Estimating Potential Capital Losses from Large Earthquakes

Abstract

Total capital losses were estimated for two earthquake scenarios in a major urban centre in the Cascadia subduction zone in the Pacific Northwest of North America. The first scenario, involving a 'design' earthquake with Richter magnitude 6.5, yields estimated total losses of $13-26bn; the second, a megathrust earthquake of magnitude 8.2-9.3 yields losses of $51-97bn. Destruction from a hypothetical subduction earthquake could represent from 28 to 93 per cent of total urban capital stock, representing a potentially serious drain on the financial reserves of the insurance industry. A principal finding of this research is that aggregate loss estimates for capital stock are sufficiently robust to reduce or eliminate the necessity of exhaustive inventorying of all urban structures, thereby permitting the relatively rapid generation of order-of-magnitude estimates of potential losses in order to facilitate the process of policy and planning for prevention and mitigation of damages.