The Himalayan belt in the South Asian region comprising the nations of India, Nepal, Bangladesh, Pakistan and Myanmar is at great risk of a magnitude 8 earthquake, geologists warn. An earthquake of 7.8 magnitude that hit Nepal in 2015 had resulted in losses of catastrophic proportions for the landlocked country and so another one of similar magnitude could turn the densely-populated region into a major disaster. We speak to some experts about managing this risk as well as hear from the Nepal government on how they are working to protect the country from another catastrophic event.
A recent report by National Geographic stated that the Himalayan region of South Asia, which is home to over 150 million people could be sitting atop an active megathrust fault, the same kind of geologic feature that caused the catastrophic magnitude 9.0 earthquake in Japan in 2011.
The region has one of the largest collision plate boundaries on earth between the India plate and Eurasia plate. The collision zone extends from Pakistan in the west, through the Himalayas in the north, to the Indo-Myanmar range in the east and is more than 4,000 km long. The two plates are currently colliding at a rate of 4 to 5 cm per year.
Earthquake prone region
More than 30 earthquakes have caused significant damage in the region in the past 250 years, with the majority occurring in the last 100 years.
“Many portions of the collision zone in South Asia have not had a M7.5 earthquake for a long time, so a large amount of tectonic energy may have accumulated in these areas, which could potentially produce an earthquake of that magnitude or greater in the near future,” said Dr Kanagarathinam Lakshmi, Senior Research Engineer, AIR Worldwide.
Catastrophic consequences
The highly populated Gangetic plain is very close to the Himalayan seismic gap with many Indian cities in very close proximity.
“Soft soil along the Gangetic plain will amplify the seismic waves which will further increase the ground shaking effects,” said Mr Vineet Kumar, Head of Cat Perils Asia Hub, Swiss Re. He gave an example of India’s capital New Delhi which experiences even moderate earthquakes that occur around 1,500 km away.
To add to this, the construction practices in these regions are not earthquake resistant with around 90% of building stock falling in the category of masonry structures. “These factors clearly indicate that the impact of a high magnitude earthquake in Himalayan region will be catastrophic with huge social and economic consequences,” said Mr Kumar.
He highlighted that with the low insurance penetration rate in this region, only a very small portion of the losses will be covered by insurance and in the event of an earthquake happening, it will make the disaster recovery process longer for the region.
Huge protection gap exists in region
Recent earthquakes in South Asia such as in Nepal in 2015 and a few years earlier in the states of Sikkim and J&K in India have shown that a significant protection gap exists in the region, with well over 95% of economic losses remaining uninsured.
Much of the burden of covering these losses falls back on the governments, which then need to provide for extra-budgetary resources to fund recovery and rebuilding.
“Governments should consider risk transfer to cover their contingent liabilities arising from natural disasters,” said Mr Satish G Raju, Head of Global Partnerships, South Asia, Swiss Re. He highlighted how parametric earthquake insurance provides quick payouts determined by the intensity and geographic spread of an earthquake occurrence.
Provincial governments of Heilongjiang and Guangdong in China have, in 2016, covered the fiscal risks of natural disasters through such parametric insurance solutions.
CAT models for effective underwriting of CAT risks
Underwriters use catastrophe models to rate the pricing of individual properties. At the portfolio level, catastrophe models provide insight into the amount of capital an insurer needs to reserve to fulfil its obligations. In essence, catastrophe models help insurers effectively grow and absorb new risks without exceeding the risk appetite of the business.
Dr Lakshmi highlighted how models have also been used in the development of unique financing vehicles that provide communities, where insurance is unavailable or the insurance take-up rate is low, with financial support after a disaster strikes. Through disaster risk financing programmes, financial instruments can be designed with the specific needs of a population in mind. Catastrophe models quantify the risk a population is exposed to, helping to optimally determine how much capital a program needs to provide.
Governments can use CAT models for better preparedness
Governments and disaster management experts can also use catastrophe models to identify regions, infrastructure, and property that are potentially at risk.
Governments can use this information to craft policy that would help a community become more resilient to a disaster. For example, seismic building codes can be strictly enforced in highly vulnerable regions and earthquake-resistant construction can be implemented by adequate education or awareness programmes.
Nepal’s regulator’s pro-active role
Nepal had faced two devastating earthquakes in April and May 2015, which resulted in over 9,000 deaths and property losses estimated at NPR500 billion (US$4.8 billion). Many of the country’s national heritage structures were destroyed and a number of large infrastructure projects were affected.
The Beema Samiti (Insurance Regulatory Board of Nepal) immediately got active in mobilising insurers from both the life and non-life segment to respond to the claims without any delay. It eased the formalities relating to appointment of surveyors and gave permission to insurers to bring in foreign surveyors to speed up the claims process and continuously monitored the situation on the ground.
The goodwill earned from the public has become an effective marketing tool for insurers and the industry witnessed an increase in demand for insurance products.
“The government of Nepal has signed an agreement with the World Bank in order to reform and strengthen the insurance sector in the country,” said Mr Chiranjibi Chapagain, Chairman of the Beema Samiti.
The regulator has also had discussions with the Nepal Rashtra Bank (the central bank of Nepal) to introduce a provision in its monetary policy to make insurance mandatory while obtaining loans from banks for construction and business purposes.
New construction guidelines introduced
The National Reconstruction Authority of Nepal has issued guidelines that only earthquake safe structures will be allowed in village areas.
Similarly, the Government of Nepal has promulgated a new “Resident development, town planning and construction of building” guideline. “These policy initiatives and preventive measures will ensure that the physical losses from a possible earthquake will be minimised,” said Mr Chapagain.
The regulator is planning a massive campaign across the country to create awareness of insurance among the population and this is being done in collaboration and coordination with the newly-elected local government. A
| AIR Worldwide’s earthquake model for India
The AIR Earthquake Model for India calculates losses across coverages, locations, policies, portfolios, and events. The model has a stochastic catalogue that simulates 10,000 years of earthquake activity to capture the range of potential losses.
Damage functions have been evaluated across all lines of business – including personal accident, commercial, and industrial facilities; they have been tailored to India’s unique construction practices and code requirements and have been peer-reviewed by local experts at leading Indian institutions. The model provides a probabilistic, simulation-based view of earthquake risk in India.
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