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NEW YORK-An earthquake along the seismic zone near New Madrid, Mo., would wreak far greater havoc than a similar quake in California, and Midwestern states around the zone are largely unprepared for it, a panel of experts warns.

The New Madrid fault, site of a series of magnitude 8 quakes in the 19th century, could cause billions of dollars of damage and cost untold lives in a broad area centered near Memphis, Tenn., and spanning seven Midwestern states, experts say.

The threat has been ignored for decades, and governments and businesses are only beginning to prepare. "From a planning perspective, it's a nightmare," observed Jill Stevens Johnston, a researcher with the University of Memphis Center for Earthquake Research & Information.

Mitigation steps such as retrofitting buildings can be a multimillion-dollar project for large corporations but can save hundreds of millions of dollars in property damage and business interruption expenses, risk managers and insurance executives said during a New Madrid earthquake conference held Oct. 30 in New York.

Sponsors of the conference, which drew more than 350 attendees, were Guy Carpenter & Co. Inc., J&H Marsh & McLennan Inc., EQECAT Inc., EQE International Inc., Zurich Reinsurance (North America) Inc. and Business Insurance.

While potentially devastating, the New Madrid risk has drawn far less attention than California quake exposures, mainly because a major quake hasn't occurred in the Midwest in anyone's lifetime.

The New Madrid seismic zone itself is a system of faults that run northeast from Arkansas into Tennessee and northwest into Missouri.

In the winter of 1811-1812, a series of three quakes estimated at magnitude 8 struck around New Madrid, a tiny Mississippi River town. The shocks reportedly reversed the river's flow in spots, submerged at least one island, created a lake, damaged most houses within a 250-mile radius and rang church bells 1,000 miles away in Boston.

Another quake estimated at magnitude 6.8 hit Charleston, Mo., northeast of New Madrid, in 1895. Small quakes have rattled the area ever since, hundreds of them since the mid-1970s, according to the U.S. Geological Survey.

While moderate to severe quakes are less frequent than in California, scientists estimate there is a 90% chance of a magnitude 6 to 7 temblor striking the New Madrid zone within the next 50 years, according to the USGS.

A moderate quake would be much more damaging in mid-continent than a quake of the same magnitude in California, said Paul C. Thenhaus, senior geologist with EQE International in Irvine, Calif.

For one thing, California has intersecting faults that dissipate ground motion quickly. By contrast, the earth's crust in the Eastern United States is rigid and relatively unbroken, so shocks carry great distances, he said.

Thus, property damage from 1994's magnitude 6.7 Northridge earthquake was confined to the Los Angeles area, while damage from the magnitude 6.8 Charleston, Mo., quake of 1895 spread for hundreds of miles through Missouri, Arkansas, Tennessee, Kentucky, Illinois, Indiana and Ohio, the USGS reports.

Government and businesses in California have long been relatively unified in addressing the earthquake risk in building codes, retrofitting older buildings and disaster planning.

The New Madrid zone, however, comprises seven states with a patchwork of building codes, experts say.

A moderate quake could produce devastating losses for a variety of reasons in the states nearest the zone, warned Ms. Johnston of the University of Memphis.

Poor land-use planning would be one contributing factor, she suggested. In the Memphis area, for example, Presidential Island-an island composed of loose sediment with a high water table-has become the site of chemical storage facilities, heavy industrial plants and a large grain elevator, she said.

Soil failure, a likely consequence of a sizable quake, could produce huge damage to such locations, she predicted.

Contamination of the Mississippi and its banks would be another likely result of quake damage to chemical and oil facilities along the river. While containment berms often built around storage tanks handle less serious spills, few could handle total failure of the tanks, she said.

The huge "service infrastructure" built since the great New Madrid quakes of the 19th century also is vulnerable to a moderate quake, she said. This would include roads-especially elevated roadways and bridges-water and sewer mains, gas and electric utilities, oil and gas pipelines, and railroads.

In 1994, Memphis got a taste of what a quake might be like when a freak ice storm knocked out power in some sections for up to six weeks, Ms. Johnston noted.

"Imagine what an earthquake would do," she said. Along with broken water mains, collapsing water towers could cut off water supplies in rural areas, she said, adding ominously that these towers often are built near schools.

The loss of water service in turn creates a huge fire risk, she noted.

"Fire following earthquake in the central United States is an extraordinary danger," Ms. Johnston said. "Where is water going to come from to fight fires?"

"If the shaking doesn't get homes and businesses, the fires will."

Shaking is a big enough problem, though. Unlike California, a large percentage of the houses, apartment complexes, schools and other public buildings in the Midwest are unreinforced masonry, with bricks and mortar weakened by years of weathering, she said.

Schools are a particular problem, because many financially strapped districts can't afford to retrofit their buildings.

Relocation after a quake also presents problems: While families after the Northridge quake were able to camp out on their lawns or in parks, this wouldn't work for a midwinter quake in the New Madrid zone. Making matters worse, the buildings that would normally serve as shelters-such as schools-would probably also be damaged or destroyed, Ms. Johnston noted.

Risk managers facing New Madrid exposures need to assess their risks and focus on how to deal with them, advised James M. Connolly, managing director with J&H Marsh & McLennan Inc. in Chicago.

Companies should use catastrophe modeling tools to analyze their exposures, determine the financial impact of a quake and decide how to address it. These business decisions range from setting insurance limits and retentions to determining where to spend company resources on retrofitting and other risk reduction steps, he said.

Large companies with operations in California and the New Madrid region should not assume California is a greater risk, he said. He cited a case study of a Fortune 100 company with California property values approaching those in the New Madrid region that had a much greater New Madrid exposure.

California earthquakes, he observed, tend to strike the northern or southern part of the state but not at the same time, while a single New Madrid quake could affect a seven-state area. This means only some of the company's California operations are at risk in a given quake, while all locations are at risk in the New Madrid zone.

Given the more widespread damage to highways, railroads and other systems likely in a major New Madrid quake, the company in the case study also faced a far greater business interruption risk there than in a more limited California quake, Mr. Connolly noted.

While the risk is great, retrofitting buildings-though expensive-can pay huge dividends, noted John W. Robson, senior consultant with EQE International and retired director of corporate risk management and insurance for Anheuser-Busch Cos. Inc. in St. Louis.

After the 1971 San Fernando Valley earthquake, Anheuser-Busch began looking into retrofitting its huge Van Nuys, Calif., brewery, Mr. Robson said. The project cost $6.5 million and grew to $16 million as the company decided to do some non-earthquake-related construction at the same time, he said.

The work began in 1989 and was finished in December 1993; a few weeks later, the Northridge quake struck, its epicenter 31/2 miles from the Anheuser-Busch plant.

Although 170 employees were in the plant, there was only one minor injury, Mr. Robson said. The company suffered a $35 million loss, mainly to products in transshipment.

Anheuser-Busch later determined that the retrofitting had prevented $350 million in direct damage to the $1.3 billion plant.

The plant also retained one-third of its brewing capacity and was back on line within three days, averting an estimated $400 million in business interruption losses, Mr. Robson said.

The company since has begun retrofitting and rebuilding its giant St. Louis brewery to withstand a 7.6 quake at New Madrid and 6.6 in St. Louis, he said.

The goals of the project are to maximize the safety of employees and others on the site; limit downtime to no more than 60 days after a quake; prevent any loss of market share; and prevent any net loss of plant assets.

St. Louis-based Ralston Purina Co. has gone through a similar process with a $200 million soy protein plant in Memphis, said William E. Drum, vp and director of risk management.

The company hired consultants to perform an earthquake assessment that evaluated:

The plant's construction and building code compliance, the historical performance of similar buildings in quakes, and the plant's probable maximum loss.

Risk to equipment and inventory.

Risk to the plant's electric, gas and water supplies and waste water treatment facilities.

Ralston Purina then began work to retrofit the building and equipment and remarketed its earthquake insurance based on its revised PML, Mr. Drum said.

The company has since built a new plant to seismic standards and has agreed to sell the older facility-"the ultimate risk transfer," he observed.

Cities and industry in the central United States have grown for decades with little thought of earthquake risk, and it will take years to make up for lost planning time, said Thomas H. Durham, executive director of the Central U.S. Earthquake Consortium, a Memphis-based non-profit group that works with government and private organizations to coordinate earthquake policy.

Among other things, Mr. Durham recommended enforcing seismic standards in building codes and incentives from insurers and lending institutions to stimulate quake risk reductions by property owners.

"We got into this problem incrementally. We'll have to get out of this problem incrementally," he said.