Today there is a great deal of speculation but little consensus about the best way to improve a community's performance in an earthquake. Is retrofitting the best solution? What about insurance?
One reason for the uncertainty has been the lack of a technique that allows decision makers to evaluate the overall effectiveness of different earthquake mitigation strategies. But now a Stanford doctoral student in civil engineering, Anju Gupta, has developed a holistic approach designed to provide these kinds of comparisons.
Using data from Los Angeles County, she has applied this method to seven different strategies, including the California Earthquake Authority insurance program. One of her conclusions is that the controversial new insurance will actually increase the average out-of-pocket expenses of Californians in the next major earthquake because of the low financial benefit that it will provide to affected homeowners.
"Investing the same amount of money in earthquake protection kits and seismic upgrades on their house is a better investment for Californians than paying the premiums on the policies issued by the California Earthquake Authority," says Gupta, who developed the method, which she calls strategy effectiveness charts (SEC), as part of her doctoral thesis completed in June.
SEC provides a formal method to evaluate the effectiveness of various earthquake preparedness and mitigation policies. It takes more than loss of life and physical damage into account by including qualitative impacts, such as the effect of individuals' standard of living and their ability to recover from the costs involved. It looks not just at losses but also at response and recovery efforts, mitigation priorities and the extent to which policies will be implemented. It then presents this information in a series of graphic tables designed to make the information involved relatively easy for decision makers to digest.
"Having understood the level of risk and causes of that risk, Anju's work can develop optimum strategies to minimize that risk," says her thesis adviser, Haresh Shah, professor emeritus of civil engineering. "Specifically, her work provides a clearer picture of how various technical and non-technical strategies improve the performance of urban areas in future earthquakes. Her results could be of tremendous value to local, state and federal governments in their efforts to develop and implement cost-effective risk reduction strategies."
Gupta's method is considerably different from the cost-benefit analysis that has been used for this purpose in the past. Cost-benefit analysis focuses primarily on quantitative factors such as physical damage and loss of life. All factors are converted into monetary terms, forcing analysts to put a dollar value on human life. According to Gupta, cost-benefit analysis tends to underestimate the benefits of a given strategy by ignoring qualitative benefits and overestimate its effectiveness by assuming total implementation.
One of the obstacles to dealing with earthquake risks is the multidisciplinary nature of the subject, involving geologists, structural engineers, economists, insurance experts and sociologists, says Richard Roth, chief property casualty actuary with the California Insurance Department. "Typically, experts in one field have very little understanding of what experts in the other fields are doing. So methods like the SEC that integrate these disparate factors are extremely worthwhile," he says.
Gupta used her method with data from Los Angeles County to evaluate seven different strategies based on the extent to which they improve the way residences perform during a large earthquake:
- High-level retrofit major structural modifications, such as adding shear walls and strengthening foundations;
- Moderate-level retrofit minor structural upgrades, such as bolting houses to their foundations and strengthening chimneys, and non-structural safety measures;
- Low-level retrofit, such as bracing contents within homes;
- Past insurance policies with a 10 percent deductible;
- California Earthquake Authority insurance with a 15 percent deductible and $5,000 limit on contents;
- A hypothetical insurance policy with a 3 percent deductible and coverage up to 15 percent of the value of a structure;
- Earthquake disaster kits.
Of all these strategies, the California Earthquake Authority (CEA) insurance program performed the poorest, actually increasing overall earthquake losses because its high cost keeps people from taking other preventive measures. According to Gupta, CEA premiums were averaging $3.40 per $1,000 coverage in Los Angeles before a recent rate reduction. But the policy will not help most people after an earthquake because the amount of damage to houses typically falls within the 15 percent deductible, she reports. CEA's recent rate reductions should improve the program's effectiveness slightly, she says.
The past insurance system with its 10 percent deductible provided at least a marginal reduction in earthquake losses, she found. But the most effective strategy proved to be high-level retrofit targeted at the most vulnerable groups: people living in older buildings constructed to lower standards, typically low-income households. Not only could this save lives but also substantially reduce the community's recovery costs. Moderate-level retrofit, when combined with the new insurance policy, was nearly as effective, but is more expensive at the community level because more people would take advantage of it due to the lower cost.
Gupta also looked at a hypothetical strategy that combines a new 3 percent deductible insurance with retrofitting. The basic idea is that insurance companies would give homeowners reductions of up to 5 percent on their insurance premiums if they strengthen their houses against earthquakes. Insurance companies would benefit by lowering their overall losses, since the retrofitted buildings would suffer less damage, and homeowners would benefit from reduced premiums. "This could turn out to be a win-win situation for both parties," Gupta says.
Gupta's method allows experts to evaluate strategies from different perspectives. If saving lives is the highest priority, for example, then the high-level retrofit is the best approach. It is also the best choice if the priority is to improve the efficiency with which the community can recover after an earthquake. If the major concern is to reduce economic disruption, however, then the hypothetical insurance policy looks preferable.
"Because the range of issues involved are explicitly accounted for, SEC allows us to identify the best strategies on the basis of real benefits, not on theoretical ones," she says.
Each strategy effectiveness chart is developed in three stages:
- Loss and recovery data are generated for a range of earthquake scenarios in a given region;
- The data are used to determine the baseline performance of the area and to develop a multidisciplinary performance index;
- The effect that a given strategy will have on the area's performance is evaluated based on its cost, coverage, influence and likelihood of implementation.
When this information is combined into a series of tables, SEC clearly identifies who pays and benefits, quantifies the benefits received from each investment, and identifies optimal implementation levels for each strategy.
"This methodology is intended to provide a foundation for efforts to develop truly disaster-resistant communities," Gupta says.