Shaky Ground Christchurch and its Aftermath Stout Research Centre Victoria University of Wellington

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1 Shaky Ground Christchurch and its Aftermath Stout Research Centre Victoria University of Wellington From the Bunker to the Warehouse Sir Maarten Wevers Chair, Earthquake Commission 6 May 2015

2 Role Change Differing Perspectives Before and during - Senior Official advice, coordination, leadership, support After Senior Official and Chair, Crown Entity governance But, many points in common Must always operate within the law Know boundaries of your responsibilities Respond to things as they are Dealing with the unforeseen, unforeseeable Anticipate, judge, deploy, be accountable Maintain open, constructive and resilient relationships Be open to change and challenge Support your staff and colleagues, esp. in crisis mode

3 National Hazards and Risks Role of Department of the Prime Minister and Cabinet ODESC : Officials Committee for Domestic and External Security Coordination. Est Cyclone Bola Critical importance of legislation, policy and practice. Foresight of 1945 EQWDC legislation, 1993 Act Four Rs Reduction, Readiness, Response, Recovery Exercises Capital Quake and Ruaumoko purposes of exercising find strengths and weaknesses, build critical relationships, clarify accountabilities and decisionmaking processes Boxing Day Tsunami, Samoa and Niue cyclones Pike River Disaster, Nov. 2010; Rena Sinking, Oct, 2011

4 Christchurch events 4.35am, Saturday 4 September, M km deep. Same size as Haiti, January 2010, (220,000 deaths). We dodged a bullet. No loss of life, building infrastructure stood up well Widespread liquefaction, first in an urban area since Niigata, 1964, M7.6 Launch of Canterbury Home Repair Programme with Fletchers 25,000 emergency repairs, 19,000 home heating units installed Minister for Earthquake Recovery portfolio created, CERA (version 1) established, 14 September 2010

5 Christchurch events pm, Tuesday 22 February, M6.3. 5km deep. Further serious liquefaction, unprecedented peak ground acceleration Emergency phase, USAR (Urban Search and Rescue), local, national and international deployments, NZDF, ADF, Singapore Declaration of National State of Emergency (first ever for a natural disaster), Wednesday 23 February. Evacuations, injured & elderly, consular responsibilities Further serious events on 13 June, and 22 December, all up 13,000+ aftershocks Tohoku Earthquake, tsunami, and nuclear accident, Friday 11 March

9 Annual Likelihood National Severe weather Hazard Risks 10 % Once a decade 1 % Once a century Large rural flood Major transport accident Hazardous Spill Major infrastructure failure Sustained drought Agricultural pest/disease outbreak Moderate earthquake Moderate tsunami Large urban flood Human pandemic 0.1 % Once a millennium 0.01 % Geophysical Meteorological Biological Technological Minor Moderate Major Relative Consequences Auckland eruption Very large tsunami Very large Central North Island eruption Catastrophic

10 Countries with National Disaster Insurance Country California (USA) Caribbean (16 countries) France Iceland Japan New Zealand Norway Romania Spain Switzerland Taiwan Turkey Risks covered Earthquakes (not consequential events) Earthquakes, Hurricanes Natural perils Earthquakes, volcanic eruptions, avalanches, landslides, floods Earthquakes, volcanic eruptions and tsunamis Earthquakes, tsunami, volcanic eruption, landslides, hydrothermal activity, storm and flood cover to land. Flood, storm, landslide, avalanches, volcanic eruption, earthquake. Earthquake, flood, landslide Flood, earthquake, storm, tsunami, volcanic eruption, meteorites and terrorism. Flood, storm, hail, avalanches, landslide, rockfall. Not earthquakes. Earthquakes (and consequential events) Earthquake (fire, landslide )

11 Margareta Wahlstrom UN Secretary-General Special Representative for Disaster Risk Reduction Insurance helps people and countries recover more quickly after a disaster if they are insured. Loss of economic capacity is one of the hardest issues for people to face and we need mediation between the insurance industry and public sector Many disasters have not yet happened and therefore most insurance policies have yet to be written.

12 Prof. Jeffery Sachs Natural disasters like the devastating earthquake in Nepal constitute a highly uncertain but quantifiable risk. We need a new global system of disaster insurance, akin to how homeowners guard against calamity insurance underwriters would demand. cost-effective earthquake preparedness measures, like updated building and zoning codes; a disaster response plan; and emergency health plans. These steps would limit expected damages and lower the premium and expected payout. For some large and unpredictable risks, where the private sector alone won t provide cover, additional official financing would be blended with private funds. New York Times, op-ed, 4 May, 2015

13 Disaster Insurance in New Zealand Mixed public/private provision Residential Non Residential Basic cover Public insurance through EQC Automatic with fire insurance Top-up cover Private insurance Voluntary Private cover Voluntary

Unique Features of EQC Longevity established in 1945 First loss cover dwelling and contents and land cover Crown owned Compulsory co-purchase with domestic fire

14 Unique Features of EQC Longevity established in 1945 First loss cover dwelling and contents and land cover Crown owned Compulsory co-purchase with domestic fire insurance Coverage of more than 90% of residential dwellings New Zealand s largest residential insurer One (low) price for all Expected to estimate precisely likely damages

15 New Zealand Insurance Second highest level of non-life insurance penetration globally (The Netherlands 9.5%, NZ 5.2%, ROK 4.6%, US 4.1% of GDP) Relative to expected losses from natural catastrophes NZ also ranked second. Expected annual losses in NZ 0.73% of GDP per annum #3 (cf Bangladesh 1.26%, Chile 0.87%, Turkey 0.52%) 80% of Canterbury insurable losses covered (Tohoku ~15%, Northridge ~5%, Haiti, Vanuatu, Nepal? ~ 0%) High quality science and engineering research and practice underpin ability to assess risk, and price it, and enable (re)insurance Hybrid market for residential customers EQC and private Enormous contribution to recovery, and economic stability

16 EQC s Roles Research To understand and reduce vulnerability to geological hazards Insurance Mitigate the financial impact of geological disasters on home owners Education Inform and encourage risk reduction

17 Number of Claims Lodged Estimating Scale 500, , , ,000 Claims Lodged 300, , , , ,000 Estimated major Wellington earthquake (2009 Review) Estimated large scale event target (2009 Review) 50,000 -

18 Canterbury earthquakes Most significant by number of claims 180, , , , ,000 80,000 60,000 40,000 20, Sept Feb Jun Dec 2011

Canterbury Earthquakes New Zealand s most severe losses since Napier, 1931 185 deaths Economic losses estimated at $30-$40 billion Insured losses estimated at $20 billion+

19 Canterbury Earthquakes New Zealand s most severe losses since Napier, deaths Economic losses estimated at $30-$40 billion Insured losses estimated at $20 billion+ (or about 10% of NZ s GDP) GDP in 2011 reduced by 1.5% 2.5% NZ capital stock destroyed Property damage $NZ billion Residential 13.0 Commercial 4.0 Infrastructure 3.0 Total 20.0

20 Private insurance market impacts Event Economic losses Insured $US % of GDP loss billion ($US billion) Japan Up to Up to 5.4% Insurance industry contribution 35.0 Up to Chile % % NZ % % Haiti % 0.1 1% NZ 6 5.3% 81% Italy % % Source: Swiss Re, January 2012

21 Number of houses Distribution of Building Damage Aggregated after 22 February 2011 Shaking damage (150,000 houses) Exacerbated building damage due to liquefaction (30,000 houses) Typically 0 - $60k damage High intensity of total losses (typically $800k) $ Value of building damage

situations Pre-existing housing stock quality Legislative

22 Complexities Event sequence, apportionment Increased Flooding /Liquefaction Risk Multi-unit buildings Homeowners pre-quake situations Pre-existing housing stock quality Legislative interpretation Customer services capability Changed expectations of EQC Massive upscale then downscale

23 Progress in Canterbury CHRP 95% complete (March 2015) 68,000 home repairs unique internationally 63,000 emergency repairs 19,000 clean heat installations Cost of $8.4 billion rising to $11.5 billion Completion planned 2015 Best housing stock nationally

24 Progress Cook Strait and Eketahuna Cook Strait earthquakes : July 2013 Over 12,000 claims $29 million in settlements 97% settled Eketahuna earthquake: January 2014 Over 5,000 claims $8.9 million 91% settled

25 Reinsurance CHRP well received Funded improved housing stock Controlled inflation One of biggest reinsurance programmes globally Maintained cover and confidence externally

26 Options to Manage Disaster Risk Avoid exposure Control impact Transfer or pool Accept residual Land use planning Design and build Insurance (capital for recovery) Fix post-event; emergency response More explicit community engagement about trade-offs is needed

27 Risk Management Approaches AVOID exposure Risk Reduction through Land Use Planning Loss $ CONTROL impact Risk Reduction through Building Design/Controls Recovery funding through Insurance/Capital Markets TRANSFER Adaptive Capacity - Response and Recovery arrangements ACCEPT V. Low Frequency High

28 A Systemic Issue Planners Engineers Geologists Building control officials Communities Accountability for the risks that lie between boundaries

governing operations Crown s risk exposure Reinsurance

29 Review of Earthquake Commission Act 1993 Likely to consider: What EQC insures Price setting for EQC insurance Legislation governing operations Crown s risk exposure Reinsurance arrangements Customer interactions EQC Role in National Disaster Risk Management?

New Zealand Society for Earthquake Engineering. Saturday 11 April 2015 Rotorua

New Zealand Society for Earthquake Engineering Saturday 11 April 2015 Rotorua Annual Likelihood National Severe weather Hazard Risks 10 % Once a decade 1 % Once a century Large rural flood Major transport