Å˽ðÁ«´«Ã½Ó³»­

Earthquakes, the natural kind caused by the movements of vast tectonic plates, have been occurring since the dawn of time. But now there is a new type of quake, the study of which has been labeled “seismicity,” which is being caused by human activity.

Although they are usually at a shallower depth, and of less intensity than the ones nature produces, they nonetheless have caused a lot of damage, and are a growing concern for the re/insurance industry. Naturally they have become a subject for catastrophe modelers to study, collect data on, and eventually produce models to gauge their destructive loss potentials for brokers, insurers and reinsurers.

One of the breakout sessions at the Aon Benfield/Impact Forecasting catastrophe modeling conference in London featured an extended discussion of this new hazard. Banu Mena Cabrera, who normally develops earthquake and tsunami models for Japan, described the most common causes of seismicity as follows:

Reservoir impoundment – Reservoirs contain a lot of water, and it’s heavy – a liter (roughly the same size as a quart) weighs a kilogram, or 2.2 pounds; a gallon weighs 8.8 pounds. The pressure on the land that contains the water sometimes causes “ground motion” triggering a seismic event.

50 percent of the seismic events caused by this type of action in Asia are in China and 25 percent are in India. Usually they are mild, but in some instances they have been measured at more than magnitude 6.0, and have caused serious damage.

Enhanced Geothermal systems (EGS) – While geysers and hot springs occur naturally, when they are tapped to produce energy they can be the cause of man-made quakes.

Cold water is pumped into the earth, where it heats up naturally; it is then pumped back up to the surface to produce clean energy. In the U.S., Germany and Switzerland this has been the direct cause of seismicity, to the extent that several projects, notably a large one in Basel, have been cancelled. A geo-thermal system quake in the U.S. was measured at M4.6.

Mining, including Fracking – Any type of mine that alters the interior structure of the earth can create seismicity, but the practice of injecting chemically treated water into seams in the rock to produce gas and oil – hydraulic fracturing, or “fracking,” has become a subject of intense debate, as it seems to have increased seismicity events, which are caused, not by the injections, but by the removal of the products and the water used in the process. Events directly related to fracking “have tripled in the last three years,” Cabrera said.

In addition construction sites and waste disposal sites have also produced instances of seismicity.

How does one model seismicity events? The immediate problem is deciding whether a tremor is, or isn’t caused by one, and that’s not easy, as “you can’t tell whether the cause is seismicity or not,” explained John Douglas of the University of Strathclyde (Glasgow), who specializes in seismic hazard and risk evaluation. The main reason for this inability is the lack of enough data monitoring devices in place to help make the determination.

Douglas pointed to “threshold cracks in buildings” as a possible sign of seismic activity, but he added that in order to properly monitor it you would “need to have 100 instruments per square kilometer,” which would mean over 200 per square mile.

Conducting “pre-injection surveys” might help he said. This would at least make it possible to create a before and after comparison. If cracks in buildings that didn’t’ have any before operations began, but then developed them, it would be strongly indicative that the cracks were being caused by the process.

Anselm Smolka, the Secretary General of the GEM Foundation, based in Pavia Italy, is highly skeptical that real certainty on whether seismicity is a direct cause of damages will ever be obtainable.

As examples of past events he cited the 1100 claims made in South Africa, where it proved almost impossible to determine whether they were the result of damages caused by human activity, or simply natural ones, even though the country is not primarily noted as being in an earthquake prone region.

In Germany 2000 houses were damaged by an earthquake. China experienced a magnitude 7.9 earthquake, which could have been induced by human activity, but there is no sound scientific evidence for that conclusion.

The most serious effort so far to recover damages from seismicity is in Groningen, The Netherlands, where a class action has been filed seeking US$ 4.5 billion from energy companies and contractors for damages caused by the extraction of natural gas from Western Europe’s largest gas field.

While the debate about the causes of these damages continues, the insurance industriy and its clients, are also concerned over the fallout that the claims might cause. These include the loss of production when sites are shut down or limited, as is the case in Basel; the reputational damages companies can suffer from accusations of wrong doing, and the loss in the value of the properties concerned.

Smolka pointed out that, while damage coverage for these kinds of events is usually excluded from property policies, it isn’t excluded when it comes to liability. All of these concerns impact the creation of catastrophe models to assess the risks that seem to be inherent in energy production. Smolka said you need to “identify the hazard and the vulnerability,” or exposure level at any given site, and then you have to have sufficient “insurance penetration” to have coverage available.

In conclusion Goran Trendafiloski, Impact Forecasting’s head of earthquake model development, said when “more energy” production is being carried out there’s also “more risk,” depending on where the search for energy is being done. “You need different samples [data] from different sources,” in order to produce more models.

You also need “synergies with the academic community” to provide some additional input that would augment the available data. In addition he said insurance companies would thereby “able to provide new lines of business, based on better underwriting.”

Topics Catastrophe Natural Disasters Carriers Reinsurance Earthquake