Editor’s Note: Close to home: 1906 revisited

April 18 marks the 100th anniversary of the great San Francisco earthquake of 1906, a catastrophe that affected thousands of lives, caused hundreds of millions of dollars in damage and generated aftershocks in insurance and engineering communities that continue to resonate today.

Since 1906, the world has made strides in understanding what causes earthquakes and in its ability to erect structures that have a better chance of withstanding them.

Nevertheless, if an earthquake of similar magnitude were to occur in a major metropolitan area today the losses would be staggering. AIR Worldwide Corp. is a leading risk modeling company based in Boston. Dr. Jayanta Guin, AIR’s vice president for research and modeling, provides startling estimates of what could be expected if the 1906 quake repeated in a major metropolitan space like New York, Boston, Washington, D.C. or Philadelphia:

AIR Worldwide estimates that a recurrence of the 1906 San Francisco earthquake would result in almost $80 billion of insured property losses, based on total property losses exceeding $300 billion.

If it were to strike during working hours, AIR Worldwide estimates approximately $7 billion in workers’ compensation losses. As many as 5,000 fatalities could occur and more than 50,000 injured.

An insured earthquake loss of $80 billion or greater has about a 0.2 percent annual probability of occurrence. While this may appear small, he says it should not be dismissed. It translates, for example, into a 6 percent probability over the next 30 years and a 10 percent probability over the next 50 years.

According to Guin, three primary factors contribute to the expected losses from a recurrence of the 1906 San Francisco earthquake and the significant gap between insured property losses and total property losses. These include more earthquake resistant building inventory, increased value of property at risk, and a decline in the amount of earthquake insurance being purchased.

Buildings built today are more resistant to the lateral loads imposed by ground shaking than they were in the early part of the century. However, building codes changes have been gradual since 1906. Many older buildings—particularly commercial structures—have undergone earthquake retrofit to bring them in line with current standards.

But, Guin cautions, there is another side to the story. Counterbalancing the increased resilience of the building stock is the increase in the number and value of properties. The total population affected by a recurrence of the quake has grown significantly, as the population in the San Francisco metropolitan area has grown to more than 1.7 million according to the 2000 Census. AIR Worldwide estimates the current value of residential and commercial properties within the damage footprint of the 1906 quake at more than $1.6 trillion.

Insured losses depend not only on the severity of the earthquake and the vulnerability of insured properties, but also on policy conditions (deductibles and limits) and take-up rates (the percentage of properties actually insured against the earthquake peril). Take-up rates increased after both the 1989 Loma Prieta earthquake and the Northridge earthquake of 1994—reaching about 35 percent by 1995—but have since declined. Today it is estimated that only about 13 percent of residential policies currently carry earthquake coverage.

Estimates like AIR provides remind us how close we are to 1906 and San Francisco, no matter when or where we live.