Behind the ‘seismological Black Swan’

Sat in on Thursday’s Eqecat briefing regarding the Japan quake. Highlights:

First, Eqecat, as I tweeted earlier, has labeled this a “seismological black swan.” The particular plates that shifted were considered too old and too slow moving to generate anything bigger than 8.2. The graph below, cribbed from Eqecat’s presentation helps explain:

Big slip

Each dot in the chart represents a major quake zone, labeled. The position of each dot is determined by the age of the zone (x-axis, which notice counts from right to left) and the average slip rate per year (y-axis). The number represents the biggest earthquake thought possible from a given fault. The arrow points to the zone that slipped March 11.

So you can see NE Japan was thought to max out at an 8.2. In addition the probability of that happening in the next 30 years was thought to be 20%. And the biggest earthquake modeled anywhere in Japan was 8.75.

Part of the reason this one was so bad: Usually an earthquake shakes only one segment of a fault. This quake shook five. The slip zone – the faults that shifted against each other was enormous – about the size of Indiana. Now, Eqecat says, modelers will have to re-think what might happen in zones like this one, particularly zones along the Pacific Rim.

Or, as they dryly put it in their lecture: “Earthquake hazard cat models in megathrust regions need to account for the possibility of rare multisegment ruptures resulting in unprecedented high magnitudes – seismological Black Swans.”

You can also see that many Pac Rim zones (Alaska, Aleutians, Chile) were already considered candidates for 9.0 quakes. Still, in terms of catastrophes, the world just got a little scarier.

However, this doesn’t change the situation for California, where the maximum quake remains approximately 8.0. That’s because San Andreas and surrounding faults shift by rubbing side by side. The dangerous quakes – like the March 11 quake – occur where one fault slides beneath the other, which geologists call megathrust subduction boundaries.

The range of insured losses, $12B to $25B, breaks down this way:

Loss breakdown

Eqecat believes the tsunami drove losses much more than the quake, in no small part because Japan’s building codes are so good. They note this event differed from the 1995 Kobe quake, where much of the loss came from conflagrations spreading from building to building.

This time out, there were fires, but they didn’t spread.

Property estimates broke this way:

Property loss breakdownDwelling risks are covered by the Japan Earthquake Reinsurance Co., which should be able to handle this level of losses easily. Kyosais are the Japanese equivalent of mutual insurers. The relatively light losses – given the enormity of the event – is because Japan is relatively lightly insured for earthquake.

Eqecat’s estimate includes tsunami losses, but their cat models – like much of the industry – don’t consider tsunami risk, as National Underwriter wrote earlier this week.

It’s also critical to note that this estimate includes business interruption – about 20% of the total – but it doesn’t include indirect business interruption. And there’s a lot of disruptions, because of power shortages, areas evacuated because of the nuclear disaster, and severely damaged roads and rail.


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