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NEW YORK-The 1994 Northridge earthquake gave Allendale Insurance Co. a perfect opportunity to weigh the accuracy of its loss prediction and the effectiveness of mitigation steps-lessons that can help reduce risks in the New Madrid seismic zone, an Allendale official says.

Seeking to manage its California quake exposure in the same way it manages fire risks, Allendale and consultant EQE International Inc. inspected 500 insured locations in California and provided policyholders with earthquake loss prevention reports, said Kenneth Devlin, a senior vp at Johnston, R.I.-based Allendale.

To Allendale's later regret, the reports were advisory only and did not require policyholders to follow the insurer's recommendations, he said.

Not long afterward, the North-ridge quake hit and "created a unique, one-of-a-kind opportunity," Mr. Devlin said.

Allendale found that the damage predictions of its earthquake experts were "amazingly" accurate: "I'm talking down to a specific pipe" breaking, he said.

Unanchored heavy equipment was often turned over, causing large losses, while equipment that had been bolted to the floor suffered virtually no damage, he said.

The insurer also found that sprinkler systems and gas lines that were not properly braced failed in a majority of cases. In moderate to severe shaking, unbraced gas lines fail 100% of the time, Mr. Devlin said.

"You put that together with failure of sprinkler systems and you've got the scenario for tremendous loss," Mr. Devlin observed.

He said he believes that 90% to 95% of earthquake vibration damage is preventable and that a few thousand dollars in mitigation measures can save millions of dollars of damage occurring after the fact.

The New Madrid exposure is not generating nearly enough concern, he added, noting that sprinkler bracing is virtually non-existent in the Midwest and that gas-fired equipment is more often located inside buildings than similar equipment in California, where it often is outside.

Insurance companies face tough challenges in underwriting property in the New Madrid zone, added Peter J. Kelly, vp and manager-underwriting research and development for Waltham, Mass.-based Arkwright Mutual Insurance Co.

Understanding of the exposure is low, he said, noting that underwriters who are expert at evaluating fire risk and probable maximum loss levels are not necessarily so good at assessing seismic risk or managing a portfolio of quake risks.

"The result is a significant amount of discomfort, even with their own skill levels," he said.

The exposure is also high: A severe New Madrid quake could produce $60 billion in losses, a figure the Insurance Services Office Inc. estimated in 1996 could bankrupt a third of all U.S. insurers, he said.

At the same time, the market is soft and prices are too low for the exposure, he said.

The problems are compounded by poor or no risk assessment and by layered property programs involving several insurers, where "no one individual underwriter has enough motivation to work with customers on risk assessment, risk identification and risk control," Mr. Kelly observed.