Lessons Learned From the Canterbury, New Zealand Earthquake

Prior to leading a panel discussion on the Canterbury earthquake at the International Association of Claim Professionals’ annual conference, the experts sat down with Claims Journal to discuss the earthquake and shared personal stories and lessons resulting from the event.

The September 2010 seismic event was the largest earthquake within the sequence, according to Dr. Hugh Cowan, EQC, general manager Reinsurance, Research and Education; however, the February 2011 Christchurch earthquake resulted in the most damage because it occurred right below the city.

The Canterbury earthquake event sequence produced an economic loss equal to 20 percent of New Zealand’s gross domestic product.

“80 percent of that sum was insured thanks to a high uptake of insurance and supporting reinsurance,” said Dr. Cowan.

Dr. Sjoerd van Ballegooy, a New Zealand senior geotechnical engineer & technical director with Tonkin & Taylor Ltd., explained that fine sediment and a high groundwater table led to the liquefaction that resulted in substantial damage to both residential and commercial buildings.

Most of the residential property was insured but there was a high degree of underinsurance relating to commercial property damage, said John Archer, IAG New Zealand, general manager of commercial claims.

The devastation resulting from the liquefaction was unimaginable. Many homes in certain suburbs were total losses. According to Dr. Ballegooy, the damage to buildings was 85 percent due to shaking and 15 percent due to liquefaction.

There were 14,924 domestic claims and 26,198 commercial claims resulting from the Canterbury Earthquake Sequence, according to Dr. Cowan. As of June 2016, $8.6 billion had been paid on domestic claims and $9.75 billion paid for commercial claims. It was the worst national disaster in New Zealand history causing the red zoning of 7500 homes and damaged the land so badly, its future use remains unknown, he said. The central business district sustained a loss of 1500 commercial buildings, Dr. Cowan said.

The recovery after the earthquake has centered on the systematic rebuilding of the community.

The Canterbury Earthquake Recovery Authority (CERA) was established as a government department in March 2011 to lead and coordinate the New Zealand government’s response and recovery efforts following the 2010 and 2011 Canterbury quakes. CERA was disbanded in April 2016.

“The majority of the residential insurance claims have been settled through managed repair rather than cash settlement, because a high proportion of the housing stock was damaged in the event and government and the participating insurance market sought to rebuild confidence in the housing sector, so the duration of the recovery has been much longer than would otherwise have been expected from a traditional cash settlement approach to insurance claims,” Dr. Cowan explained.

He said 68,410 homes were part of the Canterbury Repair Program and 99.8 percent of repairs have been completed.

It was the largest event in the history of Dr. Cowan’s organization. He was given some guidance from colleagues that helped him understand that the totality of the event made it unlikely they would meet public expectations.

Dr. Ballegooy explained that much research and effort is being done to build better and more cost effectively.

“It’s a real challenge to develop new foundation systems that could cope with such demands and limit the damages to residential houses,” he said.

A lesson for insurers, said Archer, is making sure the underwriting is right at the start and understanding what the policies cover.

“The rebuild was partly delayed while policies were interpreted by the courts to determine how much was actually paid under the contract,” explained Archer, who said the delay was largely due to policies being written for other perils, like fires, and not specifically addressing frequency of earthquakes.

John Steer, global head of claims for Aspen Re, explained that another lesson for insurers was the necessity of documenting damage as quickly as possible.

Because there were a number of quakes, insurers had to try to allocate damage to each of the events, said Steer, noting that much of the damage related to the first earthquake hadn’t been documented by the time the second quake struck.

In addition, Steer said that after this particular event, focus on the engineering aspect of dealing with damage resulting from the event was particularly fascinating.

“I think that one of the fascinating things that came out of the New Zealand earthquakes was the fact they did try to recreate liquefaction. They effectively put dynamite in the ground to liquefy the ground to see how liquefaction could respond to new engineering techniques,” explained Steer.