Adjusters’ Insight

Earthquake ClaimsCould it happen in Australia and how would we respond? By Keith Atkinson, Senior Property Adjuster and Richard David, Engineering Adjuster

Australia has been relatively fortunate in its history of earthquakes with relatively minor quakes being recorded, often in unpopulated areas. Perhaps the most famous was the Newcastle (NSW) earthquake of 28 December 1989 measuring a magnitude of 5.6 on the Richter scale, which killed 13 people and incurred total losses in excess of AUD4 billion in today’s money. But is this still the case and should the Australian Insurance Industry have some preparedness for such events?

In this article Keith Atkinson, Senior Property Adjuster and Richard David, Engineering Adjuster of Charles Taylor Adjusting explain the type of earthquakes possible in Australia and what the claims response and challenges can be.

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What is an Earthquake?

Earthquakes owe their existence to the structure of the earth which comprises a solid crust overlying a hot molten core. The solid crust is relatively thin measuring only about 100km thick. This is a very small in relation to the depth to the centre of the earth which is around 6000km in round terms – refer Figure 1. The solid earth’s crust effectively ‘floats’ on a higher density molten liquid mantle below.

Fig. 1: Structure of the earth

The earth’s crust is by no means a homogenous or consistent layer. Since its earliest formation brought about by cooling of a hot planet, the earth’s crust cracked into several plates called tectonic plates. These plates are analogous to fragments of eggshell that form on the surface of a boiled egg.

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Tectonic plates are large and take in whole continents like Australia, which is located on the Australian plate – refer Figure 2.

For reasons not fully understood, tectonic plates are constantly on the move possibly caused by flow (or currents) within the molten mantle below. That said, movements are small and are of the order of centimetres per year.

As shown in Figure 2, the tectonic plates are irregularly shaped and as such, they cannot easily slide past each other without affecting the plates themselves and their boundaries.

Some plates are moving towards each other creating a convergent plate boundary. Very large compressive stresses occur within the earth’s crust at these boundaries. At other locations, the plates are sliding past each other generating

large shear stresses at their boundaries (transform boundary). Where plates are moving away from each other (divergent boundary), a ‘gap’ is opened at the boundary which is filled with molten mantle material flowing upwards from the earth’s hot interior (mantle). This material cools and solidifies at the earth’s surface effectively creating new crust.

As mentioned before, large forces are generated within the earth’s crust at plate boundaries. At these boundaries, the earth’s crust is fractured along planes called fault planes. Where these planes dissect high strength rock, large frictional forces are developed that resist the imposed force. With further plate movement, the imposed force increases inexorably, eventually reaching the frictional capacity of the fault plane. At that point, failure along

Fig. 2: Tectonic plate boundaries (Estrada, Hector and Luke S. Lee. Introduction to Earthquake Engineering. CRC Press LLC, 2017)

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the fault plane occurs causing relative movement of the ground on each side of the fault plane. This movement generates a shock wave (seismic wave) that travels through the earth’s crust that is experienced as an earthquake when the seismic waves reach the ground surface and travel along it.

The released energy along a fault can be enormous with devastating consequences. The frequency and magnitude of various earthquakes on a world-wide scale is shown in Figure 3 below.

A world map showing the location of 358,214 recent earthquakes (1963–

1998) is shown in Figure 4 and highlights that around 90% of earthquakes occur at plate boundaries.

Earthquakes can, however, occur within a plate remote from a plate boundary and these types of earthquakes are termed intraplate earthquakes which affect Australia. See for example the ‘swarm’ of earthquakes shown for the Australian mainland in Figure 4.

Intraplate earthquakes occur by means of a similar mechanism to that described previously for earthquakes at plate boundaries, but the forces involved have a different origin. For

example, the Australian plate (Figure 2) is travelling north at a rate of about 6cm/year and is colliding with the plates on it’s northern boundary. This movement in turn generates compressive stresses within the plate which are released along existing fault lines that exist within the plate away from its boundaries or the movement can be released along new faults created by first-time rupture.

Intraplate earthquakes occur at shallower depths, are less frequent and not as powerful as tectonic earthquakes. They can still however be damaging and have resulted in loss of life in Australia.

Fig. 3: Relative frequency and magnitude of worldwide earthquakes

Fig. 4: Location of recent earthquakes around the globe. (Estrada, Hector and Luke S. Lee. Introduction to Earthquake Engineering. CRC Press LLC, 2017)

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How do we measure earthquakes?Earthquakes are generally measured using magnitude and intensity and these two terms can be confused at times.

The point (or area) in the earth’s crust where an earthquake originates is called the focus. The location of the focus projected to the earth’s surface is called the epicentre whilst the distance between an observer and the epicentre is termed the epicentral distance. These terms are presented diagrammatically in Figure 5.

For any given earthquake, the intensity of that earthquake is not constant and depends on the epicentral distance – in other words, how far the observer is situated from the source of the earthquake. As a rule, and without considering the effects of local geology, the intensity of an earthquake decreases rather rapidly with epicentral distance.

The magnitude of an earthquake is a fixed amount and represents the energy released into the earth’s crust in the form of a shock wave.

This means that for any given earthquake magnitude, a range of intensities apply depending on where the intensity is being observed (or experienced).

There are many earthquake magnitude scales that have been developed over the years mostly because earthquakes and their impacts are difficult to quantify using simple scales. Over time, more complex scales have been developed but their use appears less common being confined to specialists working in the area of seismology.

Earthquake intensity and magnitude scales in common use include the Modified Mercalli Intensity Scale and the Richter Magnitude Scale respectively – refer Figure 6. Note that in Figure 6, the reported intensities are intended as a guide only and apply to locations ‘near the epicentre’ of an earthquake with the stated corresponding Richter magnitude.

Fig. 5: Location of recent earthquakes around the globe. (Estrada, Hector and Luke S. Lee. Introduction to Earthquake Engineering. CRC Press LLC, 2017)

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The Richter scale reports earthquake magnitudes in the range of 0 to 9. For every unit increase in magnitude, there is a roughly 30 fold increase in the energy release i.e. a magnitude 6 earthquake is about 30 times stronger than a magnitude 5 earthquake. A magnitude 7 earthquake releases 900 times (30x30) more energy than a magnitude 5 earthquake. Equally a magnitude 8.6 earthquake releases the energy equivalent to about 10,000

Fig. 6: Richter Location of recent earthquakes around the globe. (Estrada, Hector and Luke S. Lee. Introduction to Earthquake Engineering. CRC Press LLC, 2017).

atomic bombs of the type developed during World War 2. Fortunately, such earthquakes are rare with a worldwide frequency of about 0.1/year – refer Figure 3. This is equivalent to a 1 in 10 year return period which is frighteningly common although the epicentre of such an earthquake would have to be near a populated area to cause widespread damage.

Also shown in Figure 6 is a reference to PGA which is the peak ground

acceleration recorded at the ground surface due to the passage of a seismic wave. PGA is a parameter of critical interest to structural engineers as it can be used directly to calculate additional load in buildings as a direct result of earthquake loading. PGA is expressed as a fraction of the acceleration due to gravity (g) which is about 10m/s2. This a large amount of acceleration that only some of the fastest production cars can achieve.

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As shown earlier, Australia is “seismically” speaking considered to be relatively flat and inert and in the main, free from the risk of serious earthquake activity, being somewhat distant from the nearest plate edge. That said, the risk of earthquake activity is real as the tectonic plates drive the continent northward at a rate estimated to be around 6cm per year, making Australia the fastest moving continent.

Although this is mainly true, Australia does experience the occasional “moderate earthquake” with a magnitude in excess of 5 as a result of intraplate earthquakes.

The fact that only 10% of the World’s earthquakes occur “intra-plate” is significant because it indicates reduced earthquake risk due to infrequency (relative to other parts of the world). That said, earthquake risk may increase because vulnerable areas are less prepared for such eventualities.

Quantifying the risk from earthquakes in Australia has been a subject of research for some time complicated by the relatively short observation period (being limited to a direct

observation and accurate reporting period of only about 200 years).

Earthquake risk is quantified using peak ground acceleration from earthquakes (and not earthquake magnitude) since peak ground acceleration is much more useful to Engineers. Shown below in Figure 6 is the predicted peak ground acceleration from earthquakes plotted relative to earthquake frequency (return period).

A plot like that presented in Figure 7 can become especially useful to people like underwriters if a peak ground acceleration associated with the onset of damage can be defined.

There is a body of research that attempts to provide such a threshold but such a threshold depends on a number of factors such as building type and age, making it difficult to provide a broadly applicable and accurate damage threshold.

Suffice to say that in Australia earthquakes with a magnitude of less than 3.5 seldom cause damage and from Figure 6, it can be seen that the onset of damage is predicted for an earthquake magnitude of 4 and an associated peak ground acceleration of 0.03g.

Is Australia an Earthquake Risk?

Fig. 7: PGA versus return period for Australian capital city centres (Geoscience Australia)

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The return period of an earthquake with such a magnitude ranges from 1:500 years for Sydney to 1:1250 years for Hobart – refer Figure 7. These figures suggest that damaging earthquakes in Australia are associated with relatively long return periods indicating in turn that they are relatively infrequent. This is not to say however, that the earthquake hazard in Australia should be ignored as return periods do not provide an indication of when an earthquake might occur.

Another finding implied by Figure 7 is that the level of ground shaking from earthquakes varies across Australia for a given probability of occurrence. Maps of Australia have been produced that show the predicted level of ground shaking (expressed as peak ground acceleration) for a given level of risk (expressed as a probability of exceedance or return period). Figure 8 is one such map providing the predicted peak ground acceleration expected for a rare event (return period of 1:2500 years).

The red ‘hot spots’ represent areas of the country where ground accelerations are expected to be particularly large and can be assumed to roughly indicate the focal points of intraplate earthquakes in Australia.

Fig. 8: Predicted PGA for Australian for seismic events with a return period of 1:2500 years. (Geoscience Australia)

Who measures earthquakes in Australia?In Australia seismic activity is monitored, analysed and reported on by Geoscience Australia. It is detected by instruments called seismometers.

They monitor more than 60 stations in the National Network, part of over 300 stations worldwide.

Following a reassessment of the magnitude of all earthquakes in 2016 they determined that the largest magnitude quake in Australia was recorded at Tennant Creek, a sparsely populated area in the NT in 1988 at 6.6. The largest magnitude earthquake in WA was recorded at Meckering in 1968 at 6.5 which caused extensive damage to buildings and infrastructure in this small town.

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Australian EarthquakesThe largest Australian earthquake was recorded at 6.6, on the Moment Magnitude Scale, at Tennant Creek in the Northern Territory. The second largest was measured at 6.5 at Meckering in WA in 1968.

Whilst not in the top 10 in power, the most devastating earthquake to strike Australian mainland was the 1989 Newcastle Earthquake.

In terms of recent insurance damage from earthquakes, Kalgoorlie was struck in 2010 measuring 5.2 and causing significant damage to heritage buildings, many of which were assessed by CTA.

The Effects of an EarthquakeThe amplitude of the shaking caused by an earthquake depends on many factors such as the magnitude, the distance from the epicentre, the depth of focus, topography and local ground conditions. It is the amplitude or strength of an earthquake which to a large extent influences the nature and extent of any resultant damage.

The main effects of an earthquake can be summarised as follows.

– Ground shaking

– Faulting and ground rupture

– Landslide and ground subsidence

– Liquefaction (eg Christchurch earthquakes)

– Tsunami

– Damage to man-made structures

– Resultant fire

The shaking of the ground surface during an earthquake is responsible for most of the damage caused by quakes.

Faulting and ground rupture only occur where the fault zone moves. Anything built adjacent to the fault is likely to survive, with potential damage whilst structures that are built across fault zones are very likely to collapse.

Ground shaking can result in avalanches, landslides, slumps and rock slides and can often be more destructive than the earthquake itself.

In areas underlain by water saturated sediments large earthquakes, 6 and above, may result in liquefaction. The shaking caused by the quake causes the wet sediment to become quicksand and flow. Subsidence from this flow of sediment can cause buildings to topple and the sediment might erupt at the surface from craters and fountains.

Undersea earthquakes can cause tsunamis or a series of waves that can cross an ocean and cause extensive damage to coastal regions.

Damage to man-made structures as a consequence of earthquake induced ground movement is very much dependant on the type of construction. Concrete and masonry structures are brittle and as a consequence more susceptible to damage and collapse. Wooden and steel structures are far less susceptible to damage due to their flexibility.

Destruction from strong earthquakes can be worsened by fires caused by downed power lines or ruptured gas lines.

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TsunamiLiterally a tsunami, in Japanese, means Harbour Wave. They are waves caused by sudden movement in the ocean’s surface, the result of earthquakes, landslides on the sea floor, land slumping into the ocean, large volcanic eruptions or meteorite impact with a body of water. Most tsunamis are caused by earthquakes

Tsunamis have been recorded as travelling as fast as a jet liner (up to 950kmph) over large distances. They move the entire depth of water and contain a significant level of energy with little loss during travel. The deeper the water, the faster the wave travels. The wave’s energy spreads over a larger and larger surface area as the wave travels from its original source. The energy within the wave only starts to reduce when it reaches shallow water although the reduction in energy is replaced by an increase in wave height. Figure 9 is an image of a tsunami signage – a known phenomenon.

Is Australia a Tsunami Risk?Evidence gathered does suggest that Australia has experienced large tsunami activity over the last few thousand years. Recent activity, however, suggests that tsunamis present little or no threat to coastal Australia. The risk is recorded as ranging between “relatively low” along the southern coastline to moderate along the west coast. The west coast is more prone to tsunamis due to the close proximity to Indonesia, a region of significant seismic and volcanic activity.

The largest “run up”, measured by elevation above sea level was recorded at 7.9m at Steep Point in Western Australia in July 2006 whilst the largest reported offshore wave height was 6, near Cape Leveque in WA in 1977.

The tsunamis that have reached Australia only resulted in minor damage such as erosion of roads and sand dunes and the destruction of vegetation. The effects were generally restricted to a distance of up to 200 to 300 metres inland.

Fig. 9: Tsunami risks are known for some areas

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A Comparison of Damage between Kobe (Japan) and Newcastle (Australia)Kobe is the 6th largest city in Japan. It is the capital city of Hyogo Prefecture and located on the shore of Osaka Bay in a coastal strip between the bay and mountains. Kobe has a population of over 1.5 million people, covers an area of 552 square kilometres at a population density of 2768 people per square kilometre. The port at Kobe was, prior to the earthquake, Japan’s busiest container port but has since dropped to be its 4th busiest.

The metropolitan area of Newcastle is the second most populated area in the State of New South Wales in Australia. The city is located some 160 kilometres north-northeast of Sydney at the mouth of the Hunter River on the Pacific Ocean. The area is famous for the mining of coal and is home to the largest coal exporting harbour in the world. Covering an area in excess of 260 square kilometres, Newcastle has a population of over 300,000 people at a density of 1,233 per square kilometre.

Whilst there is a fairly significant difference in the population, density and area, the economic importance and coastal location of both cities is not dissimilar.

The Great Hanshin EarthquakeThe Great Hanshin Earthquake, or the Kobe Earthquake as it was also known, occurred on 17 January 1995 at approximately 5.47 am. It is reported that in the area generally over 6,400 lost their lives, 40,000 were injured and 300,000 were made homeless. In the city of Kobe alone, the death toll was over 4,500, 14,000 were injured and over 100,000 were made homeless.

It measured 6.9 on the Moment Magnitude Scale (7.3 on the Richter Scale) and the tremors lasted for approximately 20 seconds. The quake resulted in 18cm horizontal and 12cm vertical movement of land. The focus of the earthquake was located 17km beneath its epicentre on the northern end of Awaji Island some 20km from the centre of Kobe City.

In excess of 400,000 structures were irreparably damaged. Of that total over 240,000 were private homes. At the Port of Kobe, 120 of the 150 quays were destroyed. Most of the deaths were the result of fires started by the ignition of gas that escaped from ruptured underground services.

The total damage bill has been assessed at US$200 billion, the equivalent of about A$280 billion. Figure 10 below is indicative of port damage.

Fig. 10: Typical port damage

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The Damage in KobeThe damage in Kobe was severe and widespread.

– Nearly 400,000 buildings were destroyed or irreparably damaged.

– Numerous elevated roads and/or rail bridges were severely damaged.

– A total of 120, of 150, quays in the Port of Kobe were unable to be used.

– Around 300 fires were started.

– Disrupted water, electricity and gas supplies

Some 20% of buildings in the worst hit areas were uninhabitable with about 22% of the office space in Kobe Central Business District unusable.

Highways and subways were extensively damaged disrupting road and train travel significantly. Sections of the elevated Hanshin Expressway collapsed preventing the use of the expressway as well as the road infrastructure below.

The Port of Kobe is located on artificial/reclaimed land forming islands and they suffered major damage due to subsidence resulting from liquefaction.

A number of fires as well as resultant loss of life, occurred in the Hyogo and Osaka prefectures with a significant number in Kobe City itself.

The ground movement associated with the earthquake caused damage to underground services with the resultant loss of supply. Figure 11 is an image from the Kobe earthquake.

Fig. 11: Kobe earthquake

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Newcastle EarthquakeThe Newcastle Earthquake occurred at 10.27 am Thursday 28 December 1989. It is considered to be one of Australia’s most serious natural disasters killing 13 people and hospitalising more than 160. It is estimated that a total of 300,000 people were affected by the quake with approximately 1,000 people made homeless.

Measuring 5.6 on the Richter Scale with tremors reportedly lasting for approximately 6 seconds. The focus of the quake was relatively shallow at 11km below the earths surface whilst the epicentre was some 15 kilometres south-southwest from the city centre.

The effects were felt over an area of 200,000 square kilometres with isolated reports of movement in areas up to 800 kilometres from Newcastle. Damage to buildings and facilities was reported over an area of 9,000 square kilometres. The deaths were the result of a floor collapse trapping people beneath rubble, the collapse of an awning and an earthquake related shock.

The damage bill was estimated at over A$4 billion, included insured losses of around A$1.5 billion. Damage was reported to have caused damage to over 50,000 buildings including homes, schools, commercial and/or other buildings. A total of 300 buildings had to be demolished.

The Damage in NewcastleThe damage in Newcastle included

– 50,000 buildings were damaged, some 80% of which were homes

– 300 buildings had to be demolished, 100 of which were homes

– There was damage to the electrical power infrastructure although gas and water supplies were unaffected

– Roads were partially blocked by fallen debris in the worst affected locations

– The port facility was relatively unscathed

– There were no fires caused by the earthquake.

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Adjusting claims following earthquakes are similar to adjusting claims after any natural disaster. There are the usual issues of accommodation, access and availability of services and facilities. Earthquakes unlike many other natural disasters are invariably accompanied by fatalities and the sensitivities that such situation require.

The difficulty of access cannot be underestimated in the case of earthquakes. In Kobe the damage to roads and railways was such that sections were destroyed or so badly damaged that they could not be used. In the case of roads this meant extensive detours and congestion of already congested roads.

In so far as railways were concerned, the loss of tracks meant that sections were unusable, and alternatives were needed between stations that could be accessed. In most cases this was by road which only served to increase traffic on the overloaded roads.

It was often easier to walk between stations that were in operation as queuing for and then riding on the buses and overcrowded roads meant a longer journey time than simply walking between the two points.

Access, or unrestricted access, to buildings was also interrupted. Whole floors of structures had effectively disappeared, collapsing onto lower levels and staircases and/or lift access was lost meaning that generally only the lower levels of buildings could be examined for internal damage whilst the upper floors appeared to be undamaged.

The port facility was so significantly affected by liquefaction that access was severely restricted with the danger that areas might collapse and fall into the harbour.

Many of the things that we take for granted, like walking to the corner shop for provisions, may no longer be available due to damage to the building or complex, loss of services to the premises and/or the potential of loss of life.

Sadly from an insurance perspective such events put focus on sums insured with possible application of average. Difficult issues to deal with given that such destruction may have always been considered remote.

Adjusting Claims in Earthquake Damaged Locations

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Keith Atkinson ACII, FCILA, FCLASenior Property AdjusterT: +61 8 9321 2022Keith.Atkinson@ctplc.com

Richard David BSc (Eng), MSc (Eng) MBA, CPENG, MIEAustEngineering AdjusterT: +61 8 9321 2022Richard.David@ctplc.com

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About Us

Charles Taylor Adjusting (CTA) is one of the leading loss adjusting businesses in the market. We focus on commercial losses and claims in the aviation, marine, natural resources, property, casualty, technical and special risks markets, many of which are large and complex in nature. CTA is a business of Charles Taylor plc which is quoted on the London Stock Exchange.

Charles Taylor plc is a leading provider of insurance-related professional services and technological solutions to clients across the global insurance market. The Group has been providing services since 1884 and today employs over 3,000 staff in 120 locations spread across more than 30 countries in the UK, the Americas, Asia Pacific, Europe, the Middle East and Africa. www.ctplc.com/adjusting

Conclusion Can Earthquakes be Predicted?The simple answer to this question is a resounding No. Whilst the fact that earthquakes will occur can be guaranteed; where, when and how devastating they will be is impossible to predict.

The issue of the uncertainty of predicting earthquake events has tested the Courts in Italy when 6 seismologists were convicted on charges of manslaughter for giving inaccurate advice before an earthquake struck L’Aquilla in that country in April 2009 resulting in more than 300 deaths. Fortunately, they were subsequently acquitted on appeal in November 2014.

Charles Taylor Adjusting (CTA) has responded to various earthquake losses around the globe and uses drone technology where possible, to gain access to areas of damage which are dangerous to inspect on foot. With a breadth of civil / structural engineering knowledge available internally, CTA is well placed to manage the devastating nature of natural CAT losses such as those that can occur with respect to earthquake.

Charles Taylor Adjusting (CTA) ExpertiseCTA has qualified engineers on staff throughout all Australian offices with diverse backgrounds ranging from “big picture” Project Engineering / Construction right through to detailed design work.

Our Engineering Adjusters hold Adjusting qualifications and are members of the Australian Institute of Chartered Loss Adjusters (AILCA), the Australian & New Zealand Institute of Insurance and Finance (ANZIIF), or other UK-based professional bodies of equivalent or higher standards.

We ensure outcomes are concisely reported to Insurers to match their requirements in documenting the circumstances of the loss in a clear and logical manner, allowing them to reach a conclusion in respect to policy response.

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