catastrophes can pose in the Asia Pacific region.
Risk management firms have been quick to assess the event. A statement released yesterday by catastrophe modelling firm AIR Worldwide put the centre of the 8.6M earthquake at 269 miles southwest of Banda Aceh, the capital of Indonesia’s Aceh province, and 598 miles due west of Malaysia’s capital city Kuala Lumpur. According to the United States Geological Survey (USGS), the earthquake occurred at 2:30 PM local time (6.30pm AEST) and struck at a depth of 20.5 miles below sea level. This main shock was followed by a series of moderate aftershocks at first, with a considerable 8.2 aftershock then occurring 384 miles southwest of Banda Aceh two hours later. Immediately after the main shock, the NOAA Pacific Tsunami Warning Center issued an Indian Ocean-wide tsunami watch for 28 countries bordering the Indian Ocean. This warning was later cancelled after scientists determined that the quakes had predominantly horizontal displacement rather than vertical. This would generally mean there was not sufficient displacement of water to generate a tsunami.
“Southeast Asia is one of the most complex, and fastest deforming, seismic zones in the world,” said Dr. Bingming Shen-Tu, senior principal scientist at AIR Worldwide, adding that “seismicity in the region mostly results from the interactions of two major tectonic plates: the Indo-Australia plate and the Eurasian (Sunda) plate, which are converging at rates of 5 to 7 cm per year.” Indonesia’s Sumatra island lies particularly close to this active subduction zone, with the Indian-Australian plate pressing into and under the Eurasian plate.
The USGS reported that the main shock could be felt by people as far away as Singapore, Thailand, Sri Lanka, Malaysia, Bangladesh and India. There were reports of panic in several of these affected markets as scores of people evacuated their offices and residences to access higher ground. Thailand’s National Disaster Warning Center issued an evacuation order to residents in six provinces along the country’s west coast. There were also reports of widespread traffic jams, loss of electricity and temporary suspension of rail service reported in Indonesia. Particularly cautious were people from nearby Banda Aceh, the place where over 170,000 were killed by the 2004 tsunami. On December 26, 2004 a 9.1-magnitude earthquake hit the same region and triggered a devastating tsunami. In all, that catastrophe resulted in roughly 230,000 deaths and over US$10 billion in economic damages across southern Asia. Insured losses meanwhile accounted for about US$1 billion, according to the Insurance Information Institute.
Despite the large seismic ratings, yesterday’s event is unlikely to become a significant insurance loss as the regions which experienced the strongest shaking are largely developing markets where insurance penetration is low. Added to this is the fact that the earthquakes have passed without any reports of casualties or major damage in any affected market thus far. In general, this event was met with much greater public awareness and effective preparation than 2004. AIR Worldwide noted however that more should be done to build upon this catastrophe cover progress going forward. According to AIR, high-rise office buildings in the affected region often have an ‘irregular floor shape’. This shape, classified as ‘asymmetrical torsion rigidity’, together with poor construction practices, inadequate materials and lax regulatory enforcement issues, increase the damageability of office buildings and other commercial constructions in Southern Asia considerably if and when earthquakes, tsunamis and hurricanes strike. With that said however, AIR acknowledged that due to the location of the earthquakes there was not expected to be “significant insured losses from this event.”
The Indonesia earthquakes come on the back of a particularly active month for property and casualty insurers however. Released last week, AON Benfield’s latest Global Catastrophe Report notes that severe weather in the USA has already cost insurers some US$1.8 billion in claims through the first 3 months of 2012. Of particular note has been the uptick in tornado damage across the middle of the country. The US Storm Prediction Center has already cited at least 65 tornado touchdowns this year, several of which have gone on to cause extensive damage. According to AON, economic losses from tornadoes are now estimated to be US$2.0 billion, with insurance expected to account for some USD1.1 billion once the reported 170,000 claims are duly settled.
Outside of the USA, the most expensive catastrophe event last month happened in Mexico, when a 7.4 magnitude earthquake hit the middle of the Latin American country and caused insured losses of MXN2.07 billion (US$163 million) from property damages and casualties. Chile were also affected by a 7.1 magnitude seismic event in March, although total economic losses are expected to finish below US$100 million, according to AON. China’s Xianjiang region meanwhile accounted for the third most expensive earthquake, with a 5.8 magnitude event causing direct economic losses worth CNY523.5 million (US$82.7 million). Cyclone and flooding events in Australia accounted for much of the remainder of Asia’s catastrophe damage portfolio for March.
While both the number and severity of global catastrophic events should only rise further as we approach Atlantic Hurricane season in the summer, 2012 will likely still finish far behind 2011′s record-setting catastrophe losses. Because of this, insurers are looking to recoup some of last year’s losses by upping their global property insurance premiums now. A new report by Marsh found that insurance rates in the US have already risen by over 10 percent for both catastrophe-exposed and non-catastrophe risks during the first quarter of 2012. Prices are on the rise elsewhere too, most sharply in countries that have had recent natural disaster like New Zealand and Japan. In addition, Marsh noted that changes in the way insurance companies model their exposure to risk going forward will likely see rates rise further going forward. “The global commercial property insurance market is continuing to show signs of upwards rate trends, especially for catastrophe-exposed risks,” said Dean Klisura, Marsh’s U.S. risk practices leader. “We believe that this trend will continue in the short term, with the average rate of increase continuing to rise month over month.”