Oakland, CA – The WCIRB recently announced the release of a comprehensive report quantifying the earthquake risk faced by California workers’ compensation insurers. The report, written in partnership with Risk Management Solutions, Inc. (RMS), a leading provider of catastrophe modeling analytics, was the product of a high resolution, big data earthquake analysis on a risk portfolio containing the policy and exposure data for $544 billion of business payroll insured by members of the WCIRB.
The earthquake analysis was performed using version 17 of the RMS North America Earthquake Casualty Model, released in May 2017, which incorporated the latest science in earthquake hazard and vulnerability research, including a robust implementation of Uniform California Earthquake Rupture Forecast Version 3 (UCERF-3); a comprehensive event set including severe “tail events” causing damage in both Northern and Southern California; new vulnerability functions for very tall buildings; and ultra-high resolution approaches to soil, liquefaction and landslide modeling. The analysis also leveraged recently updated data for injury rates, time of day assumptions and medical cost data to more accurately project the ultimate payouts of workers’ compensation policies from earthquakes.
Chris Folkman, Senior Director of Product Management at RMS, said, “[i]n California, the areas of highest workers’ compensation exposure tend to be the areas of highest earthquake risk – it’s very hard to diversify. Because earthquakes cannot be excluded from statutory workers’ compensation coverage as is commonly done in other lines of insurance, effectively quantifying, monitoring, and managing the risk is critical. We are hopeful the analysis will better enable this activity.”
Highlights of the analysis including the following findings:
- The average annual estimated insured loss is $29 million, which corresponds to 0.005% of total insured payroll and $2.52 per employee
- The 1 in 100 year insurance loss is expected to exceed $300 million and 300 fatalities. If the 1 in 100 year event was assumed to occur in peak work-time hours, the estimated expected losses are approximately $1.5 billion.
- The 1 in 250 year loss may exceed $1.4 billion and more than 1,000 fatalities. If the 1 in 250 year event was assumed to occur in peak work-time hours, the estimated expected losses are approximately $5.1 billion.
- Injuries involving “permanent total disability,” a rare form of injury which often requires lifetime wage replacement and medical care, were a major driver of overall estimated costs, accounting for more than 35% of expected annual loss.
“We anticipate this analysis can be used by our member insurers, policy makers and workers’ compensation practitioners to better understand, monitor and mitigate earthquake risk. Recent earthquake events in California such as the Loma Prieta Earthquake (1989) and the Northridge Earthquake (1994) happened during off-peak hours; had the timing been different, the human impact could have been much worse. We are pleased to facilitate a higher awareness of this risk,” said Ward Brooks, WCIRB Vice President, Research.
Click here for the RMS report: Workers’ Compensation Risk Assessment California Earthquake (PDF). It is also available on wcirb.com.
Source: CA WCIRB