Earthquake

Just as the world rallied to raise funds for Haiti after a 7.0 magnitude earthquake ravaged Port-au- Prince, the country’s largest city, an 8.8 magnitude earthquake tore through Chile, leaving devastating damage in its wake. A fault slip triggered the earthquake and warped the ocean floor, generating a tsunami along the fault-rupture area. The entire Chilean city of Concepcin moved 3.04 metres west because of the quake.

As countries around the world set off to help rebuild in these countries, it raises the question: How prepared are we if an earthquake rocks the core of one of our Canadian cities?

Research abounds as to the risks of an earthquake in Vancouver. There is a 10 to 15 per cent chance of a mega-earthquake hitting the northern segment of the Cascadia Subduction Zone — an area that runs from Vancouver Island into the United States — at some point during the next 50 years. Research suggests there is very little doubt that Vancouver Island or the Greater Vancouver Area will suffer through an earthquake of the magnitude as Chile at some point. Montreal, on the other hand, also faces an incredible earthquake risk. How will the Old Port fare when this catastrophe strikes? Will we be able to move fast enough to mitigate damage? What lessons can be learned from the devastation in Haiti and Chile?

Haiti

McLarens Canada sent two adjusters to Haiti to aid in rebuilding the city. Well-experienced in claims handling, the adjusters found the devastation in Haiti to be shocking. “I have done [catastrophes] over the years, I have done quite a few of them, and I have to be honest: I can’t say as that I’ve seen damage on that grand a scale,” Keith Wright, Regina branch manager of McLarens Canada, said. “A lot of people dislodged, a lot of people living in tents — what would not pass to us as tents, but to them was home. A lot of these things were just 6×6, 6×8 or 8×8 pole-framed places with sheets over the top of them. That was their home after the incident.”

However, as an adjuster and former firefighter, Wright has learned to separate his emotions from the task at hand. “Please don’t misunderstand me, it was tough,” he said. “There are things that get to you mentally. But, if you’ve done it before, you’ve got a good idea of some of the devastation that you could be expecting.”

Quite a few of the claims were total losses. In the downtown core of Port-au- Prince, it was as if an aircraft had come across and bombed the heck out of it, Brian Pilkington, senior adjuster at McLarens, said. Outside the downtown core, heavy shaking in certain places left certain houses shaken up; other houses were completely destroyed, depending on where the earthquake struck. “It was like when we had those tornadoes [in Ontario] last year, and you’d see one side of the street completely destroyed and the other side of the street was fine,” he said. “The earthquake did the same sort of thing; it would hit certain spots and other spots it would leave alone.”

On a case-by-case and building-by-building basis, it was the same as adjusting any other claim, Pilkington said. But the complete and total devastation was unnerving. Pilkington has worked on total losses before, but he said adjusting claims in Haiti was “a new deal” because everything was demolished. This, in combination with the injuries, suffering and death, made it a whole different ball game for Pilkington, who has adjusted other major natural catastrophes such as Hurricane Hugo, which hit South Carolina in 1989.

Three adjusters — Pilkington, Wright and a third adjuster from Barbados — handled roughly 160 files on contract from one of the larger property and casualty insurers in Haiti. The three witnessed all of the claims, photographed and itemized all damages and subsequently settled whatever they could. The more complicated files were to be settled locally at a later date. Of the 160 files, Pilkington estimates 50 per cent would have been total losses; the other 50 per cent required negotiation of a settlement. Claims ranged between small losses (from $10,000 to $15,000) and much higher sums for the total losses, Wright said. “Now, we use the words ‘total loss,’ but it’s not really accurate,” he said. “If the slabs were still intact, if the main and footings were still intact, even though the building was down, it would not be deemed as a total loss.”

Many of the total losses were underinsured, Pilkington said. He said he heard from a broker representative that four to five reinsurers involved in property and casualty work in Haiti would be on the hook for roughly $200 million dollars in insured damages. Actual damages were expected to approach $14 billion. “The numbers may not be entirely real, but what it does show is a perspective as to how many of the buildings were actually insured — it wasn’t very many,” Pilkington said.

The adjusters observed that the roads and sidewalks were cleared rather quickly, with the United Nations hiring local Haitians to help with the clean-up. Those receiving insurance money would hire local labour to clean debris off the properties. However, the cost of erecting a new building is no different than in North America; for most people, the cost to rebuild is prohibitive. Institutions that did have money, such as banks, took the initiative to start the repairs on their own. Others were left with a site filled with concrete rubble.

“I was very impressed with the majority of Haitian people I met,” Wright said. “Even though they had gone through hardship, they were out there trying to salvage [items] and put their lives back in order.” Stores owners and residents, instead of waiting for someone else to come along and help, began the clean-up process themselves.

A claim is a claim no matter what the location. Still, adjusters face particular difficulties when it comes to adjusting claims in areas where a significant portion of the population has nowhere to go. Damaged roads meant there was no way to get out of the downtown core. With no homes in the core to go to, residents created tent cities wherever there was room. Navigating through these camps was nearly impossible, since every inch of space had been claimed.

To simplify tracking down potential claims, the insurance company had ads on the radio letting insureds know they were open for business and where to find them. Phone systems were haphazard at the beginning. Cell phones were intermittent, so much of the claims-handling process had to be done through word of mouth. The biggest priority was to meet with the insureds within the first two weeks to make them aware of their coverage. In Haiti, the first language is French. Therefore, a translator accompanied the adjusters in order to prevent any miscommunication due to a language barrier.

Wright said his first priority upon arriving in Haiti was to gain an understanding of the country’s pricing systems and construction. “Any time you go into a catastrophe area, that’s the first thing that you should be doing,” he said. “Find out what the local pricing is, how the houses are constructed and the general workup of the land.”

Chile

In Chile, construction was vastly different than in Haiti. A strict construction code enacted in 1996 lessened the damages the country might have experienced during the earthquake, Mauricio Alonso, senior vice president and regional managing director for Latin America at Crawford & Company, said. Damages to buildings and infrastructure spanned a wide range, depending on location and construction. Some buildings were completely destroyed. Others suffered enough damage that they will need to be demolished. Still others, mainly newer constructions, fared much better, suffering little damage. All told, 168,194 claims had been filed as of April 16, 2010, according to the Chilean Insurers Association. The deadline for filing claims was Apr, 30, 2010. The largest number of claims was for homes. The largest financial losses wer
e in industries such as cellulose, fisheries, concession highways and vineyards, Alonso said.

One obstacle facing adjusters in Chile was the large number of claims spread out over a wide territory affected by the earthquake. Early on, accessing the badly damages locations was challenging, especially given that there was no communication, electricity, water or fuel.

The language barrier proved to be the biggest challenge when bringing in adjusters from other countries to help with claims-handling. Adjusters needed to be fluent in Spanish to discuss complex issues with the insureds and to read and write the reports. But there weren’t enough full-time translators to assist outside adjusters.

Additionally, adjusters arriving in the country had to comply with Chilean regulations and operate through a licensed local adjusting firm. A licensed adjuster must sign all adjustment reports. In order to obtain a loss adjuster’s license from the regulator, the Superintendence of Securities and Insurances, applicants must pass a test. This means all foreign adjusters were working through a local office, Alonso said. Not to mention, the loss adjustment procedure is governed by strict local regulations — Decree Supreme No. 863 (enacted in 1989) is the governing regulation.

When it came to adjusting the claims, challenges varied from being able to find traces of the lost property and being in touch with the insured, depending on the level of damage, to a building or other structure. There were challenges when it came to handling claims and even with respect to rebuilding damaged property. Regulations prohibit building in certain areas, such as those too close to the coast. Other times, property owners had to wait while the Chilean authorities determined whether a building needed to be demolished. “The main impediment will be the magnitude of the rebuilding and the time it will take,” Alonso said.

Risk in Canada

The magnitude of the Chilean earthquake is similar to that of the Great Cascadia Megathrust earthquake expected off the West coast of Canada, according to Gail Atkinson, professor at the University of Western Ontario. Atkinson is a research chair in earthquake hazards and ground motions.

Researchers at Oregon State University have just concluded there is a one in three chance that a major earthquake will strike the Pacific Northwest coast within the next 50 years. There is a 10 to 15 per cent chance of a mega-earthquake hitting the northern segment of the Cascadia Subduction Zone at some point during the next 50 years. The northern segment of the Cascadia Subduction Zone covers an area from Vancouver Island, B.C. to Seaside, Ore.

On the other hand, a 37 per cent chance exists that a major earthquake will strike the southern end of the Cascadia Subduction Zone — from Newport, Ore. to northern California.

Researchers at the university found Cascadia is essentially made up of at least four segments, and earthquake activity varies from segment to segment.

“The largest earthquakes occur in the north and usually rupture the entire fault,” Chris Goldfinger, a marine geologist at Oregon State University, said.

“These are quakes of about magnitude- 9, and they are just huge,” he said. “But they don’t happen as frequently.

“At the southern end of the fault, the earthquakes tend to be a bit smaller, but more frequent,” he added.

“These are still magnitude-8 or greater events, which is similar to what took place in Chile, so the potential for damage is quite real.”

“Perhaps more striking than the probability numbers is that we can now say that we have already gone longer without an earthquake than 75 per cent of the known times between earthquakes in the last 10,000 years,” Goldfinger said. “And 50 years from now, that number will rise to 85 per cent.”

While the largest seismic risk in Canada is in Vancouver — and most seem to realize there is a large risk of earthquake activity in the East — with about a third of the total risk, Montreal is a close second, followed by Ottawa, Victoria, Toronto and Quebec. “We do have earthquakes in the East; they are not historically as big physically in terms of the geology,” Kristy Tiampo, assistant professor at the University of Western Ontario, NSERC and Aon Benfield/ICLR industrial research chair in earthquake hazard assessment said.

Are we ready?

In terms of how it addresses seismic activity, Chile’s building code is quite similar to the one in Canada. A group of Canadian engineers went to Chile after the earthquake to look at the damage sustained there and determine what lessons could be brought home. The engineers reported that when buildings did fail in Chile, it was clear that it wasn’t because of any weakness in the building code; rather, it was because some mistake had been made. “Even if you have good codes and people with good intentions, and they are all doing their best to build according to code, you’re still going to occasionally have mistakes,” Atkinson said.

Buildings constructed in Canada since the 1970s have been built to code, but those constructed prior to that would benefit from retrofitting, Atkinson said. Programs to assess and identify the most vulnerable of the older infrastructure and subsequent remedial action would be beneficial, she added. The Canadian Seismic Risk Network, which includes 26 primary researchers from eight universities, working in partnership with various government and public agencies, is looking into ways to reduce urban seismic risk in Canada. The idea is to create guidelines and plans to identify the most vulnerable infrastructure and then mobilize agencies to make changes. Currently the ministry of education in British Columbia has committed to a $30-million program to retrofit schools in that province. “Engineers can and do build buildings that don’t fall down on people; it’s more than possible to do that,” Tiampo said.

Chile’s death toll was reduced because residents in low-lying areas knew to evacuate. Since they were prepared, they moved quickly to higher ground as soon as the shaking stopped — and before the tsunami hit 30 minutes later. “I’m not sure that people on the West Coast of Canada are prepared, in the sense that obviously time is of the essence,” Atkinson said. “We could be better prepared in that respect.” There should be drills and widespread education to teach people who live in low-lying areas that there is very little time to move in the event of a tsunami, she said. They must move to higher ground immediately. “Certainly there are a lot of coastal areas in Western Canada where we could be better-prepared,” she said. “Citizens could be actively encouraged to form an emergency plan, so that if they feel a large earthquake, if they get woken up in the middle of the night by a large earthquake, they already know exactly where to go.”

The sheer logistics of mobilizing a response to an earthquake is one of the key issues in adjusting claims, Jim Eso, vice president of national property & casualty at Crawford & Company (Canada) Inc. said. Insurers must be constantly aware of the requirements for successfully adjusting the claims. He notes Chile’s licensing requirements did create a situation to be avoided in Canada. While Chile’s strict regulations created an enviable front line of indigenous Chilean adjusters, they made it difficult for outside adjusters to help when the local adjusters were overwhelmed, creating a bottleneck.

In Canada, this type of situation could be avoided in part through the harmonized licensing of independent adjusters. This would allow adjusters to move freely from province to province to assist as required. At this time, licenses are provincially-based. Generally, once a catastrophe has been declared in Canada, independent adjusters are able to move from province to province, and even to the United States, to help adjust claims. To do so, however, does require negotiating through some red
tape, potentially taking valuable time away from claims handling.

Construction, design and hydraulics are different from one location to the next, and adjusters do need to be aware that an earthquake in one part of Canada will produce different stresses on buildings than in another part of the country. Also, the term ‘shaking’ used to describe an earthquake may not be an accurate description of what is really happening. “When you get an earthquake, you get the impression that things just shake back and forth, but they don’t,” Wright said. “When you have earthquakes and shocks, you’re getting kind of a rotation motion: it doesn’t just shake back and forth, it kind of wiggles around.”

The California Earthquake Authority has training and certification courses for adjusters in the United States. Thus, in the event of an earthquake on Canada’s West Coast, adjusters in California would be able to assist Canadian adjusters, Eso said.

“I think the general consensus would be that in Canada we have a pretty well-developed emergency response plan,” Eso said. “The provincial governments each have their own emergency measures programs in place for uninsured natural disasters.”

Most insurance companies have standalone operation plans in effect for earthquakes, because the scale of the damage would be so significant. These plans include how to handle potential widespread disruptions involving accommodation, transportation, telecommunications, etc. Earthquakes could shut down airports, damage cell phone towers or damage the power grid. Most companies have discussions with independent adjusters about these very issues and the contingency plans they have in place, Eso said.

In North America, military bases and equipment are available for use in the response to an earthquake, thereby potentially reducing response time, Pilkington said.

Canada has a history of successful evacuations in the event of a disaster. During the Mississauga train derailment in 1979, for example, more than 200,000 people left Mississauga due to a threat of explosive and chemicals on the freight train. “That just goes to show with a country like ours, with the infrastructure we have and the education of the people and alternative resources — with the insurance coverage, money and everything else — I don’t think the response would be that bad,” Pilkington said. The trick is to have the right infrastructure in place so that, although the right supplies are close to an affected area, they are not so close as to be damaged or rendered inaccessible.

Coverage issues also need to be addressed. This includes determining the length of an event, and whether or not there was more than one event (especially in the case of aftershocks). And what about fire following an earthquake (a major risk in British Columbia)? “These are the sorts of ongoing discussions that a well-prepared insurance industry should have the answer to before the event occurs, so that adjusters can get immediate instructions on coverage even when the claims are being assigned,” Eso said.

Discussing these questions, having catastrophe programs in place and dealing with mobility issues can all help to mitigate damage costs in the event of a quake. As seen in Chile, strict construction codes diminish the loss of human lives and material damages. Construction codes should not only regulate building structures, but also fixtures, fittings and finishes. Insurers need to have catastrophe programs in place beforehand. And adjusters need to have catastrophe teams ready to be deployed and operating effectively on the ground.

These are some of the issues and lessons learned from the losses in Haiti and Chile. By revisiting what worked and what did not work in those countries, Canada can be better prepared when an earthquake rocks this nation.

“Earthquakes happen, and they will happen here in Canada,” Tiampo said. “One of the goals is to try and get a better idea of when and where they might happen so that we can be really prepared for them.”