Bicentenary of the New Madrid earthquake

One of the severest earthquakes ever to hit North America occurred 200 years ago. And it did not happen in California, but in the US Midwest. This earthquake series resembled the event in Christchurch, New Zealand in February 2011; such earth tremors are rare, but they are violent and occur in series.

Munich. 16 December 2011 marks the bicentenary of a severe earthquake in the US Midwest that triggered a whole series of quakes. The event series near New Madrid (Missouri) contained three severe major earthquake shocks which by all historical accounts were so powerful that they temporarily caused the current on the Mississippi River to reverse and led to the creation of Reelfoot Lake, which is 16 miles long and four miles wide. The series – with thousands of aftershocks – lasted until at least 1813. While the magnitudes of the severest quakes were comparable to the famous San Francisco earthquake of 1906, the region impacted was ten times larger.

Today, some 15 million people live in the area affected by the earthquakes in 1811 and 1812. The repetition of an equivalent event today would probably lead to economic losses running into hundreds of billions of US dollars – from a single high-magnitude earthquake. The conceivable insured loss has been calculated by loss modelling companies to be in the region of US$ 50–100bn. In particular, vital infrastructure would suffer the threat of serious disruption and damage.

“The New Madrid Seismic Zone is prone to infrequent but very severe earthquakes. Because of this low frequency, there is a perceived lack of risk which concerns me,” said Tony Kuczinski, President and CEO of Munich Reinsurance America Inc. “Should another large earthquake strike this area, there could be significant property damage because building codes in the region do not consistently meet acceptable standards for seismic resistance. We are also vulnerable nationally, as this enormous seismic zone is located right in the center of the country. Infrastructure damage – to gas pipelines and distribution systems – could cause major business disruptions. We have learned lessons regarding contingent business interruption from recent natural catastrophes in Japan and Thailand. The 200th anniversary of the New Madrid earthquake should serve as a reminder of the risks posed by this seismic zone, and all stakeholders should prepare accordingly. Insurers should explore potential CBI losses for New Madrid. Business and government should partner to develop contingent distribution and supply plans and to review the adequacy of building codes, in addition to exploring how to mitigate potential infrastructure damage. Last but not least, homeowners in the region should check their insurance policies to ensure they have adequate earthquake coverage.”

The insurance industry can play its part in reducing exposure, for example by offering lower insurance premiums to policyholders who implement loss-mitigating construction measures. Munich Re has been monitoring the New Madrid Zone for some considerable time. The earthquake risk in the US Midwest has long been part of a series of key scenarios to which Munich Re has applied its own risk models and established specific underwriting processes.