Earthquake Workers Compensation Loss Costs for the State of California

Transcription

1 Earthquake Workers Compensation Loss Costs for the State of California SUMMARY REPORT June 2007 Prepared for Workers Compensation Insurance Rating Bureau, San Francisco, California

2 DISCLAIMER WCIRB PROVIDED EQECAT, INC. WITH DATA THAT WAS UTILIZED IN PREPARING THIS REPORT. CONSEQUENTLY, WCIRB HEREBY ACKNOWLEDGES THAT EQECAT, INC. SHALL NOT BE LIABLE FOR ANY INACCURACIES OR ERRORS WHICH MAY RESULT FROM SAID DATA. THE DATA AND ANALYSES PROVIDED BY EQECAT, INC. UNDER THIS AGREEMENT OR OBTAINED BY WCIRB INCLUDING, WITHOUT LIMITATION, DATA AND ANALYSES OBTAINED THROUGH THE USE OF ANY OF EQECAT, INC.'S SOFTWARE OR OTHER MATERIALS ARE PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND. NEITHER EQECAT, INC. NOR ANY OF ITS SUPPLIERS GUARANTEES OR WARRANTS THE CORRECTNESS, COMPLETENESS, CURRENTNESS, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF SUCH DATA AND ANALYSES EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT. WCIRB RECOGNIZES THAT GEOLOGIC, ENVIRONMENTAL, STRUCTURAL, AND GEOTECHNICAL CONDITIONS CAN VARY FROM THOSE ENCOUNTERED WHEN AND WHERE EQECAT, INC. OBTAINS ITS DATA, AND THE LIMITED NATURE OF THE DATA NECESSARILY CAUSES A LEVEL OF UNCERTAINTY. CONSEQUENTLY, ANY SOFTWARE USED IN CONNECTION WITH THE PERFORMANCE OF SERVICES UNDER THIS AGREEMENT MAY NOT INCLUDE DATA PERTAINING TO THE MOST RECENT NATURAL CATASTROPHES AS IT IS BEING REFINED AND UPDATED. AS A RESULT, ANY REPORTS GENERATED WILL REFLECT THE CURRENT STATE OF THE SOFTWARE. THE LIABILITY OF EACH PARTY FOR DAMAGES OF ANY KIND, WHETHER DIRECT OR INDIRECT AND REGARDLESS OF THE FORM OF ACTION OR THEORY OF LIABILITY, WILL NOT EXCEED THE CHARGES PAID HEREUNDER. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR LOSS OF PROFITS OR ANY OTHER SUCH LOSS, OR ANY DIRECT OR INDIRECT, SPECIAL, INCIDENTAL, AND/OR CONSEQUENTIAL DAMAGES HOWSOEVER INCURRED OR DESIGNATED. ii

3 Table of Contents Page 1. EXECUTIVE SUMMARY WORKERS AT RISK WORKERS COMPENSATION LOSS MODEL TECTONICS AND SEISMICITY OF CALIFORNIA SEISMIC HAZARD MODEL RESULTS Figures 2-1 Distribution of Employees by County Workers Compensation Portfolio Analysis Methodology Tectonic Setting of California Major Faults in California Tables 1-1 Loss Rate by Injury and Payout Type Earthquake Workers Compensation Expected Annual Loss Injury Type Definitions Historical Earthquakes of Magnitude 7.0 or Greater Earthquake Workers Compensation Expected Annual Loss Earthquake Workers Compensation Annual Aggregate Losses a Annual Aggregate Statewide Losses By Injury and Payout Type b Annual Aggregate Per Employee Losses By Injury and Payout Type iii

4 1. Executive Summary This report presents the results of the probabilistic risk analyses of the California Workers Compensation earthquake losses. The analyses are performed on a portfolio totaling 15.6 million employees distributed across all 58 counties of the state. Earthquake is the only peril considered. EQECAT Inc., a wholly owned subsidiary of ABS Consulting, performed the loss analyses using its advanced computer model simulation program USQUAKE Version 6. The analyses utilized the same version of EQECAT s proprietary software USQUAKE used for the estimation of the building earthquake losses for the California Earthquake Authority. This analysis is similar to the 2002 analysis performed with USQUAKE Version 5. The new software version includes updates of the earthquake hazard based on the USGS/CGS national and California seismic hazard maps (Frankel et al., 2002; Cao et al., 2003), updates to the casualty rate functions following new earthquake casualty data and the new WCIRB loss rate data by injury shown in Table 1-1 and representing the Policy Year 2008 cost and benefit levels. The calculation of the workers compensation (WC) earthquake induced losses is performed as follows at each business location and from each potential earthquake event. The earthquake building damage is first calculated. Using casualty rate functions, correlating building damage with the number of injuries, deaths and casualties are estimated. Finally, the WC losses are estimated using the loss rates by injury and payout type (medical and indemnity). A proprietary WC EQECAT portfolio was used to perform the analysis. This portfolio contains all business locations in California, the number of employees per business, the building structural type, the building height, the business Standard Industrial Code (SIC) and its corresponding North American Industry Classification System (NAICS). 1-1

5 1. Executive Summary Using this WC database and USQUAKE, approximately 200,000 stochastic earthquakes affecting California each with its specific characteristics and frequency of occurrence are simulated to produce probabilistic WC loss estimates. Six different work shifts namely, weekday-day, weekday-swing, weekday-night, weekend/holiday-day, weekend/holiday-swing and weekday/holiday-night were considered. Each of these shifts had associated with it a corresponding number of employees and yearly work hours. The WC losses resulting from each of these shifts were then combined to produce the overall WC losses. Table 1-2 presents the estimated California WC earthquake expected annual losses (EAL) aggregated at the state level and per employee. Table 1-1 LOSS RATE BY INJURY AND PAYOUT TYPE Mean in $ Sigma in $ Type of Injury Indemnity Medical Total Indemnity Medical Total 1 Death 250,290 40, , , , ,293 2 Permanent Total 387, , , , ,937 1,136,431 3 Major 40,308 56,631 96,939 57, , ,773 4 Minor 13,070 16,142 29,212 33,822 69,936 80,738 5 Temporary 5,490 5,042 10,532 28,386 37,510 49,826 6 Medical Only 0 2,011 2, ,515 9,

6 1. Executive Summary Table 1-2 EARTHQUAKE WORKERS COMPENSATION EXPECTED ANNUAL LOSS Employees Statewide EAL in $ Per Employee EAL in $ 15,572, ,014,

7 2. Workers at Risk The California WC portfolio consists of about 15.6 million workers including all government employees. The distribution of these employees by county is shown in Figure 2-1. Because the WC exposure depends on the number of employees at work at any given time, and the number of hours spent at the work site, it is important to map the WC portfolio into the different work shifts. We assume that there are six work shifts which are: 1. Day shift on weekdays 2. Swing shift on weekdays 3. Night shift on weekdays 4. Day shift on weekends and holidays 5. Swing shift on weekends and holidays 6. Night shift on weekends and holidays The distribution of the 15.6 million workers between these shifts was done using employee benefits data and workers comp portfolio data. 2-1

8 2. Workers at Risk 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 - Los Angeles Orange San Diego Santa Clara Alameda San Bernardino Sacramento Riverside San Francisco Fresno Contra Costa San Mateo Ventura Kern San Joaquin Sonoma Monterey Stanislaus Santa Barbara Tulare Placer Solano Marin San Luis Obispo Figure 2-1: Distribution of Employees in Top 20 Counties 2-2

9 3. Workers Compensation Earthquake Loss Model 3.1 General Methodology The basic components of an earthquake induced WC loss estimation model are: 1. Define the portfolio of properties and workers to be analyzed. 2. Specify the seismic hazard for the region of interest. 3. Estimate the earthquake ground motion at the workplaces from all affecting earthquakes. 4. Define building damage vulnerability functions based on building construction type, age and height, and estimate building damage to individual workplaces. 5. Estimate casualties at each workplace by injury type and for each work shift. 6. Estimate the workers compensation losses by injury and payout type (medical and indemnity) at each workplace and for each work shift, and combine probabilistically the losses using time weights of work shifts to estimate overall portfolio loss. Figure 3-1 displays the process Define Workers Compensation Portfolio Workers casualties are directly correlated to the extent of damage incurred by the buildings in which they work. Therefore, it is necessary to define all business locations 3-1

10 3. Workers Compensation Earthquake Loss Model with employees in California. These sites are identified and aggregated at the zip code level with the following information: Structure type (wood frame, concrete, etc.) Age of construction Height Number of employees NAICS Code Define the Seismic Hazard Section 4 describes the seismic sources and historic seismic activity in California. A probabilistic seismic hazard model, based on that information, was constructed and is described in Section 5. For this analysis, approximately 200,000 events were considered Determine the Site Hazard Severity A probabilistic seismic hazard analysis accounts for the full range of possible earthquakes, their location, frequency of occurrence, size, and the propagation of earthquake motion from the rupture zone to the sites of interest. Uncertainty in each of these elements is taken into account. The effect of local soil conditions within each individual zip code was taken into account. In general, soft soil sites will experience higher earthquake motions than firm soil or rock sites for comparable locations relative to the earthquake fault rupture zone, thereby increasing the likelihood of damage to buildings on soft soil for a given earthquake. For each zip code, up to seven soil types were considered; ranging from rock to soft soil (see Section 5 for a description of the soils classification and data sources). The relative proportion of each soil type in a zip code was based on their mapped values. 3-2

11 3. Workers Compensation Earthquake Loss Model Estimate Building Damage at the Worksites Individual building vulnerability functions, that is the probability of building damage given a level of ground shaking at the site, exist for each property type, structure type, and age of construction. Vulnerability functions account for variability by assigning a probability distribution bounded by 0% and 100% with a prescribed mean value and standard deviation. The vulnerability functions were based on historical damage data and insurance claims data -- including the analysis of over 50,000 claims from the Northridge and other earthquakes. Combine the probability distributions of ground shaking at the site and vulnerability functions to estimate the probability of building damage for each earthquake event. Combine the probability of damage at the site level probabilistically, accounting for correlation in ground shaking between zip codes and in damage level between the same and different structure types within and between zip codes. Note that considerable randomness exists in earthquake damage patterns where randomness denotes the irreducible variability associated with the earthquake event. Randomness as characterized by the following parameters was included: ground shaking damage to the average structure of a given class at a given level of ground shaking each structure's seismic vulnerability relative to the average structure of its class. Modeling uncertainty, the lack of knowledge in characterizing each element of the model, is statistically combined with randomness and correlation to estimate overall variability in damage and loss to the entire portfolio Compute Casualties By Work Shift Because the number of employees at places of work varies as a function of time of day and day of the week, it is necessary to determine the number of employees for the six 3-3

12 3. Workers Compensation Earthquake Loss Model different possible work shifts defined in Chapter 2. The day shift on weekdays accounts for most of the workers compensation exposure. Using the California WC casualty rate functions for the six injury types defined in Table 3-1, casualties by work shift at all sites and for each earthquake event are estimated. The casualty rate functions used in this analysis were developed using the most recent earthquake casualty data from Japan, Turkey and Taiwan. Table 3-1 CALIFORNIA WC INJURY TYPE DEFINITIONS Type of Injury Death Permanent Total Major Minor Temporary Medical Only Definition A permanent total type of injury is an injury which has been adjudicated to constitute a permanent disability rating of 100% or which, in the judgment of the insurer, will result in a 100% permanent disability rating. A major type of injury is a permanent partial injury, not constituting permanent total disability, which has been adjudicated to constitute a permanent disability rating of 25% or more (but less than 100%) or which, in the opinion of the insurer, will result in a permanent disability rating of 25% or more (but less than 100%). A minor type of injury is a permanent partial injury, not constituting permanent total disability, which has been adjudicated to constitute a permanent disability rating of less than 25% (but greater than 0%) or which, in the opinion of the insurer, will result in a permanent disability rating of less than 25% (but greater than 0%). A temporary type of injury is a compensable injury which is not classified as permanent and which extends beyond the waiting period specified in the workers compensation laws of California. A medical only type of injury is an injury for which no indemnity is incurred. In general, such claims include all compensable injuries in which the disability does not extend beyond the waiting period specified in the workers compensation laws of California. 3-4

13 3. Workers Compensation Earthquake Loss Model Compute Casualties By Work Shift For the purposes of this analysis, the end result of the probabilistic seismic hazard analysis is the expected annualized workers compensation loss. Using the loss rates by injury and payout type in Table 1-1, WC losses are estimated for each earthquake event and for each work shift. These losses are then statistically combined to provide the overall expected annual workers compensation losses. 3-5

14 3. Workers Compensation Earthquake Loss Model Catastrophe Modeling Methodology Step One: Define the Workers Comp Portfolio Catastrophe Modeling Methodology Step Two: Define the Seismic Hazard Individual Locations Individual Risk Information Location Construction type Age of building Building replacement value Number of employees NAICS code EARTHQUAKE Strike-slip Thrust Magnitude Frequency Location Rupture Length Catastrophe Modeling Methodology Step Three: Determine Site Hazard Severity Catastrophe Modeling Methodology Step Four: Estimate Building Damage at Worksites Estimate Building Damage for each Site Site hazard intensity converted into damage distribution Distance (d) Local Site Factors (Soil) GROUND MOTION Calculated for each Location PGA=f(M 1,d,regional geology) SA = f(pga, soil) Bldg Vulnerability Functions Calculated Building damage Dam ageability for each Location 100% 80% DMG 60% 40% 20% 0% VI VII VIII IX X Hazard MMI Severity Const 1 Const 2 Const 3 Catastrophe Modeling Methodology Step Five: Compute Casualties By Work Shift Catastrophe Modeling Methodology Step Six: Compute Workers Comp Loss Injury/Death Rate Severity 1 Severity 2 Severity 3 Severity 4 Bldg Damage % Apply Severity/Casualty Rate Functions: - Death - Permanent Total - Major - Minor - Temporary - Medical Only Apply Loss Rates and Combine Work Shift Losses Using Shift Time Weights: - Medical - Indemnity Figure 3-1: Workers Compensation Portfolio Analysis Methodology 3-6

15 4. Tectonics and Seismicity of California 4.1 Tectonic Setting Crustal Plate Boundary California is located astride the boundary between the North American and Pacific crustal plates. Such plate boundaries are the source of most earthquakes around the world, and California is no exception. The plate boundary in California is delineated by the San Andreas Fault system. This fault system represents the network of faults with predominantly right-lateral slip that collectively accommodate most of the relative motion between the North American and Pacific plates. The boundaries of this fault system are poorly defined, but to separate the San Andreas Fault system from other tectonic provinces and systems, it is useful to limit the term to the set of faults along the Pacific rim of North America, both on land and off shore. Accordingly, at the latitude of San Francisco, the system is approximately 80 kilometers wide, and at the latitude of San Diego approximately 150 kilometers wide. The San Andreas Fault system is part of a complex system of faults that collectively separate the North American plate from the Pacific plate (Figure 4-1). On a more generalized scale, the North American plate can be thought of as lying across and partly covering the northern part of the Pacific system of plates. In simplified terms, the Pacific system of plates includes three elements: a westward-expanding plate (the Pacific plate), two eastward-expanding plates (the Juan de Fuca and Gorda plates), and a spreading center (the East Pacific Rise) from which the plates expand as new crustal material is added. To the north, the Pacific plate is under-riding, or being subducted under, the North American plate along the Aleutian thrust in Alaska. At its north end, the San Andreas Fault joins the Mendocino Fracture Zone at a high angle, and there three plates converge to form a triple junction. At this triple junction, one plate moves relatively northwestward (the Pacific plate), one southeastward (the 4-1

16 4. Tectonics and Seismicity of California North American plate), and one eastward and southward (the Gorda plate), subducting under the North American plate. This subduction process extends along the entire Cascadia Subduction Zone off the North American coast from Cape Mendocino to midway up Vancouver Island in British Columbia, Canada. At its southeast end, the San Andreas Fault system merges more gradually with the set of transform faults underlying the Gulf of California. Just northwest of the Gulf of California, the trend (strike) of the San Andreas Fault system changes to much more westerly, spawning a north-southtrending zone of faults and seismicity that extends more northward across the Mojave Desert into the Owens Valley in eastern California Faults of the San Andreas Fault System The San Andreas Fault system consists primarily of the San Andreas Fault and several major branches, such as the Hayward and Calaveras Faults in Northern California and the San Jacinto and Elsinore Faults in Southern California. In Southern California, the San Andreas Fault splits into northern and southern branches in the eastern Transverse Ranges, locally called the San Bernardino Mountains, east of Los Angeles. These major faults accommodate about two-thirds of the right-slip motion between the North American and Pacific plates. Numerous smaller branches and extensions of the San Andreas Fault system include such faults as the Rodgers Creek and Maacama Faults in Northern California, which may be considered northward extensions of the Hayward Fault. The Green Valley and Bartlett Springs Fault zones north of San Francisco Bay form a complex northern extension of the Calaveras Fault. The San Gregorio Hosgri Fault zone branches off from the San Andreas Fault near the Golden Gate and continues off shore as far south as the western Transverse Ranges near the latitude of San Luis Obispo. At the south end of the system, the Imperial Fault represents a transition from the more continuous San Andreas Fault north of the Salton Sea to a more nearly echelon pattern of faults characteristic of the faults under the Gulf of California. The Superstition Hills and Coyote Creek Faults similarly represent a transition from the San Jacinto Fault to a more segmented pattern of faults to the south in Mexico. The Newport-Inglewood Rose Canyon Fault zone extends from just south of Los Angeles through the densely 4-2

17 4. Tectonics and Seismicity of California populated southern Los Angeles Basin, moving off shore near Huntington Beach, then re-emerging on shore near La Jolla to terminate at downtown San Diego. Notable rightlateral faults off the coast off Southern California within the so-called borderlands include the Palos Verdes and San Clemente Faults. 4.2 Historical Earthquakes Significant Earthquakes The Northern California earthquake of April 18, 1906 (M W 7.8) ranks as one of the most significant earthquakes of all time. Often referred to as the great San Francisco earthquake, this earthquake ruptured the northernmost 430 kilometers of the San Andreas Fault from northwest of San Juan Bautista to the triple junction at Cape Mendocino. At almost 5:12 a.m., local time, a foreshock occurred with sufficient force to be felt widely throughout the San Francisco Bay area. The great earthquake broke loose some 20 to 25 seconds later, with an epicenter off the Golden Gate near San Francisco. Over 2000 deaths are attributed to the earthquake with most of these in the city of San Francisco. Most of the city was destroyed by either shaking or fire, which raged for several days before being contained by crudely constructed fire breaks. The earthquake was felt from southern Oregon to south of Los Angeles and inland as far as central Nevada. The highest shaking intensities of VII to IX on the Modified Mercalli scale paralleled the length of the rupture, extending as far as 80 kilometers inland from the fault trace. Rivaling the 1906 earthquake in size is the great Fort Tejon earthquake of January 9, 1857 (M W 7.9), which ruptured 300 kilometers of the San Andreas Fault from Parkfield to Wrightwood. The epicenter of the event appears to have been at the extreme northwest end of the fault rupture, as determined by the intensity patterns of two magnitude 6 foreshocks centered near Parkfield. Strong shaking lasted from 1 to 3 minutes, consistent with unilateral rupture propagation toward the southeast. The earthquake caused only two deaths in the sparsely settled Southern California region. Damage was most severe along the fault zone where, for example, nearly every building sustained damage at For Tejon. In Los Angeles, then a city of about 4,000 people located 4-3

18 4. Tectonics and Seismicity of California approximately 60 kilometers from the fault, some houses were cracked, but none were severely damaged. Modified Mercalli intensities of VII or more occurred in the San Fernando Valley, San Gabriel Valley, and Ventura region. Other earthquakes, notable because of their damage, fatalities, or location within highly urbanized areas of California, include the 1868 earthquake (M W 7.0), which occurred along the southern part of the Hayward Fault in the now densely populated East San Francisco Bay region; the 1933 Long Beach earthquake (M W 6.4) that occurred on the Newport-Inglewood Fault in the southern part of the Los Angeles Basin; the 1971 San Fernando earthquake (M W 6.6) that ruptured the San Fernando Fault along the northern boundary of the San Fernando Valley; the 1989 Loma Prieta earthquake (M W 6.9), which occurred on the Loma Prieta Fault (a branch of the San Andreas Fault in the Santa Cruz Mountains) and caused extensive damage to structures located on poor soils 100 kilometers north of the epicenter in the San Francisco and Oakland areas; and the 1994 Northridge earthquake (M W 6.7) that occurred on a blind thrust fault beneath the western San Fernando Valley and caused over $40 billion in damage (and over $12.5 billion of insured losses), the most costly earthquake in the United States history Earthquake Catalogs The historical record of major earthquakes affecting California, western Nevada, and northernmost Baja California (Mexico) includes basic seismologic data on over 200 of the largest earthquakes that have occurred between 1769 and the present (Ellsworth, 1990; Petersen and others, 1996; Stein and Hanks, 1998). These catalogs list all known magnitude 6 and larger earthquakes and include new and updated information on their locations. In the current study, EQECAT used a catalog of earthquakes that represents a compilation from these three sources, selectively updated with information on specific earthquakes from special studies when available. According to this catalog, there have been 15 earthquakes of magnitude 7 or larger that have occurred in California from latitudes 32 N. to 42 N. and from the Nevada border to longitude 125 W. since 1769, when the first earthquake was reported. A listing of these earthquakes is given in Table 4-1. The four largest earthquakes in this catalog are the 1857 Fort Tejon earthquake (M W 7.9) and the1906 San Francisco earthquake (M W 7.8), both of which are discussed 4-4

19 4. Tectonics and Seismicity of California above; the 1872 Owens Valley earthquake (M W 7.6) that ruptured 100 to 110 kilometers of the Owens Valley Fault along the eastern front of the Sierra Nevada in the Basin and Range; and the 1838 San Francisco Peninsula earthquake (M W 7.5) that is believed to have ruptured the San Andreas Fault along the entire length of the San Francisco Peninsula from San Juan Bautista to San Francisco. 4-5

20 4. Tectonics and Seismicity of California Table 4-1 HISTORICAL EARTHQUAKES OF MAGNITUDE 7.0 AND GREATER IN CALIFORNIA AND NORTHERN BAJA CALIFORNIA (a) Year Month Day Hour Magnitude (a) From latitudes 32 N. to 42 N. and from the Nevada border to longitude 125 W. 4-6

21 4. Tectonics and Seismicity of California Figure 4-1: Tectonic Setting of California 4-7

22 4. Tectonics and Seismicity of California Figure 4-2: Major Faults in California 4-8

23 5. Seismic Hazard Model 5.1 Introduction The calculation of annualized losses requires a probabilistic representation of the location, frequency, and anticipated ground shaking of all earthquakes that can be expected to occur in the region. The characterization of the location and frequency of earthquakes comprise what is commonly known as a seismotectonic model. The seismotectonic model and the attenuation of relevant ground-shaking parameters serves as input to a specialized computer program that is used to compute the seismic hazard at a specific property or portfolio of properties. This calculation is commonly referred to as a probabilistic seismic hazard analysis, or PSHA. Seismic hazard is commonly defined in terms of the return period associated with one or more values of a ground-shaking parameter, such as peak ground acceleration (PGA), Modified Mercalli intensity (MMI), or response-spectral acceleration (S a ), a measure of acceleration associated with a building s natural period of vibration. However, it can be defined alternatively as an annual frequency or annual probability of exceedance. A plot of the hazard versus PGA, MMI, or S a is known as a seismic hazard curve. This curve is the fundamental seismic hazard input required for the calculation of annualized losses. 5.2 General Methodology There are five components that make up the overall seismic hazard model: Source zonation Recurrence frequency Attenuation of ground shaking Soil classification and amplification Hazard computation 5-1

24 5. Seismic Hazard Model A brief discussion of each of these components is given below. For additional details, the reader is referred to publications by the EERI Seismic Risk Committee (1989) and by Reiter (1990) Source Zonation Source zonation entails identifying potential seismogenic sources that can affect the site. These sources can either be faults or diffuse zones of seismic activity, commonly referred to as area sources and background seismicity. Each source zone represents a fault or area in which earthquakes are expected to be uniformly distributed with respect to location and size. Background seismicity is distinguished from an area source by the way that earthquake locations are treated. Earthquakes associated with background seismicity are allowed to have recurrence frequencies that smoothly vary over a region. Both area sources and background seismicity can include large earthquakes and are intended to model areas containing hidden or unknown faults or known faults which are too numerous to be modeled individually. Earthquake source zones are identified from information on the geology, tectonics, and historical seismicity of the region Recurrence Frequency For each of the earthquake source zones, an earthquake recurrence relationship is developed. For area sources and background seismicity, this relationship is developed using an appropriate earthquake catalog, which is a listing of historically recorded or documented earthquakes. The catalog is analyzed for completeness by determining the time period over which all earthquakes of a given magnitude are believed to have been reported. Magnitudes are converted to a consistent magnitude measure (e.g., moment magnitude, M W ) for use with the strong-shaking attenuation relationships (described in a later section) and for the determination of earthquake recurrence relationships. Faults are modeled by either a characteristic earthquake model or a Gutenberg-Richter recurrence relationship, or both, depending on the available geologic information. The recurrence times for characteristic faults were determined from historical earthquake sequences (e.g., the Parkfield segment of the San Andreas Fault) or paleoseismic earthquake sequences, when available, or from geologic slip rate (Petersen et al., 1996). 5-2

25 5. Seismic Hazard Model For all other faults, the recurrence times represented by the characteristic-earthquake and GR relationships were both calculated from geologic slip rate. The GR relationships for area sources and background seismicity were derived from historical seismicity. For faults, the maximum magnitude of the GR relationship and the characteristic magnitude of the characteristic-earthquake model were estimated from source dimensions using relationships given by Wells and Coppersmith (1994). The maximum magnitude for all other sources was estimated from historical seismicity and tectonics Attenuation of Ground Shaking Attenuation relationships are used to predict the expected amplitude of ground shaking at a site of interest knowing an earthquake s magnitude and the distance from the fault to the site. Ground shaking is characterized by one or more ground-shaking parameters, the most notable of which are peak ground acceleration (PGA), responsespectral acceleration (S a ), and Modified Mercalli intensity (MMI). These predictions are made for a uniform soil condition. Attenuation relationships are chosen to correspond as closely as possible to the tectonic environment of the region, since regional differences in earthquake source characteristics, crustal propagation properties, and site-response characteristics are known to have a significant affect on the observed ground shaking Soil Classification and Amplification Soil amplification factors are used to modify the ground-shaking parameter calculated for a uniform soil condition for the specific soil conditions at the site of interest. These factors are different for each ground-shaking parameter. They are defined in terms of one or more site categories (or classes), each representing a specific set of siteresponse characteristics. Soil categories are defined in terms of simple qualitative or quantitative site descriptions, such as surface geology and shear-wave velocity (the speed at which seismic waves travel through the soil deposit, a measure of the strength of the deposit). 5-3

26 5. Seismic Hazard Model Hazard Computation The zonation, recurrence, attenuation, soil classification, and soil amplification components of the seismic hazard model described above are aggregated using PSHA to estimate the frequency that specified ground-shaking values are exceeded at the site(s) of interest. The hazard calculations are performed using a specialized computer program. The results are summarized in terms of a seismic hazard curve, which gives return period (or its reciprocal, exceedance frequency) as a function of the amplitude of groundshaking. The calculations account for randomness (also known as aleatory variability) in the location and frequency of earthquakes and in the expected amplitude of ground shaking from these earthquakes. 5-4

27 6. Results EQECAT analyzed the California WC portfolio to a suite of probabilistic events using the proprietary computer program USQUAKE. The goal of the probabilistic analysis was to calculate the EAL calculated as the sum over all events of the product of the expected loss and annual frequency of each event. When combining the losses from the six different work shift using their respective time weights, the statewide EAL per employee is estimated at $ Table 6-1 presents the EAL at the statewide level and per employee. Table 6-2 presents the annual aggregate losses at five return periods. Tables 6-2a and b present the annual aggregate losses by injury and payout types at the same five return periods. Table 6-1 EARTHQUAKE WORKERS COMPENSATION EXPECTED ANNUAL LOSS Employees Statewide EAL in $ Per Employee EAL in $ 15,572, ,014, Table 6-2 EARTHQUAKE WORKERS COMPENSATION ANNUAL AGGREGATE LOSSES Return Period in Years Probability of Nonexceedence in % Statewide Loss in $M Per Employee Loss in $ , , ,

28 6. Results Return Period in Years Table 6-2a ANNUAL AGGREGATE STATEWIDE LOSSES BY INJURY AND PAYOUT TYPE IN $1000 Nonexceedence Medical Indemnity Prob in % Death Permanent Major Minor Temporary Medical Death Permanent Major Minor Temporary Medical % 113,508 1,527,626 1,353, ,357 76,576 52, , ,984 1,053, ,456 54, % 72,745 1,001, ,358 96,570 51,630 35, , , ,755 74,982 36, % 40, , ,601 57,144 30,401 20, , , ,105 44,434 21, % 3,309 48,429 43,909 5,876 3,117 2,082 30,164 30,302 34,705 4,568 2, % Return Period in Years Nonexceedence Prob in % Table 6-2b ANNUAL AGGREGATE PER EMPLOYEE LOSSES BY INJURY AND PAYOUT TYPE IN $ Medical Indemnity Death Permanent Major Minor Temporary Medical Death Permanent Major Minor Temporary Medical % % % % %

29 Contact for Questions Concerning EQECAT s Workers Compensation Studies: Frankfurt, Germany Fax London, UK Fax Oakland, CA Fax Paris, France Fax San Francisco, CA Fax Tokyo, Japan Fax Warrington, UK Fax Wilmington, DE Fax