A 6.9 magnitude earthquake off the coast of North California is likely to have caused little economic damage or insured loss reports AIR, but it does raise the spectre of a more significant California earthquake.
California has been fortunate since Northridge to have avoided earthquakes of any particular magnitude, but it seems likely that a repeat of events in January 1994—a year after the setting up of Bermuda stalwarts RenaissanceRe, PartnerRe and Tempest Re, and which provided a stern test of their new capabilities—is only a matter of time.
For further details on the formative experiences of these companies, read Don Kramer’s thoughts here.
AIR says that the occurrence of magnitude 6.0 or greater earthquakes in the region occur approximately once every three years. The issue will be whether future earthquakes are more powerful and closer to population centres.
The earthquake on March 9th occurred 50 miles off the coast of Eureka in the Pacific Ocean at a depth of 10 miles. The event generated 15 aftershocks, the largest of which was at a magnitude of 4.6. Additional aftershocks are expected, AIR says.
According to AIR the earthquake occurred close to the Mendocino Triple Junction, where the North America, Pacific and Gorda plates join.
AIR says that the event is the largest to hit the region since 1992 when a magnitude 7.2 earthquake struck south of Eureka injuring nearly 100 people and causing significant damage.
An underinsured opportunity
Earthquake risk continues to be largely under-insured in California, despite it being widely recognised within the industry as a peak peril risk.
Recent data from RMS finds that insured coverage has halved since Northridge, down from around 30 percent of economic losses that resulted from that event, to around 15 percent of anticipated losses from a future earthquake today.
RMS says that population growth in California—much of it post-Northridge—and a short communal memory are hampering insurance penetration in the region.
Events such as the recent earthquake off the coast of Eureka may be an opportunity for re/insurers to reawaken consumer appetite for coverage. Without major losses however, it may prove a challenging task.
AIR, RMS, earthquake, RenaissanceRe, Northridge, Tempest Re, PartnerRe