Insurance Post

Building codes are not enough.

Insurers and risk managers can minimise earthquake and windstorm damage by insisting on construction to building codes - but only if they recognise other risk factors, say Peter Yanev and Donald Ballantyne.

Detailed investigations of the effects of natural disasters provide
many clues for improving risk management programmes. One repeated lesson
from more than 100 such investigations that EQE International has carried
out over the last 30 years is the folly of placing much confidence in
local building codes.

The last millennium closed with a series of devastating earthquakes and
windstorms throughout the world, resulting in extensive damage in heavily
urbanised and industrialised areas. The new millennium has opened with a
Richter 7.6 earthquake in El Salvador, quickly followed by a Richter 7.7
earthquake on 26 January in Bhuj in Gujarat, western India that may have
claimed as many as 100,000 lives.

In particular, the catastrophes caused by the earthquake in India and
earthquakes in Turkey and Taiwan in 1999 exacted severe human, social and
economic tolls, with significant implications for multinational financial
and industrial organisations. The statistics are sobering (see Table

Widespread collapses

Wood and structural steel are expensive in Gujarat and, therefore, see
little use in buildings. Housing in some of the older parts of the cities
and villages is constructed of stone masonry, using mud for mortar. This
type of construction has been used for thousands of years, has never been
regulated and is familiar to the local residents.

Many of the fatalities occurred because of collapses of this type of
structure. Without assistance or intervention, the owners will probably
rebuild the same type of house, which will again be demolished by the next

As more sophisticated building designs have been introduced, different
types of masonry, including brick and concrete blocks, have been

Reinforced concrete frame structures with infill masonry are now the type
of construction used almost exclusively for buildings three storeys and
higher, including apartments and commercial and industrial buildings.

In 1956, a smaller earthquake in the region killed 156 people. The city
fathers in Ghandidham, newly established in the late 1940s, remembered
that earthquake and controlled the height of structures. By the 1980s the
lesson was forgotten and taller concrete frame buildings were allowed.

These newer buildings were the ones that most often collapsed and were
most heavily damaged.

In Ahmedabad, 300km east of the epicentre, approximately 100 multi-storey
concrete frame structures collapsed. Many had been constructed within the
last five years. It is also reported that 9200 structures have been
identified as having been built illegally, without proper review by
building officials.

Inadequate design

In the aftermath of the earthquake, fingers are being pointed at
developers, contractors, engineers and politicians to take responsibility
for the death toll in Ahmedabad, which is put at almost 1000 but is
probably far higher.

Intertwined with accusations of developer greed are technical issues.

The structures that failed were inadequately designed to resist earthquake
loads. Soft or flexible ground floor storeys collapsed because they did
not have the capacity to transfer earthquake loads to the ground.

However, reinforced concrete structures can be designed to be much taller
than four or 10 storeys and still resist earthquake loading. It is a
matter of understanding how structures respond and designing

Protection is possible

Not all structures in India were poorly designed and constructed. Many
were built well, particularly some of the industrial structures.
Typically, these were not damaged significantly by the earthquake. That
shows that modern building codes can - and do - provide adequate
protection when they are followed and enforced.

Properly engineered structures generally performed well in the Kutch
region, the area most heavily affected by the earthquake. For example, the
Gujarat Water Board has responsibility for designing and operating
regional water supplies. There are approximately 140 systems in the Kutch,
each with one or more elevated concrete water storage tanks. These
structures support a heavy mass of water 30m above the ground. All of
these tanks were designed in a central state office. Not one water tank
failed in the Kutch region.

Unfortunately, modern, costly and well-engineered equipment was housed in
new buildings constructed using centuries-old methods. For example, the
Gujarat Electricity Board operates a 220kV power grid for the regional
electricity system, bringing in power from coal-fired plants to the
northwest and distributing it throughout the Kutch region. The modern
equipment used at the substations performed remarkably well considering
the strong ground motions in the region.

Unfortunately, the control buildings at all substations were constructed
with stone masonry. Nearly all control buildings collapsed or were
severely damaged. As a result, the system experienced long service

India's engineers are familiar with and often use the most advanced
earthquake building codes in the world. Yet, thousands of buildings - many
of which were built in the last five years - collapsed completely or were
total losses. The primary reason was the lack of code compliance for
earthquake design caused by poor engineering, sometimes poor construction
and lack of government inspection.

Poor engineering played much the largest role, as the failed structures
were designed without the required earthquake-resistant features. The
buildings should have collapsed, regardless of the quality of the
construction. The ruined structures were also designed and built without
adequate inspection (of either the design or the construction) by
knowledgeable engineers or government building inspectors to ensure that
the building code requirements were being met.

This is not a problem unique to India; it is common throughout the world,
even in the most advanced countries. The same situation exists to some
extent in virtually all of the world's seismic regions, including the
entire Mediterranean region (particularly Israel, Turkey, Greece and
Italy), the Caribbean, Central and South America, most of Asia and parts
of the US.

In summary, an advanced building code is nearly meaningless without the
combination of good architecture, engineering, construction and

In effect, the often-used term 'built-to-code' means nothing unless all
four features are executed together properly.

Understanding the quality of the building codes and their application is
the key to making adequate underwriting decisions in the world's
earthquake and windstorm regions.

Mixed performance

While many of the structures that met the more advanced building-code
requirements in Turkey, Taiwan and India were not significantly damaged in
the earthquakes, many others were total or near total losses. The reason
for this, which may surprise many people, is simple. Modern building codes
are intended to protect people, not investments and business.

For example, the typical modern commercial high-rise in San Francisco,
Seattle or Tokyo is designed to the same earthquake standards as a nearby
low-value farm building. In all cases, the intent is to ensure life safety
and prevent collapse in a severe earthquake and prevent extensive damage
in a moderate earthquake.

Further, building codes do not address business interruption - that
problem is left to the owner. If improved performance is needed or wanted,
then the owner must require a higher level of design. Nowadays this is
called 'performance-based design'. It is not legally mandatory.

However, risk managers, chief financial officers, facility owners and
underwriters who understand the limitations and the expected performance
of structures built just to comply with modern building codes recognise
the value of performance-based design.

After the Taiwan, Turkey and India earthquakes, serious business
interruptions were common, even when the buildings were undamaged. This
was primarily because the building codes did not require that
manufacturing equipment be protected.

In addition, certain architectural features, such as raised floors and
suspended ceilings (and sprinkler systems), were often extensively damaged
in the earthquakes. Unbolted or unbraced equipment toppled and/or slid,
causing severe damage. Extended disruptions resulted.

The worst recent example occurred in Hsinchu in Taiwan. There, high-tech
equipment failed at very low levels of shaking. The equipment was not
designed to withstand earthquakes, nor was it properly braced, resulting
in significant business interruptions. This is not a problem unique to
Taiwan; it is the norm in the rest of the world, including California and
Japan. These risks can be easily remedied at very reasonable costs.

In high-tech industries, equipment accounts for more than 90% of the value
of the plants. Yet typically, minimal protection exists to guard equipment
from earthquake damage. Reasonable risk control should include protection
against this type of loss. Cost-benefit analyses consistently show that
adding this level of protection is good business.

In Taiwan and Turkey, and to some degree in India, business interruptions
were the major contributors to financial losses for industry. These were
often secondary losses, caused by damage to interrelated systems. For
example, the structural failure of shipping piers along the Turkish coast
as a result of the Izmit earthquake prevented the shipping of raw
materials and finished goods for several months.

Understanding these relationships often requires sophisticated system
analyses. Addressing these issues requires a thorough understanding of the
systems and fault-tree probability analyses. Again, cost-benefit analyses
consistently show the benefit of examining these possible loss scenarios
before an earthquake or a windstorm strikes.

Location, location, location

All earthquakes show that the location of the buildings is

In both Turkey and Taiwan hundreds of structures collapsed completely
because they were directly on top of the faults. This is especially tragic
since the locations of the faults were known, particularly in Turkey.

The India earthquake occurred in one of the world's most seismically
active areas and an area that has similarities to the New Madrid region of
the US.

Prudent risk management would dictate the examination of fault location
and historical earthquake data prior to construction or insuring, thus
avoiding or reducing the risks.

As is typically the case, much of the damage in the earthquakes was
exacerbated by soft soils amplifying ground motions. Unfortunately, many
industrial facilities and increasingly many commercial buildings are
located in such areas, including silicon valley in California and most
major cities in Japan.

Again, proper risk management can address this issue by avoiding such
locations or recognising the issue and designing new constructions to
higher performance levels to account for the increased earthquake

The key lesson for earthquake risk management and underwriting, learned
time and time again, especially recently in India, Taiwan and Turkey, is
that built-to-code is not enough to prevent major losses. It simply does
not address protection against business interruption and does not
correlate with recent losses.

Built-to-code is no substitute for conducting appropriate risk management
studies to identify the true extent of possible losses. This knowledge can
then be employed to ensure that the design, construction and underwriting
adequately address the risks.

Weaknesses in local design

- In the recent earthquakes in Turkey and India most buildings collapsed
because they were not properly designed.

- In Taiwan and in India, many buildings collapsed because they had one
particularly weak design feature in common, called 'soft-storey'. This
involves inadequate ground-level structural design for earthquakes, often
necessitated by local custom or the need for larger open spaces on the
ground floor. This feature can be easily corrected and collapses avoided
with minimal additional design attention and cost.

- From risk management and underwriting perspectives, it is important to
realise that local customs affect the earthquake resistance of

- Relying on local codes and design practices can be very risky. Instead,
multinational corporations should develop in-house procedures for
consistent design and construction wherever their buildings are located,
founded on performance-based design that will always exceed local
requirements for important facilities.

Location Magnitude Economic Insured Collapsed No of No of
(Richter) loss ($bn) loss ($bn) buildings deaths homeless
Bhuj, India 7.7 5 Not known 65 000+ 19 0001 160 000+
Izmit, Turkey 7.4 20 2+ 115 000 20 000+ 250 000
Chi-Chi, Taiwan 7.6 14 2 10 000 2 300 100 000
1. By mid-February the official count was 19 000, but many people were still
unaccounted for.
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