Swiss Re Revisits the 1906 San Francisco Earthquake and Fire

Swiss Re has released “A shake in insurance history — The 1906 San Francisco Earthquake,” to mark the centennial of the catastrophe.

The reinsurer notes that it was “an event that altered the course of the insurance industry and has become a milestone in the annals of natural disasters. The report’s release also marks the date of two other significant earthquakes that occurred on January 17: the 1995 Kobe, Japan Earthquake and the 1994 Northridge, California Earthquake.

“‘A shake in insurance history’ offers a historical snapshot of San Francisco at the turn of the century, demonstrating how the 1906 earthquake and fire became one of the most formidable natural catastrophes in US history and the subsequent, industry-altering impact this event had on insurance,” said Swiss Re’s announcement. “The 1906 earthquake helped lay the foundation for modern insurance — it spurred an abundance of scientific and engineering research, led to many insurance precedents and challenged prevalent risk perceptions.”

“The 1906 San Francisco Earthquake and Fire remains a milestone in insurance history, having acted as a catalyst for many changes in the way this industry evaluated and mitigated natural catastrophe risk,” noted Dr. Mariagiovanna Guatteri, one of the publication’s co-authors and a catastrophe perils earthquake specialist at Swiss Re. “Modeling and mitigating risk is an ever-evolving process in which a multitude of factors need to be evaluated in order to find the most successful solutions. The centennial of this catastrophe showcases the need for — and Swiss Re’s ongoing commitment to — understanding risks and provisioning for the possibility of infrequent large events.”

Swiss Re also noted: “In the years following the event, many findings from seismology experts were utilized by the insurance industry for earthquake risk evaluation and claim estimation. This collaboration evolved into today’s sophisticated earthquake risk management tools used by insurers, reinsurers and other parties. This improved understanding of seismic loss potentials has enabled the insurance industry to enhance its preparedness for meeting the needs of its clients and society in the event of a catastrophe.

“The publication provides examples of other disasters as reference points as well as examples of the kinds of economic and physical impacts disasters have on the communities in which they occur. The 1994 Northridge Earthquake, for example, caused direct economic losses of $41.8 billion and approximately 4,000 buildings were destroyed or severely damaged. The 1995 Kobe Earthquake, which still ranks today as one of the costliest earthquakes of all time, resulted in economic losses of approximately $100 billion.”

The full report is available on the reinsurer’s Website at: www.swissre.com.

Ed. Note:Ed. Note: Swiss Re isn’t exaggerating the importance of the San Francisco Quake. It marked the beginning of the modern era for the insurance industry. In a recent bulletin on the 2005 catastrophes Munich Re noted that its “share of the loss was 11 million gold marks (about US$ 2.6 million at that time). Measured in terms of business volume, this loss event still represents the largest burden the company has ever had to bear from one single catastrophe. It cost almost 15 percent of its premium volume at that time. As a result of the immediate payments and the quick and unbureaucratic handling of reinsurance claims, the saying “Thieme [sic] is money”, with reference to the founder and head of the company, established itself among Munich Re’s clients.”

Lloyd’s Cuthbert Heath uttered his legendary order to “pay all claims,” following the quake. If Swiss Re, Munich Re and Lloyd’s have all prospered since 1906, it’s at least partially due to their professional demeanor and their sense of obligation to their clients that they demonstrated in handling the catastrophe. That they managed to do so in an era when the most rapid form of international communication was by telegraph is even more remarkable.

San Francisco rose from the ashes more beautiful than ever. One has to wonder in this Internet age what the future holds in store for New Orleans. Hopefully the same spirit of obligation, evinced by these three insurers, will triumph there as well, but it’s by no means certain.