Modeling and Quantification of Earthquake Risk: Application to Emerging Economies

Abstract

Earthquakes and other natural hazards can create disasters of uncontrollable magnitudes when they hit large metropolitan areas. Losses from catastrophes are increasing due to higher concentrations of people and value in catastrophe-prone areas, and vulnerability of infrastructure. From 1994 to 1999, several earthquakes caused financial losses in excess of US$10 billion, including Northridge Earthquake, Los Angeles, 1994, Great Hanshin Earthquake, Kobe, 1995, the Kocaeli Earthquake, Turkey, 1999, and the Chi-Chi Earthquake, Taiwan 1999. According to a World Bank publication, over 100,000 people died as a result of natural and technological disasters in 1999, with economic costs exceeding US$65 billion worldwide (Cameron, 2000). In developing countries, most of the economic loss falls under the burden of the Government, which has to divert precious development and public services funds into the recovery and reconstruction process. Business owners and homeowners, who are victims of disasters, often rely on disaster assistance help from government to rebuild their source of income and houses because they generally do not carry earthquake insurance. Insurance penetration in emerging economies is a fraction of that of developed countries, and plays a minimum role in protecting the economies and welfare of developing countries.