The insurance industry and the New Zealand government must be viewing with some trepidation descriptions of Tuesday’s quake as an aftershock from some of the  country’s leading specialists.

Reports in the New Zealand Herald this morning refer to the quake as an “aftershock” (from the September 4 quake): which, if it is, will have significant cost implications for the NZ government and its Earthquake Commission, plus primary insurers such as Australian groups IAG and Suncorp.

As explained on Tuesday in Crikey, an aftershock would mean that re-insurance arrangements the Earthquake Commission and private insurers have would not apply. If it is a second, discrete quake, the re-insurance arrangements would apply. Millions of dollars of payments and losses are at stake.

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The NZ government believes it is a second quake and the Earthquake Commission has re-insurance arrangements put in place after the September 4 event.

The first New Zealand Herald report said.

“Seismologists are still digging through a wealth of seismic data to understand how a magnitude 6.3 quake produced the largest recorded ground-shaking in New Zealand.

“The quake — which is an aftershock of the September tremor — reached 9 on the Modified Mercalli intensity scale, which runs to 12. This intensity destroys most buildings of a low standard, and even hurts post-1980s buildings which are specially designed to withstand earthquakes. What the instruments are telling us is that it was a very energetic earthquake for its size,” said Geonet project director Ken Gledhill.

“Dr Gledhill estimated that the previously unknown fault line ran east-to-west from Taylor’s Mistake to Halswell. It was roughly 3-12 kilometres deep and 17 kilometres long.

“A team of scientists failed to find a surface rupture in the hills above the epicentre, which meant it was more difficult to understand the nature of the fault and the size of the ‘stress drop’ — the difference between the stress across a fault before and after an earthquake.”

The second report, a piece by Dr Hamish Campbell, a geologist with GNS Science wrote:

“Seismologists at GNS Science regard this earthquake, large though it is, as an aftershock relating to the magnitude 7.1 Darfield earthquake that struck Canterbury on  September 4, 2010. The technical reason for this is that the epicentre is adjacent to the existing aftershock zone,” Dr Campbell wrote.

(GNS says on its website that it is New Zealand’s leading provider of earth, geoscience and isotope research and consultancy services).

“As a general rule of thumb, earthquakes that follow a major earthquake are significantly smaller but can attain magnitudes that are about one order of magnitude less than the original.

“For this reason, GNS Science and its surveillance arm, GeoNet, have been anticipating an aftershock of about magnitude 6, so in that sense this is no surprise. The pattern of aftershocks following Tuesday’s big jolt has revealed yet another previously unidentified active fault.

“Geological evidence suggests that there has not been a Darfield earthquake event near to Christchurch city for thousands of years, and nothing on the Greendale Fault for at least 16,000 years, according to Dr Campbell.

And the stakes are very large. For example IAG says it has a cap of $40 million on claims from Tuesday’s quake, after which re-insurance kicks in. That’s because it regards it as a second quake. But if it is an aftershock, that cap would not apply and IAG and its re-insurers would be having very tough negotiations.

And, despite industry and government claims of equanimity and good relations after the September 4 quake, the 2010 review of the world’s major catastrophes from Munich Re, the re-insurer, issued in the past week, paints a different picture.

Buried in the report were these remarks:

“In New Zealand, problems were encountered when activating the Catastrophe Response Program of the state Earthquake Commission (EQC). The interaction between the EQC cover on a first-loss basis and the private-sector cover for the value of a building above and beyond this level was similarly fraught.

“Moreover, widespread soil liquefaction presented a very special challenge, for the EQC also covers the value of the land.”

For a very conservative and careful company such as Munich Re to publicly remark on the “fraught” interaction between the Earthquake Commission and private insurers means there was a shit fight (to use a colloquial Kiwi phrase) over who was to cover the damage caused to the land (which the commission insures) from the liquefaction of the subsoil by the ground water.

Pictures from the city show huge ponds or deposits of grey mud and slime, which is the liquefaction referred to. It undermines buildings and land and looks like being a major problem for insurers this time around.

Munich Re commented: “Unusually widespread soil liquefaction was one particular characteristic of the New Zealand quake.

“Near-surface sediment layers on the Canterbury Plains are particularly prone to this phenomenon, which causes extensive damage that is also difficult to repair, as the substrate settles to varying degrees during the liquefaction process, causing buildings to tilt.”

The New Zealand Herald quoted NZ Prime Minister John Key yesterday as saying that the devastation was worse than in the central city.

“While we don’t have perfect numbers, it’s highly likely that there will be more residential properties that will be uninhabitable than in the [September] earthquake, and that was 3300.”

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Peter Fray
Peter Fray
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