Black Swan: Tsunami

Menace on the Horizon

The Pacific Northwest will never fully recover from this tsunami and earthquake.
By: | August 3, 2016 • 8 min read

Scenario:  Fifteen to 20 minutes.

That’s all the time that tens of thousands of coastal residents and tourists will have to escape with their lives when the Cascadia Subduction Fault ruptures. It could happen tomorrow. Or in 50 years. No one is totally sure, since there is no way to predict when earthquakes occur.

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But when the 700-mile-long fault in the Pacific Ocean that stretches just 70 miles offshore from Cape Mendocino, Calif., to Vancouver Island, British Columbia, last erupted in 1700, the earthquake-powered tsunami was so powerful it drowned a forest of 150-foot-tall spruce trees on the Oregon Coast and swamped a feudal castle in Japan.

This time, the loss of life and infrastructure damage will be worse because so many more people live in the Pacific Northwest and there is so much more to destroy.

Large sections of the coastline will drop by nearly 5 feet, and the shaking caused by the magnitude 9 earthquake will last as long as five minutes, affecting 140,000 square miles, including Seattle, Tacoma, Portland and Olympia. Aftershocks will continue for months.

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The first tsunami wave — as high as 30 to 40 feet — will bury the coastal communities in unrelenting towers of water moving about 20 mph toward the shore, and as fast as 500 mph across the ocean. About 100,000 people live and work there, but the population grows by tens of thousands during tourist season.

Roads, bridges, railways and communication structures will be destroyed. Natural gas pipelines and water systems will be heavily damaged. There will be widespread, lengthy power outages in every city within 100 miles of the coast. Undersea transpacific cables will be severed.

Fatalities will total upwards of 13,000 — many more if the tsunami occurs during a weekend beach day in tourist season.

The coastline and low-lying areas of towns west of I-5, the main interstate on the West Coast, will be wiped out from Northern California to British Columbia. Higher ground will suffer moderate to severe damage.

Wood-frame buildings should withstand the earthquake, but not the tsunami. Masonry buildings may withstand the tsunami, but not the earthquake.

Fatalities will total upwards of 13,000 — many more if the tsunami occurs during a weekend beach day in tourist season.

The region never fully recovers.

Analysis:  Total global economic losses from natural and man-made disasters in 2015 were $92 billion, according to Swiss Re. When the Cascadia Subduction Fault ruptures, that alone will be higher.

Official projections put the economic damage at $49 billion for Washington, $41 billion for British Columbia, $32 billion for Oregon and $4 billion for California, but many experts believe losses will be higher. Maybe 20 percent to 25 percent of economic losses will be insured, experts said.

Residents and small business owners usually do not have flood or earthquake protection. And standard policies for small businesses have limited coverage for business interruption, or extra expenses required to rebuild and recover.

“The basis for the panic is pretty solid. It’s not a tinfoil-hat kind of thing. We are way past the minimum from geologic records, but we are not in any sense, overdue.” — Dr. Chris Goldfinger, director, active tectonics and seafloor mapping laboratory at Oregon State University

National or regional companies may see higher payouts. As sophisticated insurance buyers, they will have higher limits for business interruption, contingent business interruption and for extra expenses. But the damage will take months and years to fix. No business can outlast that. Not if they remain in the area.

Homes and businesses on the coast will be destroyed. Plus, the entire coastline will be isolated by the tsunami’s devastation, cut off from the rest of the country.

In the bigger cities, such as Portland, Eugene and Seattle, many properties will be destroyed by the earthquake. Residents and business owners will face at least a month without electricity, several months without water, and years before bridges and major infrastructure are restored. And those are the optimistic projections.

Oregon businesses were stunned to hear it would take months and years to resume operations, said Dr. Chris Goldfinger, director, active tectonics and seafloor mapping laboratory at Oregon State University, who has been charting the frequency and severity of the zone ruptures.

“They said after a few weeks, we would have to leave,” he said. “We can’t just sit here and wait for years for bridges to be rebuilt. That was a sobering moment.”

Everyone Has a Stake

The average time between earthquakes is 400 to 500 years, Goldfinger said. It can be as short as 200 years, as long as 1,000. It’s now 315 years since the last rupture of the Cascadia Subduction Fault.

“The basis for the panic is pretty solid. It’s not a tinfoil-hat kind of thing. We are way past the minimum from geologic records, but we are not in any sense, overdue,” Goldfinger said.

“Everyone has a stake in it,” he said. “We all have a responsibility to do something.” — Jay Wilson, Clackamas County (Oregon) resilience coordinator

With bridges, highways and communication down, emergency response will be limited. Rescue efforts will have to come from outside the affected areas.

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“The people we count on the most for smaller disasters and misadventures will be victims like the rest of us,” said Goldfinger.

Like many others in the Pacific Northwest, Jay Wilson, Clackamas County (Oregon) resilience coordinator, is working to reduce the number of victims. It’s a very site-specific exercise and an overwhelming task.

“Everyone has a stake in it,” he said. “We all have a responsibility to do something.”

“A Massive Planning Effort”

To aid tsunami survivors, the construction of about 43 “vertical evacuation structures” in coastal Washington have been discussed.

Nathan Wood, research geographer, U.S. Geological Survey

Nathan Wood, research geographer, U.S. Geological Survey

The first one — a refuge on the roof above Ocosta Elementary School in Westport, Wash., will be finished soon. It will hold 700 people. A planned berm — basically a big hill — behind  an elementary School in Long Beach, Wash., will save about 600 more.

Officials and community members are also caching relief supplies on high ground near the tsunami zone so survivors will have provisions while they await rescue, said Nathan Wood, research geographer, U.S. Geological Survey.

“It’s a massive planning effort,” he said, noting that Oregon and Washington emergency managers have involved hundreds of experts, legislators, business leaders and the public in regional resilience planning.

“It will be catastrophic,” Wood said, “but we can make it more resilient. People are not burying their heads in the sand. Can they make everything perfect in one day? No. But it was really impressive how they are pulling everybody together.”

Still, Wilson said, it’s a hugely expensive proposition that will take years, and new buildings and infrastructure are still not being constructed to a higher level of resilience, such as is common in Japan and Chile, or even California, where earthquakes and tsunamis are more common.

“Until the business community starts demanding it and elected officials campaign on it, it’s still backroom conversation by a bunch of policy wonks like me saying, ‘What can we do to make this happen?’ ”

VIDEO: More than 470 Washington National Guard personnel took part in the Cascadia Rising earthquake preparedness exercise in June. Report from iFiberoneNews

That’s not to say there hasn’t been progress. In June, “Cascadia Rising 2016,” a four-day earthquake and tsunami drill began in Washington and Oregon to test emergency response measures. About 20,000 people, including the U.S. National Guard, and federal, state and local emergency responders, practiced saving lives and delivering services while testing ways to communicate with no electricity or cell service.

The region will also be getting support from the 100 Resilient Cities initiative of the Rockefeller Foundation. Seattle and Vancouver were added to the roster in May. Both will receive financial support for a chief resilience officer as well as access to best practices, service providers and partners.

Wilson had been hoping Portland would be chosen as well.

Recovery will be an immense challenge. The U.S. already has a $1.5 trillion shortfall for infrastructure maintenance, said Alex Kaplan, senior vice president, global partnerships, Swiss Re, who works with the 100 Resilient Cities initiative.

Finding the Money

“Where will the money come from?” asked Jamie Miller, head of property for North America, Swiss Re Corporate Solutions. And when?

Jamie Miller, head of property, North America, Swiss Re Corporate Solutions

Jamie Miller, head of property, North America, Swiss Re Corporate Solutions

One year after Superstorm Sandy, about 75 percent of federal funding still had not been dispersed, he said.

The challenges settling claims following Sandy’s devastation will surely reoccur, Miller said. And there will be a “huge gap” between insured and economic losses for small business owners.

“Where a policy does not cover earthquake or flood, an insured’s coverage may only include ensuing losses, such as fire resulting from a burst gas pipe.”

Business income protection and coverage for extra expenses will not come close to covering the costs required to return to operation, he said.

For larger companies, even the most sophisticated risk manager will be challenged to calculate — or protect — the business income and recovery losses.

Access to gasoline will disappear rapidly, so emergency generators will become useless. Customers will be nonexistent.

Construction crews will be overwhelmed and face labor shortages; their price will dramatically escalate, assuming it’s even possible to hire a crew, Miller said.

Built-in redundancies to use nearby facilities to get back in business will be useless since the entire region will be affected, and receiving supplies, impossible.

Plus, with the popularity of just-in-time supply chains, companies will likely have few resources on hand to facilitate production.

At the same time, U.S. and Asian companies that rely on goods from the devastated area will go lacking.

“The big question is, what are we going to do about it?” — Jay Wilson, Clackamas County (Oregon) resilience coordinator

After the Thailand floods in 2011, some car manufacturers delayed production for months because of a lack of components, while computer industry companies saw shortages and adverse impacts for six months to a year.

When large commercial enterprises file insurance claims, they may be dealing with as many as 20 companies.

“Getting them all to agree on an adjustment is a big challenge,” Miller said.

Insurers that did not adequately manage risk aggregation will face bankruptcy. That, in turn, will leave third-party vendors and service providers unpaid and work undone.

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Steven Jakubowski, president, Aon Benfield’s impact forecasting team, said insurer solvency will be an issue. “We saw that in Northridge,” which was a 6.7 magnitude earthquake that hit Los Angeles on Jan. 17, 1994.

According to the Insurance Information Institute, Northridge caused $15.3 billion in insured damage, topped only by Hurricane Katrina, the attacks on the World Trade Center and Hurricane Andrew.

“We are so big on public/private partnerships because of this,” Miller said. “The resiliency initiative is all about creating awareness of overall risk.”

Swiss Re’s global partnerships business focuses on building long-term resilience, while helping governments transfer risk away from taxpayers and into the private market, aiming to reduce over-dependence on an increasingly strained federal disaster budget, Kaplan said.

Wilson said the aim of emergency planning is to create a two-to-four week recovery window. Right now, it’s months and years.

“We haven’t had anything this big in our country before,” he said. “For me, I just accept it. It’s gonna happen,” said Wilson. “The big question is, what are we going to do about it?” &

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Black Swan: EMP

Chaos From Above

An electromagnetic pulse event triggered by the detonation of a low-yield nuclear device in Earth’s atmosphere triggers economic and societal chaos.
By: | July 27, 2017 • 9 min read

Scenario

The vessel that seeks to undo America arrives in the teeth of a storm.

The 4,000-ton Indonesian freighter Pandawas Viper sails towards California in December 2017. It is shepherded toward North America by a fierce Pacific winter storm, a so-called “Pineapple Express,” boasting 15-foot waves and winds topping 70 mph.

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Normally, Pandawas Viper carries cargo containers. This time she harbors a much more potent payload.

Unbeknownst to U.S. defense and intelligence officials, the Viper carries a single nuclear weapon, loaded onto a naval surface-to-air missile, or SAM, concealed below deck.

The warhead has an involved history. It was smuggled out of Kyrgyzstan in 1997, eventually finding its way into the hands of Islamic militants in Indonesia that are loosely affiliated with ISIS.

Even for these ambitious and murderous militants, outfitting a freighter with a nuclear device in secrecy and equipping it to sail to North America in the hopes of firing its deadly payload is quite an undertaking.

Close to $2 million in bribes and other considerations are paid out to ensure that the Pandawas Viper sets sail for America unmolested, her cargo a secret held by less than two dozen extremist Islamic soldiers.

The storm is a perfect cover.

Officials along the West Coast busy themselves tracking the storm, doing what they think is the right thing by warning residents about flooding and landslides, and securing ports against storm-related damage.

No one gives a second thought to the freighter flying Indonesian colors making its way toward the Port of Long Beach, as it apparently should be.

It’s only at two in the morning on Sunday, December 22, that an alert Port of San Diego administrator charged with monitoring ocean-going cargo traffic sees something that causes him to do a double take.

GPS tracking information indicates to him that the Pandawas Viper is not heading to Long Beach, as indicated on its digital shipping logs, but is veering toward Baja, Calif.

Were it to keep its present course, it would arrive at Tijuana, Mexico.

The port administrator dutifully notifies the U.S. Coast Guard.

“Indonesian freighter Pandawas Viper off course, possibly storm-related navigational difficulties,” he emails on a secure digital communication channel operated by the port and the Coast Guard.

“Monitor and alert as necessary,” his message, including the ship’s current coordinates, concludes.

In turn, a communications officer in the Coast Guard’s Alameda, Calif. offices dutifully alerts members of the Coast Guard’s Pacific basin security team. She’s done her job but she’s about an hour late.

At 3:15 am Pacific time on December 22, the deck on the Pandawas Viper opens and the naval surface-to-air missile, operated remotely by a militant operative in Jakarta, is let loose.

It’s headed not for Los Angeles or San Diego, but rather Earth’s atmosphere, where it detonates about 50 miles above the surface.

There it interacts with the planet’s atmosphere, ionosphere and magnetic field to produce an electromagnetic pulse, or EMP, which radiates down to Earth, creating additional electric or ground-induced currents.

The operative’s aim is perfect. With a charge of hundreds and in some cases thousands of volts, the GICs cause severe physical damage to all unprotected electronics and transformers. Microchips operate in the range of 1.5 to 5 volts and thus are obliterated by the billions.

As a result, the current created by the blast knocks out 70 percent of the nation’s grid. What began as an overhead flash of light plunges much of the nation into darkness.

The first indication for most people that there is a problem is that their trusty cellphones can do no more than perform calculations, tell them the time or play their favorite tunes.

As minutes turn to hours, however, people realize that they’ve got much bigger concerns on their hands. Critical infrastructure for transportation and communications ceases. Telecommunication breakdowns mean that fire and police services are unreachable.

For the alone, the elderly and the otherwise vulnerable, panic sets in quickly.

Hospital administrators feverishly calculate how long their emergency power supplies can last.

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Supermarkets and other retailers anticipating one of their biggest shopping days of the year on that Monday, December 23, instead wake up to cold homes and chilling prospects.

Grocery stores with their electricity cut off are unable to open and product losses begin to mount. Banks don’t open. Cash machines are inoperable.

In the colder parts of the United States, the race to stay warm is on.  Within a day’s time in some poorer neighborhoods, furniture is broken up and ignited for kindling.

As a result, fires break out, fires that in many cases will not draw a response from firefighting crews due to the communication breakdown.

As days of interruption turn into weeks and months, starvation, rioting and disease take many.

Say good-bye to most of the commercial property/casualty insurance companies that you know. The resulting chaos adds up to more than $1 trillion in economic losses. Property, liability, credit, marine, space and aviation insurers fail in droves.

Assume widespread catastrophic transformer damage, long-term blackouts, lengthy restoration times and chronic shortages. It will take four to 10 years for a full recovery.

The crew which launched the naval surface-to-air missile that resulted in all of this chaos makes a clean getaway. All seven that were aboard the Pandawas Viper make their way to Ensenada, Mexico, about 85 miles south of San Diego via high-speed hovercraft.

Those that bankrolled this deadly trip were Muslim extremists. But this boat crew knows no religion other than gold.

Well-paid by their suppliers, they enjoy several rounds of the finest tequila Ensenada can offer, and a few other diversions, before slipping away to Chile, never to be brought to justice.

Observations

This outcome does not spring from the realm of fiction.

In May, 1999, during the NATO bombing of the former Yugoslavia, high-ranking Russian officials meeting with a U.S. delegation to discuss the Balkans conflict raised the notion of an EMP attack that would paralyze the United States.

That’s according to a report of a commission to assess the threat to the United States from an EMP attack, which was submitted to the U.S. Congress in 2004. But Russia is not alone in this threat or in this capability.

Wes Dupont, vice president and general counsel, Allied World Assurance Company

North Korea also has the capability and the desire, according to experts, and there is speculation that recent rocket launches by that country are dress rehearsals to detonate a nuclear device in our atmosphere and carry out an EMP attack on the United States.

The first defense against such an attack is our missile defense. But some experts believe this country is ill-equipped to defend against this sort of scenario.

“In terms of risk mitigation, if an event like this happens, then that means the best risk mitigation we have has already failed, which would be our military defense systems, because the terrorists have already launched their weapon, and it’s already exploded,” said Wes Dupont, a vice president and general counsel with the Allied World Assurance Company.

The U.S power grid is relatively unprotected against EMP blasts, Dupont said.

And a nuclear blast is the worst that can occur. There isn’t much mitigation that’s been done because many methods are unproven, and it’s expensive, he added.

Lloyd’s and others have studied coronal mass ejections, solar superstorms that would produce a magnetic field that could enter our atmosphere and wipe out our grid.  Scientists believe that an EMP attack would carry a force far greater than any coronal mass ejection that has ever been measured.

An extended blackout, with some facilities taking years to return to full functionality, is a scenario that no society on earth is ready for.

“Traditional scenarios only assume blackouts for a few days and losses seem to be moderate …” wrote executives with Allianz in a 2011 paper outlining risk management options for power blackout risks.

“If an event like this happens, then that means the best risk mitigation we have has already failed … because the terrorists have already launched their weapon, and it’s already exploded.” — Wes Dupont, vice president and general counsel, Allied World Assurance Company

“But if we are considering longer-lasting blackouts, which are most likely from space weather or coordinated cyber or terrorist attacks, the impacts to our society and economy might be significant,” the Allianz executives wrote.

“Critical infrastructure such as communication and transport would be hampered,” the Allianz executives wrote.

“The heating and water supply would stop, and production processes and trading would cease. Emergency services like fire, police or ambulance could not be called due to the breakdown of the telecommunications systems. Hospitals would only be able to work as long as the emergency power supply is supplied with fuel. Financial trading, cash machines and supermarkets in turn would have to close down, which would ultimately cause a catastrophic scenario,” according to Allianz.

It would cost tens of billions to harden utility towers in this country so that they wouldn’t be rendered inoperable by ground-induced currents. That may seem like a lot of money, but it’s really not when we think about the trillion dollars or more in damages that could result from an EMP attack, not to mention the loss of life.

Allianz estimates that when a blackout is underway, financial trading institutions, for example, suffer losses of more than $6 million an hour; telecommunications companies lose about $30,000 per minute, according to the Allianz analysis.

Insurers, of course, would be buffeted should a rogue actor pull off this attack.

Lou Gritzo, vice president and manager of research, FM Global

“Depending on the industries and the locations that are affected, it could really change the marketplace, insurers and reinsurers as well,” said Lou Gritzo, a vice president and manager of research at FM Global.

Gritzo said key practices to defend against this type of event are analyzing supply chains to establish geographically diverse supplier options and having back-up systems for vital operations.

The EMP commission of 2004 argued that the U.S. needs to be vigilant and punish with extreme prejudice rogue entities that are endeavoring to obtain the kind of weapon that could be used in an attack like this.

It also argued that we need to protect our critical infrastructure, carry out research to better understand the effects of such an attack, and create a systematic recovery plan. Understanding the condition of critical infrastructure in the wake of an attack and being able to communicate it will be key, the commission argued.

The commission pointed to a blackout in the Midwest in 2003, in which key system operators did not have an alarm system and had little information on the changing condition of their assets as the blackout unfolded.

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The commission’s point is that we have the resources to defend against this scenario. But we must focus on the gravity of the threat and employ those resources.

Our interconnected society and the steady increase in technology investment only magnify this risk on a weekly basis.

“Our vulnerability is increasing daily as our use of and dependence on electronics continues to grow,” the EMP commission members wrote back in 2004.

But “correction is feasible and well within the nation’s means and resources to accomplish,” the commission study authors wrote. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]