Chile Earthquake

Update 1 | Summary
Posting Date: February 27, 2010, 6:30:00 PM

AIR Worldwide estimates that insured losses from the Mw8.8 earthquake that struck central Chile early this morning will be between CLP 1,050 billion (2 billion USD) and CLP 4,200 billion (8 billion USD). Total losses to insurable properties (the total number of properties that are eligible for insurance) are estimated to be between CLP 4,200 billion (8 billion USD) and CLP 14,700 billion (28 billion USD). A picture is slowly beginning to emerge of the scale of destruction wreaked by today's Mw8.8 earthquake in Chile. The death toll from today's event already exceeds 210, and this number is likely to rise significantly. Fortunately the epicenter was located in a region with relatively low population density—unlike the recent Haiti earthquake, which struck close to Port-au-Prince, a city of more than 3 million people. Furthermore, Chile's long history of damaging quakes has resulted in strict building codes, making the building stock considerably less vulnerable than Haiti's. Nevertheless, the loss will likely be severe from not only the damage to buildings, but from the widespread impact on infrastructure, including roads, bridges, airports, and utilities and telecommunications networks. As a result, total economic losses from the temblor will likely be two to three times higher than insurable losses. Based on AIR's latest industry exposure database, the area from Concepción to Santiago impacted by the quake contains about CLP 144,375 billion (USD 275 billion) of exposure (residential, commercial, and auto). Of this total, approximately 70% is in the Santiago area and approximately 5% in Concepción. However, of the damage incurred to these properties, only a portion is expected to be insured. In Chile, earthquake coverage is offered to insurance owners as part of the extended coverage issued in conjunction with the standard fire policy. There is no pooling scheme or catastrophe fund for earthquake risks in Chile. Residential take-up rates (the percentage of properties that are insured for earthquake) are believed to be as low as 10%, while commercial take-up rates are likely significantly higher, at about 60%. Note that insured loss estimates are based on certain assumptions about insurance take-up rates, about which there is considerable uncertainty. The range in the loss estimates reflects uncertainty in the length and position of the actual rupture; losses will be larger the greater the rupture length and the closer the rupture is to Santiago. Therefore, AIR's estimates may be further refined as additional information comes in from the affected area. AIR's insured loss estimates reflect: • Insured physical damage to property (residential, commercial/ industrial, auto), both structures and their contents • Business interruption losses • Demand surge—the increase in costs of materials, services, and labor due to increased demand following a catastrophic event They do not reflect: • Losses to uninsured properties • Losses to infrastructure • Losses from non-modeled losses, including loss adjustment expenses, fire-following, tsunami and landslide Chile's housing minister stated that an estimated 1.5 million homes have been damaged in the quake, a third of them severely. In the capital of Santiago, some 325 km northeast of the epicenter, newer buildings have sustained damage to nonstructural elements and streets are reported to be covered with the broken glass. Damage to contents is also expected to be significant. However, with the exception of a reported collapse of a newly built residential building collapsed in the Maipu neighborhood of Santiago, most newer buildings in the capital remain standing, illustrating the effectiveness of Chile's building code, even in the face of such a major quake. Older buildings in Santiago have performed less well, with some sustaining major damage to masonry walls; one church in Santiago's historic center is reported to have collapsed. Several fires have broken out and several bridges have collapsed, making relief efforts difficult. The city's metro has been halted and the airport will remain closed for at least 24 hours after having sustained damage. Landlines are out of service and cell phones are working sporadically. Electricity was out in most of Santiago (but has since been restored to 80% of the city) and water service has been disrupted as well. Fiber optic cables connecting Santiago to the south have been damaged, making communications extremely difficult. The earthquake also severed the Panamerican highway at several places south of Santiago. The highway is a key thoroughfare connecting the north and south of the country. As expected, cities closer to the epicenter have been hardest hit. Exacerbating matters, construction here is generally older and more brittle. The towns of Talca and Curicó, which were closest to the epicenter, have suffered major damage and there are reports that much of Curicó, in which adobe construction still dominates, has been leveled; however, such buildings are unlikely to have been insured. In the town of Chillan, 100 km from the epicenter, two hospitals suffered severe structural damage and patients were relocated to other facilities. Significant damage has also been reported in Chile's second largest city, Concepción, an industrial city some 115 km south of the epicenter. A 15-story apartment building there is reported to have collapsed. Streets have been made impassible by a combination of rubble and ground failure. Information coming out of Concepción, however, is still scarce in the early aftermath of this event and the picture of the extent of damage will certainly evolve. Indications from initial damage reports suggest that significant losses may be expected for automobiles as well, as cars were overturned on bridges and highways and crushed by falling debris. Autos are assumed to be fully insured in Chile. The earthquake generated a tsunami of up to 2.5 m that has affected large stretches of the Chilean coastline. Tsunami advisories have been issued for a wide arc of countries around the Pacific, including parts of the U.S., Russia, and Japan. The Pacific Tsunami Warning Center reported that the first tsunami waves reached the Big Island of Hawaii just before 10:00 PM GMT, but the effects were not damaging. Chile is located on the South American plate near the boundary with the Antarctic and Nazca plates and is one of the most seismically active regions in the world. Today's quake, one of the five strongest recorded in the last century in the world, was a megathrust event that occurred at the Nazca and South American plate boundary. These two plates converge at a rate of approximately 80 mm per year, with the Nazca plate subducting below the South American. The epicenter of today's event was located about 230 km north of the M9.5 earthquake that occurred in 1960 and about 870 km south of a M8.5 event that occurred in 1922. Recent research on strain rates and plate motion along this stretch of the subduction zone suggested the presence of a seismic gap, which today's event will have filled. Today's event is Chile's deadliest since the Mw8.0 1985 Valaparasio/Santiago earthquake, which killed nearly 200 people and destroyed 140,000 homes. Closer to today's epicenter, a Mw7.6 earthquake shook the cities of Concepción and Chillan in 1939. Most of the city of Chillan was flattened in that event while in Concepción, many buildings, homes, churches, and schools were destroyed. The AIR earthquake team has analyzed the available seismological data on this earthquake and has posted a range of scenarios on the Scenarios page of the ALERT website. Because of the unique nature of every earthquake, it is recommended that clients use these simulated scenarios of the actual event, instead of similar events from the stochastic catalog of the AIR Earthquake Model for Chile. It should be understood, however, that considerable uncertainty still exists, both with respect to the event parameters and with take-up rates, or the percentage of properties actually insured against the earthquake peril. Please note that losses are expressed in billions of Chilean Pesos (CLP), and the assumed exchange rate is 1 USD = 525 CLP. As clients review their estimated losses from this event, AIR recommends the following best practices to enhance the interpretation and communication of results: • Due to unique nature of this event clients should use the ALERT event set to estimate company losses rather than relying on similar events from the stochastic event catalogue • Always communicate the range of loss estimates produced by the event sets provided on the ALERT site, not just any single estimate or just the maximum; • Always make sure the loss results include demand surge; • Benchmark estimated losses against losses based on market share information and industry loss estimates when appropriate; • Present any known issues with exposure data quality that might affect the loss results; • Disclose any adjustments made to reflect non-modeled costs such as loss adjustment expenses, fire following, tsunamis or landslides. We encourage clients to review the AIR Earthquake Model for Chile technical document on the Client Access section of the AIR website. Sections 7 and 8 contain relevant information about the AIR Industry Exposure Database for Chile and the impact of different construction classes and age bands on loss results. This information can help in understanding how individual company loss estimates compare to industry loss estimates.

Update 1 | Downloads
Posting Date: February 27, 2010, 6:30:00 PM