China’s worst quake in 30 years

The loss of life from the 7.8 magnitude Sichuan earthquake is reported to be in the thousands, but the region also faces a high economic loss due to low insured values.

Earthquake-hit Sichuan province has an insurance penetration less than half the national average, according to analysts.

“In Sichuan, only 5% of residential buildings are covered and 15% of commercial/industrial buildings are covered. This compares with a national average of 10% and 33% respectively,” said Dr Milan Simic, managing director of AIR Worldwide (London).

These figures go up to 22% and 60-70% respectively in Beijing and Shanghai. “We are expecting a huge difference between the economic loss and the insured loss,” he added.

Initial estimates of the insured losses resulting from the 7.8-magnitude earthquake are expected within the next 24 hours, according to AIR.

Dr Simic said analysts will be looking into the fact that the quake was from a relatively shallow depth of between 10 and 12km, yet was still felt hundreds of miles away at China’s east coast and even in Japan.

Buildings in Shanghai and Beijing were evacuated as a result of the earthquake.

Three Gorges Dam

The quake is expected to be the worst for 30 years in China, however, there was no major damage in Sichuan’s capital Chengdu, just 98km from the epicentre.

State officials said there was also no damage to the Three Gorges Dam, a further 600km east of Chengdu.

Dr Simic added: “We would not have expected any damage to the Three Gorges Dam because major pieces of infrastructure, such as this one, tend to be designed for extreme events.

“The earthquake happened about 98km from Sichaun’s capital Chengdu, which is a major city and we would expect a larger amount of commercial and industrial coverage.

“However, a lot of insurance in China is extension-based, so they are not automatically covered for earthquake unless the individual managers of a premises took the view that they wanted it.

“Therefore, in our calculations we look at insurable building stock – all of that which has the potential to be insured – from which we can calculate the actual insured loss estimates. We will soon have estimates for those two numbers.”

Damage has been reported from a very broad area, with a building collapsing more than 190 miles (300km) away. The closest town to the epicentral region is the town of Wenchuan itself, which lies on the Minjiang River.

Though it is 50km away from the epicentre, the town appears to be close to the fault structure itself, so damage is expected to be significant. Wenchuan is reported to have a population of 118,000.

According to RMS, most of the damage reports so far are from Chengdu. This city has grown rapidly in the last 30 years and most of the construction was done after 1978, when buildings were required to be made more resistant to earthquakes following the 7.8-magnitude Tangshan earthquake, which killed at least 240,000 in 1976.

Domenico del Re, senior model manager at RMS in London, said: “As the east coast of China has become increasingly expensive, many domestic and international companies have set up operations in Chengdu to take advantage of the lower property and labour costs.

“Although many of the commercial buildings will have been constructed to withstand some level of ground-shaking from earthquakes, we can expect to see a large number of insurance claims coming from this area. This event is a reminder for organisations considering moving into China that business continuity insurance should be a risk management priority, due to the country’s susceptibility to earthquakes,” said del Re.

Records show that the last earthquake in the country to measure exactly 7.8 magnitude was in 1786, with an epicentre southwest of Chengdu.

The most significant earthquake to hit China was the 1920 Haiyuan earthquake in the Ningxia province, to the north of Sichuan, in which 250,000 people were killed.