Quick, what’s the most seismically active state? If you guessed California, you’re wrong.
Oklahoma has moved to the top of the list, at least among the lower 48.
This past weekend a magnitude 5.6 earthquake rocked Oklahoma and surrounding states, reminding us that what used to be an anomaly is becoming more commonplace. The number of earthquakes of magnitude 3.0 or greater in the Sooner State has grown from roughly two a year to an average of three a day.
From two a year to three in a single day. Let that sink in for a minute.
A major culprit is believed to be an increase in wastewater injection into the ground, a process used for disposal of produced water from drilling operations.
Our updated models show expected frequency of a loss-causing earthquake in Oklahoma increases nearly 15 times and the chance of an earthquake causing significant damage (over USD 1 billion) is now approximately a 75-year occurrence, compared to being a near-impossibility in the pre-fracking era.
So there’s a steep price to pay, if we’re not prepared. According to our new report by our Americas Catastrophe Perils team, “prices and risk models developed more than a few years ago are no longer relevant given the levels of hazard we observe today.” This aggressive uptick in frequency (and severity) could spell doom for businesses, residents and entire communities unless we collectively recalibrate our risk assessment and pre-disaster financing methods.
For Swiss Re and our clients, the challenge is twofold: addressing a catastrophe of growing proportions and underwriting to increased liability risk.
At the heart of the issue is a sizeable protection gap: a large segment of the Oklahoma population doesn’t have earthquake insurance, due in large part to high deductibles that up until now have outpaced losses. Without an earthquake policy some may seek compensation through litigation, but determining who’s to blame (and should pay) isn’t always easy. There’s no definitive way to distinguish between a naturally occurring earthquake and one induced by human action.
Consider also that for residents, farmers, businesses and the manufacturing sector the possibility of accumulation loss increases with more frequent and forceful events. Loss of power can lead to widespread business interruption, for example. It’s time to ask some important questions. Have policyholders considered these scenarios? Have insurers and agents discussed the possible consequences with their customers? What product endorsements, deductibles andincentives can insurers offer to help secure the future for insureds?
I hope you’ll read the report then bring your questions to us. We don't have all the answers but this is clearly a time when we can be “smarter together.”
To read the full paper please click here.
Category: Climate/natural disasters: Earthquakes, Resilience, Sustainable energy: Fracking
Location: Oklahoma, United States