UPDATE: RMS Analyzes China Quake

May 13, 2008

A report from Risk Management Solutions on the 7.5 magnitude earthquake that struck China’s Sichuan province on Monday reports that “over 7,000 casualties had been reported. More than 100 fatalities occurred from the collapse of a school in Dujiangyan City, some 25 miles (40 km) from the epicenter, and four casualties were reported from another school falling down in Liangping. Damage has been reported from a very broad area, with a building collapsing over 190 miles (300km) away.”

Domenico del Re, senior model manager at RMS in London, commented: “The extent of the destruction at the epicenter is still unknown because of a widespread communication black-out, which could either be due to infrastructure damage from the earthquake or from over-use. Our scientific partners in China, The Institute of Engineering Mechanics, are sending over 20 people to the affected region to provide more insight into the damage incurred.”

Most of the damage reports so far are from Chengdu, the 10th largest city by GDP in the country, with some 4.5 million people. Because of the rapid growth of the city in the last 30 years, the majority of buildings were constructed after 1978, when buildings were required to be made more resistant to earthquakes.

“As the west coast of China has become increasingly expensive, many domestic and international companies have set up operations in Chengdu to take advantage of the lower property and labor costs,” del Re observed. “Although many of the commercial buildings will have been constructed to withstand some level of ground-shaking from earthquakes, we can expect to see a large number of insurance claims coming from this area. This event is a reminder for organizations considering moving into China that business continuity insurance should be a risk management priority, due to the country’s susceptibility to earthquakes.”

The closest town to the epicentral region is the town of Wenchuan itself, which lies on the Minjiang River. Though 30 miles (50 km) away from the epicenter, this town appears to be close to the fault structure itself, so damage is expected to be significant. Wenchuan is reported to have a population of 118,000.

Source: Risk Management Solutions – www.rms.com.

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