The Cascadia Fault: An Inconvenient Truth

The human and economic devastation of the coming West Coast earthquakes is unimaginable. Whether it’s the magnitude-9 Big One that strikes first, or smaller—but equally deadly—temblors, recovery will take years, not weeks. Almost half of small businesses will fail. Hundreds of thousands of British Columbians will leave and never return. But as with any inevitability, there’s money to be made before and after the Cascadia fault changes our lives forever

Now. Or now. Next Thursday. Tomorrow while you sleep. One morning as you’re crossing the Alex Fraser Bridge or inching through the George Massey Tunnel, thinking about time and traffic and lunch options when suddenly the pavement shrugs and the earth begins its awful dance while stolid structures begin undulating like studies in a surrealist’s sketchbook. It’s the Big One. First you pray that you—and your family and friends—will be the lucky ones. Next you ask yourself if you’re prepared. But none of us are in this alone, and the general state of affairs after a major earthquake will depend on more than just your household emergency kit. It will also depend in part on the preparations of business and government.

When? We’re better at predicting terrorist attacks than earthquakes, but don’t try telling that to the Italians. After an April 6, 2009, earthquake that killed 300 people in the Italian city of L’Aquila, seven scientists and engineers were convicted of manslaughter for their failure to properly warn residents. Like tribal shamen who fail to warn of catastrophe, they were sacrificed to that greatest of scientific uncertainties—the exact timing of our planet’s deadly tectonic adjustments.

The Cascadia fault—also known in more paranoid circles as the Cascadia Subduction Zone—runs offshore from somewhere near the top of Vancouver Island to northern California. Over the past five millennia it has ruptured with terrifying frequency. It will certainly rupture again, but this time with a string of 21st-century cities—high-rising, dense-with-people, globally interdependent regional capitals—stacked squarely in its impact zone.

One of the most recent probability surveys was done by the Oregon Seismic Safety Policy Advisory Commission. Based on comparisons with the 2011 Japanese quake and tsunami, the Oregon study predicts a massive Cascadia quake could kill 10,000 people and cause $32 billion in damage in an area ranging from Vancouver Island to Vancouver and down as far as northern California.

Most British Columbians are not ready. But at least they know it. An Angus Reid poll conducted last year showed 61 per cent of B.C. adults are concerned about being personally affected by an earthquake and fully 87 per cent believe a major quake is coming within 50 years. And yet 60 per cent admit that they do not have an emergency kit—70 per cent have no emergency plan.

Although seemingly negligent to Californians and the Japanese, B.C.’s indifference shouldn’t be that surprising, considering the example being set at the top. A 2006 study by Zeidler Partnership Architects commissioned by the provincial government (but never released until it was revealed in 2011 by reporter Stanley Tromp in the Tyee) stated that unless Victoria’s provincial legislature receives well over $200 million in seismic upgrades, it will very likely suffer major damage in a significant temblor, resulting in considerable loss of life. Whatever other damage it might cause, a major quake would probably cripple the provincial government for months.

Who is most at risk? We’re all supposed to be asking that question but the really motivated people are insurance companies. Around the world actuaries map out areas of relative risk, known in the industry as CRESTA zones (Catastrophe Risk Evaluating and Standardizing Target Accumulations, an unwieldy name reportedly created to match the Cresta Hotel in Davos, Switzerland, where the system was devised in the late ’70s). In Canada an industry group, the Institute for Catastrophic Loss Reduction (ICLR, not as yet a hotel name), created a Canadian actuarial map that ranks seismic risk for individual postal codes. Thirteen B.C. codes fall into the “Extreme” category—all located in Victoria, Delta and Richmond. V7B, the postal code for YVR Airport, is among those extreme risk areas. Think about that: an airport that handled 17.6 million people in 2012, the air-traffic entry point into Vancouver, might be rendered unusable for months at any moment. According to YVR’s own figures the airport contributes $1.9 billion to Canadian GDP annually (as well as employing 23,600 people). YVR spokesperson Alisa Gloag says that the facility is very focused on seismic concerns—“Parts of the original 1968 domestic terminal are currently undergoing seismic upgrades,” she points out—but she’s cautious about the potential for runway damage. “It all depends on magnitude and location,” Gloag says. “We have three runways, so if one was damaged, then we would be able to adjust our operations accordingly.”

It all depends, indeed.

Four more codes fall into the “Very High” category—V8N and V9B in Greater Victoria, V4L in Delta and V4R in Maple Ridge. Two Abbotsford codes (V2S and V2T) are ranked “High,” as are V7P (southwest North Vancouver), V8W (home to the provincial legislature) and V9A (containing the Canadian Forces base in Esquimalt), among others. The bulk of Vancouver and neighbouring regions—Burnaby, Surrey, Coquitlam, Port Coquitlam, etc.—rank as “Moderate” or “Low.” (This means moderate or low risk for this region—it does not mean that the quake damage risk in Vancouver is as low as that of, say, Regina.)

But what exactly are we waiting in terror for? The first step is understanding just what we should lie awake at night thinking about, and there are a number of options. Your menu of worries: 1. A major Cascadia subduction quake in the 9.0 range; 2. A shallow crustal quake closer to Vancouver, of lesser magnitude but possibly even more destructive force; 3. Tsunamis generated from said quakes; 4. Tsunamis generated by huge underwater landslides, which could take place—and have done so in the past—even without a quake.

We know when the last major Cascadia quake occurred. It was three centuries ago—313 years ago to be precise. Not sufficiently precise? It was January 26, 1700, about 9 p.m. A Tuesday, not that anybody in the neighbourhood knew it.

We have Japanese record keepers to thank for this remarkable precision—the resulting tsunami was recorded when it reached their shores hours later. Sediment samples from the ocean floor have provided more general information about earlier quakes, at intervals ranging from about 150 to 500 years. (The top news stories of the year 42 BC included the Battles of Philippi, in which the assassins of Julius Caesar met their demise, and a major Cascadia quake.)

But big Cascadia quakes are just menu item number one. Garry Rogers, a senior research scientist for the Geological Survey of Canada, points out that Vancouver’s greatest problem may not be a big, deep Cascadia fault quake, but a shallow crustal quake closer to the city. “For an individual city, a nearby large earthquake is going to be much more damaging than a distant earthquake even if that distant earthquake is much larger,” Rogers says. “Vancouver is about 140 km distant from the closest approach of the Cascadia fault, where magnitude-nine earthquakes happen.”

Crustal quakes are an indirect result of our proximity to the Cascadia fault, resulting from tensions farther out along the grinding tectonic plates. “The earthquake that occurred less than five kilometres from Christchurch, New Zealand, in February 2011, only magnitude 6.3, did tremendous damage in a localized area,” Rogers says. “Likewise the damage to Kobe, Japan, in 1995 from a 6.8 earthquake—a city of similar size to Vancouver—was over $100 billion because of the proximity of the earthquake.”

Which Cascadia city is most at risk? As with all quake-related predictions, it’s guesswork. But Rogers speculates that Seattle’s more active seismic history might now work to its advantage. “Since we know that older, un-reinforced masonry and older infrastructure is the most vulnerable to earthquake shaking,” Rogers says, “and Seattle has had significant shaking from the strong, deep earthquakes in 1949, 1965 and 2001, most of the vulnerable older structures have now been exposed by damage during these earthquakes. Thus Seattle might be considered the least vulnerable as these structures have been either fixed or torn down. Vancouver and Portland have thus far not been exposed to strong shaking in their history. Their most vulnerable structures have yet to be exposed.”

It’s been 55 years since a major tsunami has struck B.C.—causing devastation in Port Alberni in 1964 after an Alaskan quake—but this threat at least has high public awareness. The waves that rolled across northern Japan in 2011 were seen on live TV pushing cars, debris and even burning buildings across farmland; the torrents that crashed through streets in Thailand and Sri Lanka in 2004 have been seen around the world ever since on TV screens and in nightmares. Vancouver faces a smaller tsunami risk thanks to the shield of Vancouver Island—Victoria, Sooke, Port Alberni, Tofino and Ucluelet, as well as other smaller coastal communities, face the greatest risk. But there are other hidden wave-makers that could strike with no seismic warning at all.

Approximately five centuries ago Kwalate, a major First Nations settlement in Knight Inlet, was wiped out by a tsunami about six metres high. There was no earthquake. An 840-metre cliff let go and dropped into the fjord, generating the killer wave. Such landslide-generated waves are a possibility in the Fraser River Delta, where geologists have identified weaknesses in layers of glacier-deposited sediment. In fact on June 4, 2012, a seismic observation platform on the Fraser briefly went missing. It was discovered 60 metres away, apparently shifted by a submarine landslide. Should a major slide hit the Fraser Delta it could be trouble for the Gulf and San Juan islands, although the largest waves would be unlikely to make the turn for Vancouver.
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Philosophers like to say that we’re all in it together on this planet. Nothing makes that point more practically than insurance. While we wait for disaster to strike B.C. we are already paying for the troubles of the world. The reason is the backbone of the global insurance industry: reinsurance.

Individual companies lack the resources to handle all the liability that will result from a major catastrophe, so insurers buy insurance in turn from larger companies. Reinsurance reduces each particular company’s exposure.

But the reinsurance market is global. Due in part to massive floods in Thailand, the Japanese quake and tsunami, and the New Zealand quakes, 2011 was the worst year yet for the reinsurance business. Rates have soared, particularly in hard-hit or high-risk areas. So far Canadian rates have remained lower—good for us in the short term, but a handicap for Canadian insurers in the fluid global reinsurance market. Lower Canadian rates make it harder for West Coast companies to get the reinsurance they need. “We were negotiating with Lloyd’s of London,” says Rick Parent of Coast Capital Insurance, “looking for more earthquake reinsurance at a rate of 10 cents per $100. But Lloyd’s was saying, ‘Why would we use up our capacity at 10 cents per $100 when we can get a dollar per $100 in New Zealand?’”

Commercial insurance is more complex than the residential variety, with more factors to be calculated. “You have different businesses in the same building—a store on the ground floor and perhaps a widget maker on another floor,” says Serge Corbeil of the Insurance Bureau of Canada. “The issues are different—replacing equipment, the cost of business interruption and so on. It’s more complex than covering, say, a bungalow, where the risks will be similar from one to another.”

But commercial quake insurance is subject to the same market forces as residential rates. Rising reinsurance costs will affect every policy, residential and commercial.

Canada’s Office of the Superintendent of Financial Institutions (OSFI) requires insurers to prove they have access to sufficient reinsurance to survive a major catastrophe, measured through the Dynamic Capital Adequacy Test. Last year OSFI revisited the regulations and, based on updated disaster models, devised new standards for the industry. (Insurance companies rely on models run by firms such as Silicon Valley-based Risk Management Solutions. The models examine every nightmare scenario—quakes, hurricanes, tornadoes, floods, plagues—and calculate the likely results. Individual insurance companies can then apply those results to their own policy base and calculate their liability exposure.)

OSFI’s new B-9 Guidelines (for earthquake policies) now require Canadian insurance companies to use a 500-year stability model—in other words, they must look at potential disasters that might occur over a five-century period. For the West Coast that means a company must show they can deal with the near-certainty of a major quake of the kind that hit in 1700. OSFI also requires national companies to prepare for the possibility of simultaneous quakes in the Pacific “Ring of Fire” and the nation’s other highest-risk regions in Quebec. Calculating the resources needed for bigger disasters means planning for more liability—which, for the consumer, likely means higher rates.

The new regulatory requirements have forced insurance companies to examine their priorities. Can they offer adequate earthquake coverage without sacrificing other arms of the business?

Waterloo, Ontario-based Economical Insurance responded to the new OSFI guidelines by recalculating its B.C. strategy. As reported last year by BC Broker magazine, CEO Karen Gavan issued a statement to Economical’s brokers saying the company was pulling back from the Lower Mainland and Vancouver Island. According to Gavan, the company was overexposed in Victoria and the Richmond/Delta regions—the province’s most extreme earthquake risk zones. As a result, Economical announced they would both raise existing rates and ask brokers to seek other companies for any new earthquake policies written in those areas.

Linda Goss, Economical’s chief actuary, says not every company will follow Economical’s example. “We have seen other major property and casualty insurers take similar actions to mitigate their earthquake risk exposure and improve rate adequacy. However, we have also seen an insurer step up and expand their business portfolio in B.C., presumably because they have capacity available, which is good for consumers.”

Goss says reinsurance pricing isn’t necessarily straightforward. “The projected frequency and severity of earthquakes in a given region is a dominant factor in pricing reinsurance,” she says. “However, the prices reinsurance companies charge insurers differ from one insurance company to the next depending on their circumstances. For example, some global insurance companies have access to their parent’s reinsurance programs at lower cost and are able to diversify outside of Canada. Also, concentration of an insurer’s book of business in higher risk zones will lead to higher reinsurance costs. Finally, limited reinsurance capacity affects companies that have large reinsurance purchases more than companies with smaller programs.”

The new government regulations could well drive up prices, Goss says. “OSFI’s latest requirements to increase coverage for earthquake exposure will definitely put additional pressure on reinsurance pricing and capacity in the future as insurers will need to purchase larger amounts of reinsurance.”

“Companies have to decide if this is the best use of their resources,” Coast Capital’s Parent says. “You need to offer a diversified range of products—home, life, disability coverage. If earthquake coverage is going to take up a lot of your financial capacity it could interfere with the rest of your business.”

Betty Cuff of Edmonton-based Peace Hills Insurance says that while small companies are still generally capable of offering earthquake coverage, they are apt to look more carefully at individual properties. “Is the structure old? Has it been upgraded? We might offer coverage to one house on a particular street if it’s newer and up to code, but then decline to offer coverage on another house that’s like, you know, not so modern. Like the provincial legislature, maybe,” she says, trying to talk through a smile.

As of July 1, 2013, earthquake insurance rates increased 10 per cent for most B.C. jurisdictions. At Coast Capital they now stand at 10.7 cents per $100 coverage for the Vancouver area, 11.1 cents for Victoria and 14.3 cents for the Fraser Delta. “Four years ago that rate was about seven cents,” says Parent. “The reinsurance industry would like to see that climb to 18 cents instantly, which would be too great a shock to policy holders.”

Homeowners in Washington State and California have long paid much higher rates for earthquake insurance than B.C. residents. “A $300,000 home in a high-risk part of California would be charged an annual premium of $865 for earthquake coverage—that’s a 28-cent rate. Seattle rates have usually been around 15 to 18 cents per $100. You can’t blame suppliers for wanting a higher return, like they get in Seattle. Canadian rates will definitely increase. The question is how will we negotiate those rate increases.”

The other creeping variable is deductible. Once typically five per cent, earthquake insurance deductibles are now increasingly set at 10 per cent, the deductible recently set by Intact Insurance Co. Some insiders are even predicting a rise to 20 per cent—a massive hit considering Vancouver real estate prices. Strata councils carry catastrophic loss policies, but the high deductibles mean that few condo owners will be able to pony up the required deductible. If not enough residents can contribute their share, reconstruction becomes impossible. Individual policies usually limit the amount insurance companies will contribute toward the deductible, often as little as $2,500. “A lot of condo owners are unaware of their responsibilities,” says Joan Jaffray of Affinity Insurance Services Inc. “They think they’re covered but they’re not.”

Recent medical studies have punctured the myth of “herd immunity”—the idea that one need not be immunized against disease as long as your neighbours are. According to the Insurance Bureau of Canada’s Corbeil, some people may still be harbouring a quake-related variation of that myth. “A lot of people have the idea that government will step in to rebuild homes and businesses,” Corbeil says. “The government has insisted they will do no such thing. They will have major infrastructure repairs to deal with.”

A provincial government study conducted back in 2000 found earthquake insurance coverage rates hovering at just 45 per cent province wide, and Corbeil says the belief within the industry is that the figure has not improved. That lack of widespread earthquake coverage, he says, will affect communities as a whole. “Without coverage, how will people rebuild? Neighbourhoods will be affected and the city will be affected if people can’t rebuild.”

Doug Araki of WPS Disaster Management Solutions Ltd. says B.C. residents are still largely in denial. “We’ve never really experienced it before,” he says. “So it doesn’t resonate. Until something happens, people are complacent.”

According to Araki, the event that had the most galvanizing effect on disaster planning was non-seismic. “After 9/11 people and companies started getting serious about disaster planning.

“The phrase we use is ‘From space age to stone age in 60 seconds,’” Araki says. “Utilities offline, water lines broken—no bathrooms. The ability to move could be a huge problem—it’s possible you’ll see 10 to 16 feet of debris shed by buildings and blocking roads, with bridges possibly impassable. The Port Mann and newer bridges will likely be okay but with some of the older bridges, we don’t know.”

Businesses have the added level of responsibility that comes with caring for staff in the event that employees can’t get home. “You have to manage the people who are there and try to establish communications with families,” says Araki.

“Text messages could be important. Networks will be stressed and overloaded and SMS can sustain more traffic than cellular. Communicating locally will likely be more difficult so it’s a good idea to establish a contact farther east so that you can get word out more easily.”

He says that 40 per cent of small businesses go out of business after being hit in a major disaster. “They can’t recover quickly enough. You need a relocation spot picked out if your premises are no longer safe. If your supply lines are broken, have you prepared alternative supply sources?”

Despite his warning, Araki doesn’t expect Developing World levels of devastation after a major quake. “The kind of building collapses seen in Haiti are the result of poor construction. With our building code we should do well structurally. The biggest issues are non-structural—flying debris, things flying off walls, machines toppling over. You have to worry about stabilizing your IT equipment. In Japan they’re much more likely to fasten things to walls.”

But New Zealand is no Developing World country, and the one-two seismic punch it suffered in 2010 and 2011 offer a disturbing precedent for B.C. The experience of Christchurch highlighted a particular truth about major seismic events: their near-Biblical power of revelation. If your city has any hidden construction and infrastructure flaws, if there are construction projects tainted by fraud and corruption, a major earthquake can become an earthly Day of Judgment. On that day, sins will be revealed, perhaps in the worst possible way.

In New Zealand, 185 people died in the February 22, 2011, 6.3 quake that wreaked havoc on Christchurch buildings weakened by an earlier September 4, 2010, temblor. A hundred and fifteen of those deaths occurred in a single building collapse—the Canterbury Television Building. Erected in 1986, it was believed to be up to seismic code. One problem: Gerald Shirtcliff, the man who supervised the building’s construction, was later found to have faked his engineering degree by stealing the identity of a retired British engineer. His father, it turned out, had done most of the work on his master’s degree. A Royal Commission of Inquiry found that the head of the consulting firm in charge of construction, Alan Reay, had relied on an another engineer who had no experience with buildings over two storeys in height. Reay then put pressure on Christchurch officials to approve the building design.

Not that the rest of Christchurch fared well: 80 per cent of the city was without power following the quake and 70 per cent of homes were without water for up to a week. The city’s tallest hotel and tallest office building were damaged beyond repair and later demolished. Of approximately 4,000 buildings in the central city area, 1,000 were slated for demolition after the quake. Insurance costs were estimated at $40 billion.

When the earth begins to move the random cruelty of fate rules. Eight people died in Christchurch when falling masonry crushed a city bus. The injured topped 6,500. There were reports of people tossed into the air by the vertical upthrust of the underground plates.

The ramifications of a major quake radiate throughout the economy. The New Zealand dollar dropped after the prime minister speculated that the quake recovery plans might necessitate a drop in the interest rate. Speaking on a TV news show, ANZ Bank chief economist Cameron Bagrie said that the quake had affected the investment climate, driving up construction costs and thus making Christchurch a riskier place to invest. “So at the moment the temptation is for that capital to get redeployed to other centres, and that could come at the expense of Christchurch,” Bagrie told 3News.

Earthquakes also play havoc with powers of prediction. Insurance companies base their risk assessments on known quantities, such as the relatively liquid, sandy soil composition of Richmond and Delta. Liquefaction, the process by which sandy, watery ground is transformed into something like quicksand when the big shake starts, caused serious damage in the Christchurch suburbs. It also made San Francisco’s Marina district the scene of devastation in the 1989 Loma Prieta earthquake. But the Geological Survey of Canada’s Garry Rogers cautions that even here there’s a lot of generalizing involved. “How geology affects earthquake shaking is a very complex matter,” he says. “It is necessary to do site-specific studies. The depth and softness of the soil profile and the hardness of the rock are very important to understand, as is the location of deep geological structure and the effect of topography.”

While solid rock foundation is generally a good thing, Rogers points out that North Vancouver cou