Black Swan: Mega-Tsunami

A Mega-Tsunami Is Coming; Can the East Coast Even Prepare?

Could a tsunami destroy everything from Boston to Miami? If it did, would we even stand a chance?
By: | July 30, 2018 • 9 min read

Scenario: La Palma earned the nickname “the beautiful island” — white sand beaches highlighted by black volcanic soil. An endless night sky filled with stars as far as the eye can see.

But beauty here is only skin deep.

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Nestled on the western side of La Palma sits the Cumbre Vieja volcano, like a pot of water waiting to boil over. Its last big eruption was more than 50 years ago, but everyone knows it’s only a matter of time before it unleashes the beast inside.

It starts with tremors. Glasses rattle on kitchen tables while picture frames skew left and right. Tourists to La Palma brush it off, calling the jelly feeling “sea legs” — they are, after all, on an island.

But the locals know better and they hold their breath. When it does happen, the ash and lava spill out of the volcano’s mouth like a giant sigh. No one could have predicted what happens next.

The western side of the volcano cracks and splits; the steam builds up inside and pushes against the volcano’s walls. The pressure is too much; the entire western flank breaks off, the Atlantic Ocean eagerly swallowing every rock, stone and pebble as they freefall into its deep blue depths. The earth rumbles and the water begins to slosh around as its calm ebb and flow turns into frenzied splashing and crashing.

The waves grow. And they grow and they grow. To the naked eye, it looks like the heavens unleashed a curtain made of water — somehow the volcano’s landslide has produced a tsunami that reaches the sky.

And this mega-tsunami moves fast.

All 3,000 feet of water roars as it barrels away from La Palma’s coast toward the United States. As the most western island of the Canary Islands, La Palma sits eight to 10 hours away from the eastern shore by plane. It’s the one piece of good news: Residents have a window of time to evacuate.

But chaos breeds chaos, and soon the highways are clogged with cars, frightened families from Boston to Miami trying to flee inland. A final silver lining: The wave decreases as it sojourns across the Atlantic from a staggering 3,000 to a mere 160 feet.

The wave touches down, flowing onto beaches and flooding bays. Coastal buildings don’t stand a chance; water rushes inland 10 miles along the entire eastern seaboard. Homes are destroyed, countless hotels crumble under the force. Chemical plants that once churned out product by the oceanside spill their toxic waste into the sea.

Beaches up and down the coast account for billions of dollars in tourism revenue each summer. It looks like vacationers might not be able to return for decades thanks to the amount of oils and solvents released.

On top of that, the East Coast is home to 29 percent of the U.S. population. Now they are displaced — their homes destroyed, their cities flooded. Not everyone made it out in time.

It’s not the end of the world, but it very much feels like it.

Analysis: La Palma’s mega-tsunami is a disaster, no doubt. And — scarily enough — it’s not impossible.

In 1949, the Cumbre Vieja volcano erupted along the coast of La Palma and caused an earthquake that created a mile-long fissure on its east side.

The force of the fissure then caused the volcano’s west side to slip six feet into the Atlantic Ocean. It has since remained in this position, its estimated 1.5 trillion metric tons waiting like a ticking time bomb.

Researcher and scientist Steven Ward, now a research geophysicist at the Institute of Geophysics and Planetary Physics, UC Santa Cruz, and Simon Day, a senior research associate at the Institute for Risk & Disaster Reduction, University College London, first quantified the features of the La Palma mega-tsunami.

They looked at the geological structure of the volcano and created simulations of the event, which can be seen on Ward’s YouTube channel.

If circumstances align and the volcano erupts powerfully enough, the western half of the volcano could fall into the ocean and create this mega-tsunami scenario in full, the research concluded.

“La Palma is a volcanic island,” said Ward. “It’s built up from ash and lava that pushed out layers like a stack of shingles on a sloping roof. Sometimes, volcano sides become unstable and like that stack of shingles, part of the pile slides off. It’s a common thing [to have] huge pieces of debris fall off.”

“The unusual structural evolution of the volcano, revealed by changes in the distribution of eruption sites over its surface since about 10,000 years ago, could best be explained by the progressive development of a landslide surface under that western flank and consequent weakening,” added Day.

“Satellite radar data has shown that a large section of the west flank is continuing to move very slowly … despite the fact that it is not being pushed by magma rising to the surface within the volcano,” he said.

“La Palma has a lot of water in it,” Ward explained. “The thinking is that in some future eruption, hot magma will reach this water, turn it into steam and the steam will split the mountain.”

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A landslide of this scale could send out a mega-tsunami-sized wave. Ward said the hard part is predicting if, or when, the landmass will actually slide into the Atlantic.

Such an event won’t likely come out of the blue, he said. There will be a buildup of volcanic and tectonic activity beforehand that will aid researchers in forecasting a potential disaster.

In fact, earlier this year, residents of the island feared the worst as La Palma encountered more than 40 mini-earthquakes within a 48-hour period. Large tremors stemming from Cumbre Vieja followed soon after, though the volcano never erupted.

A Catastrophe Too Big to Predict

A mega-tsunami is hard to predict and prepare for. On a smaller scale, tsunamis themselves are rare enough events.

“Usually you have significant property and clean-up — and BI damage or costs,” said Ed Mazman, president of property, Ironshore.

Specifically, Mazman said, coastal businesses are most at risk: “A lot of that is hospitality, hotels, resorts. This is a tremendous event, uncontrollable exposures.”

There are ways to prepare for a “typical” tsunami, but when it comes to an event like this and the size of the potential wave, “I don’t think we could really protect against it,” he said.

“It’s like a tornado. You could have a structure prepped for a tornado, but if it’s in the way of a CAT 5, that tornado’s going to win.” — Ed Mazman, president of property, Ironshore

“Firms are thinking about life safety over property damage. You can’t really protect property. If it’s in the path, if it’s close enough — it’s like a tornado. You could have a structure prepped for a tornado, but if it’s in the way of a CAT 5, that tornado’s going to win,” Mazman said.

The best example to look at in terms of damage done is Superstorm Sandy, which hit the East Coast in October 2012.

While Sandy gives an idea of the extent of damage to expect, a mega-tsunami still differs in one glaring way: the area impacted. This is not just one city bearing the brunt of the damage; anything in between Boston and Miami could feel the wrath of the tsunami.

“Every scenario [already modeled] seems to be limited to one geographic area, like a large metropolitan area. If a CAT 5 hurricane were to hit Miami, it’s $150 to $200 billion. This [mega-tsunami] would be at least 10 times that,” said Mazman.

The good news: There’s a window of time for those on the East Coast to evacuate before a mega-tsunami even touches down on land.

“A tsunami travels as fast as a jet airplane, 400 to 500 miles per hour. But the ocean’s pretty big. From La Palma to the East Coast, it would take eight to 10 hours for a mega-tsunami to get there,” Ward explained.

Ed Mazman, president of property, Ironshore

Mazman said that because of this extra time and the fact that the United States is a tech-savvy country, the coast might see a lower loss of life than anticipated from an event like this.

To put it into perspective, in late 2004, a tsunami hit Indonesia after the third-largest recorded earthquake rumbled its way through the Indian Ocean. Nearly 280,000 people were killed by waves measuring as high as 100 feet.

The residents only had 20 minutes between the earthquake and the tsunami hitting land to evacuate — not nearly enough time to even register a tsunami was on its way.

With La Palma’s mega-tsunami, however, Ward said there would be enough activity months in advance, leading up to that final landslide.

Measuring the Environmental Impact of a Mega-Tsunami

With East Coasters safely out of the way, it’s the clean-up that will take the longest.

Petroleum-based fuels and solvents will leave a lasting impact on the environment long after flood waters recede.

After Hurricane Harvey, the CAT 4 hurricane that hit Houston in 2017, several oil and chemical refineries were hit with huge penalties for environmental violations. House and shared water wells had to be cleared of growing bacteria. The air quality took a significant hit as well.

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On top of pollutant issues, because of the size and scale of a mega-tsunami, many sea creatures might be displaced or run aground, disrupting deep-water ecosystems.

The scariest factor is the number of nuclear power plants concentrated on the East Coast. In 2011, a 50-foot tsunami hit Japan, disabling the power supply and cooling system for three nuclear reactors in Fukushima, causing them to melt down. Former residents are still waiting to return to the area.

With the potential for nearly 40 East Coast plants to melt down, some areas in the U.S. may never be inhabitable again.

Preparing for the Worst

Though La Palma’s mega-tsunami would be hard to predict and even harder to mitigate the risk, coastal properties can start by investing in flood and storm surge insurance, stabilizing structures with wind and water resilient materials, or adding in water sensors.

Clients would have insurance and be prepared for flood, Mazman said, “but this would have a huge financial impact beyond the insurance industry. It would be interesting to see the view from CAT modeling firms on an event of this magnitude.

“I can’t imagine a loss of that scale. It would be a world-wide disaster. Insurance would not be able to cover enough.”

However, Mazman said: “The one way to prepare would be to add in a warning system. The Pacific and Indian Oceans have one. Does the Atlantic?” &

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]