Total insured losses could reach $1bn but there is a high level of uncertainty, says AIR
AIR Worldwide estimates that total losses to insured and uninsured property from the M7.9 earthquake that struck near Chengdu, China will likely exceed RMB 140bn ($20bn).
AIR estimates that insured losses will likely exceed RMB 2bn ($300m) and could reach RMB 7bn ($1bn). The estimates cover property losses for Residential, Commercial/Industrial and Construction All Risks / Erection All Risks (CAR/EAR) lines of business.
AIR cautions that there is a high level of uncertainty in insured loss estimates in China. The insurance market is rapidly developing and earthquake coverage is optional for both residential and commercial policies.
AIR estimates that insurance take-up rates in this region (the percentage of buildings actually insured against the earthquake peril) are minimal for residential properties and only marginally higher for commercial properties.
Although earthquake coverage is mandatory for policies covering construction projects (the CAR/EAR line of business), in many cases companies do not purchase insurance for smaller projects.
“Monday’s earthquake occurred along the Longmeng Shan fault in the North-South Seismic belt of Central China,” said Dr Bingming Shen-Tu, China project manager at AIR Worldwide.
“This belt, which runs from Gansu and Nixian provinces in the north to Sichuan and Yuan provinces in the south, is the most seismically active region in China. It also presents the highest risk in China because of the proximity of large concentrations of population. Indeed Sichuan is China's most heavily populated province.”
AIR estimates that the total value of property in Chengdu—the capital of Sichuan— exceeds RMB 800bn ($115bn), of which only a small percent is covered by insurance.
Total property value in all counties of Sichuan province affected by yesterday's event is estimated by AIR to be about RMB 1.5trn ($215bn).
“The quake occurred along the border between the more fractured rock of western China and older, denser rock to the east,” continued Dr Shen-Tu. “Dense rock propagates seismic energy over a large area, which, together with the large magnitude of this event and the long-period waves it generated, explains why it was so widely felt, particularly by people in high-rise buildings. Ground shaking was felt across the eastern half of China and as far away as Shanghai, Hong Kong, Taiwan, and even Hanoi, Vietnam.”
In Chengdu, there were no reports of collapsed buildings, though large cracks appeared in the walls of some mid- and high-rise apartment buildings.
“Older residential buildings, which are primarily unreinforced masonry or wood frame with adobe or brick walls, will have fared poorly,” Dr Shen-Tu commented. “Well-engineered, high-rise office buildings in the booming capital city appear to have survived relatively unscathed.”
However, it is still in the early aftermath of this event, and structures that appear undamaged now may well reveal cracks and other damage on closer inspection. If there is any good news to be gleaned from this event, it is that the earthquake struck at some distance from densely populated Chengdu.
Dr Shen-Tu continued, “Historically there have been at least 8 earthquakes of M7.8 and above in this seismic belt since 1500. The 1976 Songpan earthquake, with a magnitude of 7.2 less than 100km from the current earthquake, caused over 800 deaths. In 1933, the M7.5 Diexi earthquake at 60km distance from today's event caused widespread landslides that disrupted river flows. One regional dam broke 45 days after the event, resulting in more than 10,000 fatalities.”
Once recovery efforts have concluded, AIR will send a team to the affected area to survey the damage.