25 Years Later—What If the M6.7 Northridge Earthquake Were to Strike Again?

Although California had experienced major earthquakes before, the Northridge earthquake marked a turning point in the history of California's earthquake insurance industry. Insured losses for the Northridge earthquake totaled USD 12.5 billion—substantially more than the amount of earthquake insurance premiums collected during the previous 80 years.

What if the Northridge earthquake were to recur?

View Ground Shaking View Today's Modeled Losses

On January 17, 1994, a blind reverse-thrust fault ruptured nine miles beneath the Los Angeles neighborhood of Northridge in the San Fernando Valley. With a magnitude of 6.7, it produced the largest ground motions ever recorded in an urban environment in the U.S., heavily damaging more than 40,000 structures across several counties. It remains the costliest earthquake in recent U.S. history, and its effect on homeowners' insurance in California was immediate and long-lasting.

Read “Twenty Years After Northridge—Can We Fix Earthquake Insurance in California?”

What would the losses be if Northridge were to strike today?

According to the AIR Earthquake Model for the United States, were the Northridge earthquake to occur today—with today’s building inventory at risk—it would cause USD 16 billion in insured loss¹, devastating Los Angeles County. But if the take-up rates 25 years ago were in place today, the insured loss would be double.

The seismic resilience of properties in California has risen since 1994 due to the enactment of mandatory building codes and construction standards for wood frame construction (the prevalent construction for residential buildings in the United States). Also, the modest increase in the number of properties at risk as well as a doubling of their insured value and a rise in construction costs are reflected in the losses for a 2019 recurrence of the Northridge earthquake.

Read “U.S. Earthquake Model Update Enhances View of Wood Frame Vulnerability”

What if an M6.7 earthquake strikes in Orange County, California?

View Earthquake Shake View Today's Modeled Losses

While a recurrence of Northridge would be costly, an M6.7 quake on a fault affecting the heavily populated Orange County could be even more devastating. To assess this, we examine one of thousands of simulated events in the 10,000-year catalog of AIR’s U.S. earthquake model.

The hypothetical earthquake shake depicted here is from an M6.7 quake with a focal depth of 7 km originating from the 18-km rupture of the San Joaquin Hills fault. This fault is a blind thrust fault that extends for ~23 miles through coastal Orange County and is believed to be capable of generating large events.

San Joaquin Peak Ground Acceleration Map

What are the modeled losses from an M6.7 earthquake striking Orange County?

Based on today’s building inventory, the insured loss for an M6.7 quake striking Orange County in our scenario would exceed USD 31 billion.¹ This figure is nearly twice the losses if Northridge were to recur today and includes damage mainly in Orange County, but extending into Los Angeles, San Bernardino, Riverside, and San Diego counties. Both Los Angeles and Orange counties have higher-than-average residential take-up rates of 20%. The average take-up rate for residential homes in the State of California is 15%.

The potential loss from an M6.7 earthquake in Orange County is staggering.

How would this M6.7 earthquake impact the ILS market?

A major earthquake striking Orange County—or any metropolitan area in California—would prompt immediate activity in the marketplace for insurance-linked securities (ILS): catastrophe bonds, industry loss warranties, sidecars, and collateralized reinsurance. To project potential ILS losses for catastrophic events, AIR, the leading modeling firm in the ILS market, builds and maintains a detailed catastrophe bond database containing all bonds currently on-risk, representing approximately USD 29 billion of outstanding principal.

For this M6.7 earthquake on the San Joaquin Hills Fault, we project a total loss to the cat bond market principal of USD 2.6 billion. Of the catastrophe bonds currently in the market, 13 would be impacted.

Bonds affected: 13

Tranches taking losses: 16

Tranches completely exhausted: 7

Modeled loss to cat bond market principal:

USD 2.6B

View AIR’s infographic: “Who Will Pay for the Next Great California Earthquake?”

Northridge and the promise of catastrophe modeling

It is important to prepare for a wide range of scenarios in order to respond effectively when disaster strikes. The scenario outlined here is just one of many plausible high loss earthquake scenarios that could occur in California.

The understanding of seismicity, ground motion, and engineering have improved in the past 25 years, and advances in technology have allowed catastrophe models to make sense of high-resolution hazard information (such as soil type and liquefaction potential). More than ever, companies are better equipped to develop viable insurance products, and to make better portfolio optimization and reinsurance purchasing decisions.

¹ Modeled losses for the Northridge earthquake today and for an M6.7 earthquake striking Orange County (shown elsewhere on this webpage) are based on today’s building inventory. The losses assume that 20% of shake losses to homes are insured against shake damage but that only 17% of small businesses and large commercial properties are covered. The loss estimates include the expected increases in the costs of labor and materials necessary to repair or rebuild properties in the aftermath of a large earthquake. The loss for the stochastic event is for buildings and contents damage and loss of use (i.e., time element which is a result of business interruption or additional living expenses due to relocation costs or temporary lodging). considering all the contributing sub-perils of ground shaking, fire following, liquefaction, landslide, and sprinkler damage.

* Map Sources: Esri, USGS, NGA, NASA, CGIAR, N Robinson, NCEAS, NLS, OS, NMA, Geodatastyrelsen, Rijkswaterstaat, GSA, Geoland, FEMA, Intermap and the GIS user community

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