The devastating earthquakes in Turkey and Syria earlier this year highlighted the importance of evaluating earthquake risk, mitigating risk factors, and acting on response preparedness.

The Aon Global Catastrophe Recap paints a jarring portrait: the first half of 2023 has witnessed the fifth most economically devastating string of natural disasters since records began, and the most crippling since 2011. The cataclysms in Turkey and Syria—earthquakes of immense magnitude—account for nearly half of the global losses, preliminarily pegged at a staggering $194 billion.

Although estimates of the earthquakes’ economic toll vary, a consensus has emerged around the figure of $91 billion. This sum, articulated by the Turkish government in conjunction with the World Bank, the United Nations, and the European Union, covers a wide range of physical damages.

Meanwhile, in California, a series of subtler, yet consistent tremors serve as harbingers of a dormant seismic menace. Despite the absence of a major earthquake in decades, the Golden State’s geological instability remains a serious concern for residents and businesses alike.

“Despite there not being a major event in almost 30 years, there have been enough tremors in California to startle a lot of corporates,” observes Megan Linkin, Swiss Re’s senior parametric natural catastrophe structurer for North America. She points to the Napa Valley earthquake of 2014, the Ridgecrest sequences in 2019, and Eureka’s tremor in 2022 as cases in point.

This unsettling pattern has fueled interest in earthquake insurance products that go beyond the mere evaluation of structural damages. A holistic, community-centric strategy is emerging—one that considers the entire value chain of a business, rather than focusing solely on the physical infrastructure.

Modern building codes offer a fundamental layer of defense against the caprices of Mother Nature. According to the U.S. National Institute of Building Science’s Natural Hazard Mitigation Saves, for every dollar spent on new code construction, we save $11 in disaster-related expenditures. Yet, despite this potential for vast savings, only 27% of American cities and counties have updated their building codes to be resistant to natural hazards.

“Each devastating earthquake shows the importance of seismic-resistant building codes and practices, but in the U.S., these differ from state to state,” says Kate Stillwell, president of Parametric Insurance. “Brick masonry buildings are particular safety hazards, and in California brick masonry buildings have been outlawed since 1933 after the magnitude 6.4 Long Beach earthquake killed children in a brick school. In most other states, brick buildings remain commonplace.”

“In the U.S., earthquakes are not just a California problem,” Stillwell says. “The New Madrid seismic zone could affect Missouri, Illinois, Indiana, Kentucky, Tennessee, Arkansas, and beyond.”

The evolution of FEMA’s Building Code Strategy

In March of 2022, the Federal Emergency Management Agency (FEMA) took the notable step of revamping its building code strategy. The initiative aims to streamline the adoption and enforcement of hazard-resistant building codes across agency programs.

“Building codes save lives, time, and money,” says Mike Grimm, FEMA’s acting deputy associate administrator for insurance and mitigation. “That’s why FEMA encourages jurisdictions to adopt and remain in line with the current model codes. Buildings designed and constructed to modern building codes developed by the International Code Council withstand the effects of natural hazard events, including flooding, high winds, and earthquakes, better than buildings that are not.”

Christine Goulet, a geophysicist with the United States Geological Survey (USGS), calls for continued advancements in building codes, emphasizing that enforcement during construction is just as crucial.

“For example,” Goulet says, “masonry and concrete buildings should be properly reinforced with steel and, ideally, include shear walls. Shear walls are steel-reinforced ‘strong’ walls that prevent the displacement of one floor relative to the other, therefore reducing the stress on support columns.”

Goulet notes that another effective design solution, albeit a bit more expensive one, involves building structures with base isolators at their foundation. Other options include incorporating various damping systems within the structure, designing “damageable” elements to take the brunt of the stress in lieu of the critical supporting columns, or encasing columns with polymer wraps.

Beyond property: The economic fallout of quakes

The economic ramifications of a severe earthquake extend beyond human casualties and the obliteration of buildings. Major quakes disrupt utilities, and supply chains, and even close schools and workplaces. Megan Linkin notes that both corporations and governments are increasingly turning to parametric insurance to mitigate these risks.

For example, it’s being used for earthquake exposures that are challenging to insure, such as assets that are difficult to value. “In Latin America a couple of years ago, we entered into a policy with an agency that was responsible for maintaining cultural sites,” Linkin says. “You can’t use traditional underwriting methods and risk assessment methods to determine how much it would cost to replace such an asset. From a company perspective, an important thing to remember is that you are only as resilient as the least resilient part of your value chain.”

“We have also seen it for financial disruption. Your actual physical assets are hardened against earthquake…but the broad area could potentially be disrupted, and economic productivity could be reduced in the area in which you operate. That could lead to revenue shortfalls.”

Linkin says businesses also use parametric insurance when exploring their reliance on one piece of critical infrastructure. “That could be a port, that could be an airport, it could also be a bridge or a tunnel where, if they rely on that bridge operating or on that tunnel being open or on that airport or that port operating, if that piece of critical infrastructure goes down, their ability to operate their business evaporates or nearly evaporates or they need to invest significant funds to reorganize their business plan.”

Open-source resilience

John Schneider, secretary general of the Global Earthquake Model Foundation (GEM), emphasizes the essential role of public-private partnerships in seismic risk mitigation. Risk assessment should not be a clandestine operation confined to experts; it must be openly shared and owned by the entire society, he contends.

“The catastrophic level of damage to buildings and the resulting death toll from the February earthquakes would have been avoided or substantially reduced if an understanding of the risk and the responsibility for addressing it were fully owned by the entire society. The sense of responsibility and ownership starts with the professionals that measure and manage risks.”

Sarah Cumbers, director of evidence and insight at Lloyd’s Register Foundation, echoes this sentiment, underlining the need for a multifaceted approach to resilience that incorporates social and institutional trust, financial stability, and community cohesion.

“While there are technical and engineering aspects specific to earthquake resilience,” says Cumbers, “many aspects of resilience—at an individual, household, community, or societal level—are generic and help protect people in the face of all sorts of natural hazards and other shocks. For instance, household financial resilience, community cohesion, and trust in local and national government institutions all have a role in determining outcomes.”

This article was originally posted in Leader’s Edge.