The Wake-Up Call From Taiwan's Earthquake

The massive earthquake that hit Taiwan last week had a remarkably low death toll -- and there's a reason for that, one we can all embrace. 

Photo by NEOSiAM

When two earthquakes made front page news in the past week, the one near New York City seemed to get more attention because, well, New York City.... But the earthquake that hit Taiwan is far more important, not just because of the billions of dollars of damage it caused but because of what it didn't cause. 

The 7.4 earthquake (on the Richter scale) in Taiwan unleashed some 8,000 times as much energy as the 4.8 earthquake that shook the New York City area, yet the death toll was only 13 people, and only one of those was killed in a building collapse. The rest were killed by landslides and boulders. 

How was Taiwan so well prepared that a massive quake killed only 13 people, 25 years after a similar quake there killed almost 2,500? Therein lies a tale – and an endorsement for the Predict & Prevent model for insurers and their clients.

The short answer about why Taiwan withstood the earthquake so well includes luck. The earthquake occurred just off the coast of a sparsely populated, mountainous area that absorbed much of the force before it reached Hualien County and its population of about 320,000. 

But Taiwan has also been bracing itself, literally, for a quake like this for 50 years.  Taiwan has been incorporating earthquake resistance into building codes since 1974 and has been continually strengthening requirements based on lessons learned from quakes around the world. 

Taiwan has enforced the codes, too. After the Chi-Chi quake in 1999 killed almost 2,500 people, inspections found that many developers and builders had taken shortcuts or used cheaper materials to save on costs. Many were thrown in prison, as well as fined heavily. 

Thousands of buildings were reinforced, including more than 10,000 schools. When a strong quake hit Hualien in 2018, building regulations were tightened further. 

The New York Times reported: "The government had also helped reinforce private apartment buildings over the past six years by adding new steel braces and increasing column and beam sizes.... Not far from the buildings that partially collapsed in Hualien, some of the older buildings that had been retrofitted in this way survived."

The Guardian wrote that, "with more than 4 million homes in buildings that are at least 30 years old [in Taiwan], according to official statistics, the government has also introduced subsidies for local authorities to inspect and upgrade any buildings that do not meet modern safety standards." 

The BBC described the effects of Taiwan's preparations as stunning: 

"Just over a year ago, we saw earthquakes of about the same magnitudes striking Turkey and Syria, causing the deaths of more than 50,000 people. These countries, of course, had far fewer resources. But when a much smaller 6.7 magnitude quake hit the city of Christchurch in New Zealand in 2011, almost the entire city center was flattened."

By contrast, in Taiwan, "A hundred meters beyond the police cordon, the streets of Hualien look entirely normal. Shops and cafés are open, traffic is flowing. Drive through the city, and if you didn't know a big quake had struck days ago, you wouldn't guess it." (The police cordon the author mentions is around the Uranus Building, a 10-story office building that was knocked to a precarious angle and whose image became the dominant one from the quake.)

The Times offered a similar description: 

"It was possible to walk for city blocks without seeing clear signs of the powerful earthquake. Many buildings remained intact, some of them old and weather-worn; others modern, multistory concrete-and-glass structures. Shops were open, selling coffee, ice cream and betel nuts. Next to the Uranus Building, a popular night market with food stalls offering fried seafood, dumplings and sweets was up and running by Thursday evening," the day after the quake.

Most importantly from an economic standpoint, operations at TSMC, the world's most advanced semiconductor manufacturer, only needed to suspend operations briefly and reported minimal damage. The precision of its work is mind-boggling. The lines being etched into the surface of the chips and the lines of metal being deposited on them are as thin as 13.5 nanometers—a nanometer being a billionth of a meter, or about 100,000th the thickness of a sheet of paper. So to not have much of anything knocked out of whack suggests extraordinary precautions—and great benefit to the world economy, given the roles that TSMC chips play in just about everything . (I wouldn't be surprised to hear of the loss of some work in progress, because the making of a chip requires hundreds of steps and perhaps 11 layers of metal, but TSMC has yet to report any lost production.)

Taiwan's extraordinary preparations won't be easy to duplicate elsewhere. Taiwan sits on a series of faults, and everyone knows it, so there isn't any need to convince people of the peril, in the way that there can be with potential natural disasters in other parts of the world. Even if you know you're facing an active hurricane season in the Southeastern U.S. – and forecasts keep getting worse -- there is an awful lot of territory that could be threatened, so you may not need feel the need to make extraordinary preparations. Besides, threats such as wildfires and convective storms may migrate from year to year, rather than staying constant, like the earthquake threat in Taiwan.

In addition, Taiwanese are conditioned to be alert to threats, not just because of earthquakes but because of the possibility of military action, even invasion, by China that has hung over the island nation for decades and has been intensifying in recent years. So Taiwanese respond when they get a phone alert about an earthquake, based on the nation's sophisticated early warning system, in a way that Americans getting an evacuation order in advance of a hurricane may not. Those earthquake warnings may be only seconds ahead of the shaking, but they can still give lots of people a chance to find at least a bit of shelter. 

Still, the Taiwanese earthquake shows the power of the Predict & Prevent model for insurers – spotting risks ahead of time, warning people about them and working with people to prevent losses, rather than taking the traditional approach of primarily focusing on paying claims after the loss occurs. 

And there are steps we can take, even if it'll be hard to match Taiwan's performance any time soon. 

"The Fortified program that's done in conjunction with Alabama and the University of Alabama's Risk Center is an ideal example of what communities can do." Sean Kevelighan, CEO of the Triple-I, said in a conversation we had late last year. "Fortified is a certified home building process developed by the Insurance Institute for Business and Home Safety, and it helps us withstand the likes of hurricane-strength winds or other natural catastrophes. And Alabama has embraced this. I think they are a unique example in the Gulf Coast community. Neighboring states arguably have many more issues because they haven’t focused as much on resilience.

"The program has been featured in your alma mater, the Wall Street Journal, as something that is working. We're hoping [for] more of these types of community-based projects."

If we don't figure out some way to prevent some of these massive losses that natural catastrophes are causing, the prospects for profitability are, at best, clouded and, at worst, bleak.

Pete Miller, CEO of The Institutes (ITL's parent), wrote recently:

"Last year, U.S. P/C insurers incurred a $21.2 billion net underwriting loss, only slightly improved from a $24.9 billion underwriting loss recorded in 2022. Roughly $65 billion in natural catastrophe losses hit P/C insurers last year. The August 2023 Maui wildfires alone contributed an estimated $4-$6 billion in damages.

"As the severity and frequency of losses continues to increase exponentially, so does the cost to repair damages after a loss occurs. This is making insurance’s traditional approach of detecting and then repairing after a loss no longer economically viable."

With that sort of outlook, I'm hoping we can learn to be more like Taiwan -- with lots of the recent luck and as few as possible of the natural disasters.



P.S. I encourage you to consider submitting an application to be considered for a Global Innovation Award, which ITL is handing out together with the International Insurance Society again this year. We are recognizing the Insurer of the Year in Property and Casualty, the Insurer of the Year in Life, Health and Retirement and the Insurtech of the Year in Predict & Prevent. The awards will be handed out at the IIS's Global Insurance Forum, being held in Miami this year in November. 

For more information on the awards and on last year's winners (AIA, PAK Insurance Programs and Swiss Re), click here. You can apply for this year's awards here. Note that the deadline is April 17, so it's coming up fast. 

We had a great representation of innovators last year, the first year we gave out the awards, and are hoping to hear from even more of you this year, as we try to encourage and recognize the impressive innovation happening within insurance and risk management.