Newsletter Sign-up

Catastrophe risk consulting firm Global Risk Miyamoto sent a team to study the damage and survey client properties, but returned with a much broader view of what they saw.

"Risk management is really needed, really needed in China," said GRM Co-Chair Kit Miyamoto.

At another site, the machinery had been properly anchored to the floor and the structure performed well, yet a steel mezzanine inside failed and collapsed on equipment. The exterior of another modern steel facility looked almost brand new after the quake.But when they looked inside investigators found the steel-making equipment hadn't been properly anchored and had slid off of its pads.

"Everything went right from the building's perspective, but the building is shut down," said Chris Heaton, a principal at GRM.

It appears that many commercial buildings in the quake area faired pretty well from the "building's perspective."

"Urban commercial structures in the whole performed well, with modern building materials and design able to handle earthquakes significantly better than the majority of buildings in the province," said Paul Fair, loss adjuster and technical manager for McLarens Young International in Hong Kong.

Even if nothing went wrong within a facility, Heaton said, the damage to the surrounding infrastructure and the trauma to the workforce in the area was so severe that it could be some time, months, before business might get back on-line.

Fair agrees. Despite the combination of mourning, dislocation and rescue efforts he said that local businesses worked toward minimizing interruption to their operations.

"Unfortunately, the difficulties of finding labor and materials created delays and transport restrictions prevented the business restocking," he said.

Overall, though, it didn't appear that the companies in Sichuan had a sense for their seismic hazard risk.

Local companies didn't have insurance for the event for the most part, according to Fair. He reported that companies in Chengdu, which is located about 50 miles from the epicenter of the quake and is the 10th largest city in China by gross domestic product, tend to have insurance but that local policies exclude quake. Outside of the city--"the areas really affected by the earthquake," he said--no insurance really is purchased.

"The implications of the current insurance coverage is that Chinese companies will continue to suffer massive losses, being unable to sufficiently protect their interests with the local insurance market," said Fair.

Western companies in the area tend to have international coverage fronted by local carriers, which would have quake cover. But "claim numbers were minimal," the adjuster reported.

"We actually only handled one commercial loss of reasonable size for a sport equipment retailer, which suffered structural building damage and business interruption," Fair said.

LARGER LESSONS

Miyamoto and Heaton didn't sound convinced that risk managers and corporate leaders anywhere have a grasp of their quake risk either.

"Let's not worry about it right now," is the attitude of many companies, according to Miyamoto.

Yet assessing and mitigating quake risk ahead of time can save in months of business interruption and millions of dollars in direct property damage after an event.

"It's so cost-effective to do seismic risk mitigation before the earthquakes," said Miyamoto (whose firm, it should be said, specializes in this).

And by the way, if you're built to code, don't think you're done and won't need further assessment. Building codes worldwide are meant to protect lives, not a company's finances.

Code engineers look at how a structure's systems work together to prevent a total collapse. But they don't dig into the details of an individual structure to make sure that, say, its mezzanine won't collapse on machinery.

From what the GRM team saw in Sichuan, not just corporations and their risk managers need to reassess their earthquake risk. Government and scientific authorities need to do so as well. The area in which the quake happened had been previously considered a moderate quake zone. Yet the magnitude 7.9 quake gave the lie to that idea.

It razed many of the building types that are typically found in moderate quake zones. Many of the buildings, including schools and hospitals, were made of unreinforced masonry brick and nonductile concrete that isn't well reinforced and is very brittle.

"Places looked like after a bombing," recalled Miyamoto, who has posted his observations and photos from the GRM trip on the company Web site. "It was really, really bad out there."

Such construction types are found in various places globally including Japan, South America, and Eastern Europe, as well as in United States in the Midwest and the Pacific Northwest.

"Where else do we have those construction types that are in earthquake zones?" said Heaton.

You would hope local governments and seismologists would know, as well as your risk manager.

MATTHEW BRODSKY is senior editor/Web editor of Risk & Insurance®.

July 1, 2008

Copyright 2008© LRP Publications