Economics of disaster recovery and earthquake insurance: Five essays on New Zealand

<p>The Canterbury earthquake sequence (2010-2011) was the most devastating catastrophe in New Zealand‘s modern history. Fortunately, in 2011 New Zealand had a high insurance penetration ratio, with more than 95% of residences being insured for these earthquakes. This dissertation sheds light on the functions of disaster insurance schemes and their role in economic recovery post-earthquakes. The first chapter describes the demand and supply for earthquake insurance and provides insights about different public-private partnership earthquake insurance schemes around the world. In the second chapter, we concentrate on three public earthquake insurance schemes in California, Japan, and New Zealand. The chapter examines what would have been the outcome had the system of insurance in Christchurch been different in the aftermath of the Canterbury earthquake sequence (CES). We focus on the California Earthquake Authority insurance program, and the Japanese Earthquake Reinsurance scheme. Overall, the aggregate cost of the earthquake to the New Zealand public insurer (the Earthquake Commission) was USD 6.2 billion. If a similar-sized disaster event had occurred in Japan and California, homeowners would have received only around USD 1.6 billion and USD 0.7 billion from the Japanese and Californian schemes, respectively. We further describe the spatial and distributive aspects of these scenarios and discuss some of the policy questions that emerge from this comparison. The third chapter measures the longer-term effect of the CES on the local economy, using night-time light intensity measured from space, and focus on the role of insurance payments for damaged residential property during the local recovery process. Uniquely for this event, more than 95% of residential housing units were covered by insurance and almost all incurred some damage. However, insurance payments were staggered over 5 years, enabling us to identify their local impact. We find that night-time luminosity can capture the process of recovery; and that insurance payments contributed significantly to the process of local economic recovery after the earthquake. Yet, delayed payments were less affective in assisting recovery and cash settlement of claims were more effective than insurance-managed repairs. After the Christchurch earthquakes, the government declared about 8000 houses as Red Zoned, prohibiting further developments in these properties, and offering the owners to buy them out. The government provided two options for owners: the first was full payment for both land and dwelling at the 2007 property evaluation, the second was payment for land, and the rest to be paid by the owner‘s insurance. Most people chose the second option. Using data from LINZ combined with data from Stats NZ, the fourth chapter empirically investigates what led people to choose this second option, and how peer effect influenced the homeowners‘ choices. Due to climate change, public disclosure of coastal hazard information through maps and property reports have been used more frequently by local government. This is expected to raise awareness about disaster risks in local community and help potential property owners to make informed locational decision. However, media outlets and business sector argue that public hazard disclosure will cause a negative effect on property value. Despite this opposition, some district councils in New Zealand have attempted to implement improved disclosure. Kapiti Coast district in the Wellington region serves as a case study for this research. In the fifth chapter, we utilize the residential property sale data and coastal hazard maps from the local district council. This study employs a difference-in-difference hedonic property price approach to examine the effect of hazard disclosure on coastal property values. We also apply spatial hedonic regression methods, controlling for coastal amenities, as our robustness check. Our findings suggest that hazard designation has a statistically and economically insignificant impact on property values. Overall, the risk perception about coastal hazards should be more emphasized in communities.</p>

Economics of disaster recovery and earthquake insurance: Five essays on New Zealand

<p>The Canterbury earthquake sequence (2010-2011) was the most devastating catastrophe in New Zealand‘s modern history. Fortunately, in 2011 New Zealand had a high insurance penetration ratio, with more than 95% of residences being insured for these earthquakes. This dissertation sheds light on the functions of disaster insurance schemes and their role in economic recovery post-earthquakes. The first chapter describes the demand and supply for earthquake insurance and provides insights about different public-private partnership earthquake insurance schemes around the world. In the second chapter, we concentrate on three public earthquake insurance schemes in California, Japan, and New Zealand. The chapter examines what would have been the outcome had the system of insurance in Christchurch been different in the aftermath of the Canterbury earthquake sequence (CES). We focus on the California Earthquake Authority insurance program, and the Japanese Earthquake Reinsurance scheme. Overall, the aggregate cost of the earthquake to the New Zealand public insurer (the Earthquake Commission) was USD 6.2 billion. If a similar-sized disaster event had occurred in Japan and California, homeowners would have received only around USD 1.6 billion and USD 0.7 billion from the Japanese and Californian schemes, respectively. We further describe the spatial and distributive aspects of these scenarios and discuss some of the policy questions that emerge from this comparison. The third chapter measures the longer-term effect of the CES on the local economy, using night-time light intensity measured from space, and focus on the role of insurance payments for damaged residential property during the local recovery process. Uniquely for this event, more than 95% of residential housing units were covered by insurance and almost all incurred some damage. However, insurance payments were staggered over 5 years, enabling us to identify their local impact. We find that night-time luminosity can capture the process of recovery; and that insurance payments contributed significantly to the process of local economic recovery after the earthquake. Yet, delayed payments were less affective in assisting recovery and cash settlement of claims were more effective than insurance-managed repairs. After the Christchurch earthquakes, the government declared about 8000 houses as Red Zoned, prohibiting further developments in these properties, and offering the owners to buy them out. The government provided two options for owners: the first was full payment for both land and dwelling at the 2007 property evaluation, the second was payment for land, and the rest to be paid by the owner‘s insurance. Most people chose the second option. Using data from LINZ combined with data from Stats NZ, the fourth chapter empirically investigates what led people to choose this second option, and how peer effect influenced the homeowners‘ choices. Due to climate change, public disclosure of coastal hazard information through maps and property reports have been used more frequently by local government. This is expected to raise awareness about disaster risks in local community and help potential property owners to make informed locational decision. However, media outlets and business sector argue that public hazard disclosure will cause a negative effect on property value. Despite this opposition, some district councils in New Zealand have attempted to implement improved disclosure. Kapiti Coast district in the Wellington region serves as a case study for this research. In the fifth chapter, we utilize the residential property sale data and coastal hazard maps from the local district council. This study employs a difference-in-difference hedonic property price approach to examine the effect of hazard disclosure on coastal property values. We also apply spatial hedonic regression methods, controlling for coastal amenities, as our robustness check. Our findings suggest that hazard designation has a statistically and economically insignificant impact on property values. Overall, the risk perception about coastal hazards should be more emphasized in communities.</p>

Building a Secure Fence and a Well-Functioning Ambulance Reforming New Zealand's Natural Disaster Insurance Scheme

This article proposes reform to New Zealand's natural disaster insurance scheme in anticipation of The New Zealand Treasury's (Treasury) 2021 review of the Earthquake Commission Act 1993. The Canterbury Earthquake Sequence of 2010–2011 revealed many shortcomings in New Zealand's dual-insurance model, outlined in the March 2020 Public Inquiry into the Earthquake Commission. Recent changes in the private insurance market have aggravated these problems, notably, increasing premiums and a move to sum-insured policies. This article explores the lesser known background to the unique EQC system and examines the fundamental reasons for this public system. It aims to establish the most effective natural disaster insurance scheme for New Zealand, holding that retaining the dual-model approach is preferable. However, fresh reforms are necessary. Five reforms are proposed: ensuring the scheme's universality; increasing the EQC cap; implementing differentiated pricing; incorporating incentives for mitigation; including a purpose statement within the Act. Implementing these reforms will best ensure the scheme meets the objective of allowing homeowners to build their secure fence at the top of the cliff, while still ensuring there is a well-functioning ambulance at the bottom.

Seismicity Rate Change as a Tool to Investigate Delayed and Remote Triggering of the 2010–2011 Canterbury Earthquake Sequence, New Zealand

ABSTRACT Crustal earthquakes in low-strain-rate regions are rare in the human life span but can generate disastrous consequences when they occur. Such was the case in the Canterbury earthquake sequence that began in 2010 and eventually led to almost 200 fatalities. Our study explores this earthquake sequence’s origins by producing an enhanced earthquake catalog in the Canterbury Plains and Otago, South Island, New Zealand. We investigate seismicity rate changes from 2005 to before the 2010 Mw 7.2 Darfield earthquake. During this time, major subduction-zone earthquakes, such as the 2009 Mw 7.8 Dusky Sound earthquake, created measurable coseismic and postseismic strain in the region. We use template matching to expand the catalog of earthquakes in the region, and use a support vector machine classifier to remove false positives and poor detections. We then compare the newly obtained seismicity rates with the coseismic and postseismic crustal strain fields, and find that seismicity rate and crustal strain are positively correlated in the low-stress, low-seismicity region of the northern Canterbury Plains. In contrast, near fast-moving plate-boundary faults, the seismicity rate changes rise without much change in the strain rate. Our analysis reveals a substantial seismicity rate decrease in the western rupture area of the Darfield earthquake, which we infer to be an effect of coseismic and postseismic deformation caused by the Dusky Sound earthquake. We show in low-strain-rate regions, stress perturbation of a few kPas creates substantial seismicity rate change. However, the implication that such seismic quiescence is responsible for the nucleation of the Darfield earthquake requires further studies.

Tidal Behavior and Water-Level Changes in Gravel Aquifers in Response to Multiple Earthquakes: A Case Study From New Zealand

©2019. American Geophysical Union. All Rights Reserved. Earthquakes have been inferred to induce hydrological changes in aquifers on the basis of either changes to well water-levels or tidal behavior, but the relationship between these changes remains unclear. Here, changes in tidal behavior and water-levels are quantified using a hydrological network monitoring gravel aquifers in Canterbury, New Zealand, in response to nine earthquakes (of magnitudes M w 5.4 to 7.8) that occurred between 2008 and 2015. Of the 161 wells analyzed, only 35 contain water-level fluctuations associated with “Earth + Ocean” (7) or “Ocean” (28) tides. Permeability reduction manifest as changes in tidal behavior and increased water-levels in the near field of the Canterbury earthquake sequence of 2010–2011 support the hypothesis of shear-induced consolidation. However, tidal behavior and water-level changes rarely occurred simultaneously (~2%). Water-level changes that occurred with no change in tidal behavior reequilibrated at a new postseismic level more quickly (on timescales of ~50 min) than when a change in tidal behavior occurred (~240 min to 10 days). Water-level changes were more than likely to occur above a peak dynamic stress of ~50 kPa and were more than likely to not occur below ~10 kPa. The minimum peak dynamic stress required for a tidal behavior change to occur was ~0.2 to 100 kPa.

Tidal Behavior and Water-Level Changes in Gravel Aquifers in Response to Multiple Earthquakes: A Case Study From New Zealand

©2019. American Geophysical Union. All Rights Reserved. Earthquakes have been inferred to induce hydrological changes in aquifers on the basis of either changes to well water-levels or tidal behavior, but the relationship between these changes remains unclear. Here, changes in tidal behavior and water-levels are quantified using a hydrological network monitoring gravel aquifers in Canterbury, New Zealand, in response to nine earthquakes (of magnitudes M w 5.4 to 7.8) that occurred between 2008 and 2015. Of the 161 wells analyzed, only 35 contain water-level fluctuations associated with “Earth + Ocean” (7) or “Ocean” (28) tides. Permeability reduction manifest as changes in tidal behavior and increased water-levels in the near field of the Canterbury earthquake sequence of 2010–2011 support the hypothesis of shear-induced consolidation. However, tidal behavior and water-level changes rarely occurred simultaneously (~2%). Water-level changes that occurred with no change in tidal behavior reequilibrated at a new postseismic level more quickly (on timescales of ~50 min) than when a change in tidal behavior occurred (~240 min to 10 days). Water-level changes were more than likely to occur above a peak dynamic stress of ~50 kPa and were more than likely to not occur below ~10 kPa. The minimum peak dynamic stress required for a tidal behavior change to occur was ~0.2 to 100 kPa.

Sustainability aspects of geotechnical engineering in New Zealand

<p>Geotechnical engineering is a resource intensive sector of civil engineering that has a substantial effect on sustainability aspects of many transport, building, water and power projects. Improving sustainability of the geotechnical design solutions is extremely important to achieve sustainable development. Sustainability in geotechnical engineering gained particular importance in New Zealand due to the unacceptably high material and socio-economic losses that resulted from the 2010-2011 Canterbury Earthquake Sequence and 2016 Kaikoura Earthquake. The main drivers behind sustainable geotechnical design in New Zealand are discussed. Aspects of geotechnical engineering that may improve civil and geotechnical design in terms of sustainability outcomes are considered. A few design examples utilising innovative design methodologies and resulting in positive sustainability outcomes are described.</p>

Post-earthquake Demolition in Christchurch, New Zealand: A Case-Study Towards Incorporating Environmental Impacts in Demolition Decisions

The 2010/2011 Canterbury Earthquake Sequence resulted in severe loss and disruption in Christchurch, New Zealand due to liquefaction and damage from strong shaking. Following the earthquake, over 60% of concrete buildings with 3 + stories in the Christchurch CBD were demolished, resulting in a widespread displacement of people and business, an excess of $NZD 40 billion in losses, and significant environmental impacts from the demolition. Following the event, it was revealed that environmental impacts were not a direct consideration in demolition decision making. This paper provides a quantitative evaluation of the environmental impacts of the demolitions in Christchurch to highlight the importance of including environmental considerations when deciding between repair or demolition of a damaged building. First, the quantitative and qualitative factors that led to the demolitions following the Canterbury Earthquake Sequence are discussed to provide context for the argument that environmental impacts should be included in such considerations. Next, the environmental impacts of building demolitions in Christchurch are presented in terms of the embodied CO2 and energy in the building materials; the demolition process and waste disposal are not considered in this initial evaluation. Finally, a brief discussion on incorporating environmental impacts into the demolition decision making paradigm is presented. Moreover, consideration of environmental impacts of demolitions supports the need to move toward low-damage design in the future evolution of building codes.