statement compares the Haiti quake to the May 2008 earthquake that hit Sichuan Province in Southwest China. The seismic event killed 88,449 people and caused over $125 billion in economic damage, only $366 million of which were insured losses, according to Swiss Re figures cited by the iii.

While insurers have little responsibility in terms of conventional catastrophe response to policyholder losses, several have nonetheless responded in a humanitarian spirit. For example ACE Group (Zurich, Switzerland) has said it will donate $250,000 to the American Red Cross Haiti Relief and Development Fund and will also match ACE employee donations dollar-for-dollar. Warren, N.J.-based Chubb will contribute $125,000 to Doctors Without Borders and $125,000 for relief efforts related to the earthquake, and will also match employee donations on a two-for-one basis up to $250,000 dollars, and one-for-one thereafter. Aetna (Hartford) expanded its employee assistance programs to members, employees and their families affected by the earthquake. The carrier has offered medical evacuation and other assistance, said it would expedite life insurance claims, and also initiated a dollar-for-dollar match for employee donations.

Northwestern Mutual (Milwaukee, Wisc.) leveraged Web 2.0 capabilities by facilitating donations to the American Red Cross from its financial representatives, employees and policy holders through its Twitter page and Facebook fan page. The company has also pledged a $100,000 donation to the American Red Cross.

Given Haiti’s perennial status as the poorest country in the Western Hemisphere and its exposure to tropical storms, the Jan. 12 quake seems especially gratuitous, and to many observers, particularly shocking — but not to seismologists. The Caribbean is, in fact, a relatively active place geologically, particularly along the arc of the Antilles, which delineate the shape of the Caribbean tectonic plate, according to Don Blakeman, a seismologist with the U.S. Geological Survey (USGS).

“The reason that people are surprised is that these events don’t happen very frequently,” Blakeman comments. “There have been devastating earthquakes in the past and we’re pretty sure they’ll happen in the future.”

A reminder of that eventuality came with a 5.8 tremor that struck Grand Cayman, nearly 600 miles west of Haiti, on Jan. 19. The event was likely related to the Haiti quake and while it resulted in negligible damage, it demonstrates the potential for greater insurance losses, should more prosperous Caribbean locations be hit, Blakeman says.

Nearby locations with greater insurance exposure and tectonic features similar to Haiti include the Dominican Republic and Jamaica, according to Don Windeler, director of model management, Risk Management Solutions (Newark, Calif.), who notes that major earthquakes struck the Jamaican capital Kingston in 1692 and 1907. “The northern half of Hispaniola is dominated by the Septentrional fault system, an active fault with the potential to generate events in excess of M7.2. 'The Dominican city of Santiago is particularly exposed to this fault system,” he says. “Just to the south, the Enriquillo-Plantain Garden fault system — the source of the 2010 Haiti earthquake and multiple others over the past 400 years — continues to the west where it eventually intersects Jamaica in the capital city of Kingston.”

As infrequent as major such events may be, the Haiti earthquake fits in, more or less with risk modelers’ appraisal of seismic risk, according to Windeler. “It occurred on a previously identified fault system that had generated major events in the past, creating a "hot spot" on hazard maps of the area.”

The insurance industry continues to improve its picture of seismic risk with help from the USGS, and other organizations, according to Paul Earle, a USGS seismologist. Earle reports that the international Global Seismic Hazard Assessment Program (GSHAP), launched in 1992, is currently being updated to include the dimension of risk. Another program that has generated interest in the insurance industry is the USGS’ PAGER (Prompt Assessment of Global Earthquakes for Response), which provides estimates of the number of people and names of cities exposed to severe shaing following significant quakes worldwide. “USGS is taking that effort into rapid predictions of loss of life and potential monetary loss, but that’s still in the research phase,” says Earle.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio