Opening remarks: Stanford conference on social treatment of catastrophic risk
- Book ID
- 104624444
- Publisher
- Springer
- Year
- 1996
- Tongue
- English
- Weight
- 94 KB
- Volume
- 12
- Category
- Article
- ISSN
- 0895-5646
No coin nor oath required. For personal study only.
✦ Synopsis
In 1992, I became an expert on earthquakes thanks to my colleagues in the Geophysics Department of the University of Chicago. They lovingly explained to me all the most recent theories, including that predictive efforts are pretty useless. Then, as I began to digest the capital budgets of Stanford, I became thoroughly acquainted with one aspect of the subject--the consequences of the Loma Prieta earthquake of October 1989.
That quake was about 7.1 in magnitude--well below the 8.3 earthquake of 1906 that destroyed large portions of the newly built Stanford University, but well above anything we had experienced since. It damaged 242 buildings at the university (I had not known we even had that many) and closed 20 of them. I developed an interest in catastrophic risk.
Calculating the cost of the earthquake to the university can be done in different ways. Cleaning up the debris, patching cracks, and merely repairing major damage might run around $20 million. But the quake demonstrated the vulnerability of numerous buildings that were not badly damaged per se. These were older buildings, not meeting current earthquake standards. It would not make much sense simply to restore them to their pre-quake condition, but bringing them up to current seismic standards drove the cost estimate to the range of $150-170 million.
At the time ofLoma Prieta, Stanford had no earthquake insurance. Until June 1985, the university had carried earthquake coverage, on attractive terms: $125 million in coverage, with a $3 million deductible and no excluded buildings, at an annual premium of $800,000. But, in 1985, the insurers decided to retreat from the California market, and canceled our policies--a prescient move on their part. Did they understand something we didn't?
By September 1985, $125 million in coverage involved a $125 million deductible, with the exclusion of all unreinforced buildings and an annual price tag of $4 million. It did not seem very attractive. And, in fact, had we had the coverage, it looks as if it would have paid nothing in 1989, partly because of the excluded buildings and the deductible and partly because it would have paid only for repair to prior condition and not for the needed seismic upgrades.
The cost of Loma Prieta was shared, therefore, between Stanford and the Federal Emergency Management Agency (FEMA), which under law funds 75% of the cost of repairing damaged structures. That also raised the issue of repairing cracks versus meeting current seismic standards, as required by building codes for reopening a building closed by earthquake damage. The allocation of costs between repair and improvements involved extended discussions between the university and FEMA, and finally resulted in an agreement whereby FEMA would contribute about $50 million to the university's total bill of