The Loma Prieta Earthquake cost insurers less than a billion dollars when it shook Central California on Oct. 17, 1989. Thirty years later, a recurrence would generate $4 billion in insured losses, according to modeling firm RMS.
RMS also estimated that the event that caused $6 billion in economic losses and $902 million in insured losses in 1989 would cost $38 billion in economic losses today.
Factors accounting for the increases include:
- Increased productivity. In 2017, the San Francisco Bay Area was the 19th largest economy in the world with a GDP of $748 billion. This means more buildings in the same area, increasing the likelihood of substantial damage. In fact, the headquarters of six of the world’s 10 largest technology companies (according to Forbes) would experience strong shaking, RMS said.
- Increased population: Since the event, the eight counties most heavily affected (San Francisco, San Mateo, Santa Cruz, Monterey, San Benito, Santa Clara, Alameda, and Contra Costa) have added almost two million residents, a growth of nearly 35 percent.
But noting that a more than six-fold jump in economic losses compared to a four-fold increase in insurance losses, RMS also noted the increased protection gap. “With a relatively low insurance penetration of about 10 percent, a significant portion of homes are not adequately protected and will take longer to rebuild which will disrupt communities and the region’s economic output,” RMS said.
Importantly, RMS noted that while an identical earthquake to Loma Prieta will not occur again, the likelihood of an earthquake of the same magnitude (Mw 6.9) or higher hitting the Bay Area within the next year is very high: 5.3 percent.
RMS has produced a report which models four different earthquake scenarios of the same magnitude, impacting different communities around the Bay Area. Among them, the Northeast Bay scenario has the largest insurance cost, $27 billion, covering a fraction of $184 billion in economic losses. Insured losses for the other scenarios range from $15 billion to $22 billon—all significantly above the $4 billion estimated for an exact Loma Prieta repeat.