Workers Comp Earthquake

Modeling Earthquake Risk for a Workers Comp Portfolio

For some time, modelers have hypothesized that in major catastrophes losses in casualty and liability lines could be correlated to loss of property. However, the absence of an actual occurrence made this possibility somewhat abstract until the recent World Trade Center (WTC) tragedy. In response to market uncertainty concerning the catastrophic loss potential of workers comp lines after the WTC losses, RMS updated its workers compensation earthquake modeling capabilities.

The RMS® Earthquake Casualty Model can be applied to workers comp exposures to estimate the likelihood and cost of injuries and deaths in the workplace caused by earthquakes. Average annual loss estimates indicate the pure premium contribution to workers comp losses from earthquake risk. Full Aggregate Exceedance Probability (AEP) curve output can be used to calculate losses at key return periods, and individual event outcomes highlight exposure concentrations driving the risk in a portfolio. 

Model Highlights

	Shares event set with property earthquake model, allowing workers comp losses to be combined with property losses to determine a company’s total earthquake loss
	Calibration and validation of casualty rates based on data from 135 historical events around the world
	Both probabilistic and deterministic analysis options available
	Full consideration of uncertainty
	Occupation, building construction class, and other structural characteristics modeled
	Exposure modeling options include temporal distribution, uniform adjustment, specific time, and maximum at any one time
	Model output designed to assist with portfolio management, reinsurance, and underwriting decisions using exceedance probability output, loss costs, and scenario losses
	Output includes both dollar losses and number of casualties for six injury levels
	RMS default or user-defined cost severities by state and injury level

Geographic Scope

The U.S. Earthquake model is discretized into 11 distinct regions which are comprised of individual states or groups of states. Each region reflects the unique characteristics of seismic hazard in different parts of the U.S. The regions are Alaska, California, Great Basin, Hawaii, Midwest, Central U.S., Northeast U.S., Northern Rockies, Southeast U.S., Southern Rockies, and Pacific Northwest.

Exposure Data Resolution

The RMS® Earthquake Casualty Model supports analyses at each of the following levels of geographic resolution: Latitude/Longitude, Street Address, ZIP Code, City, and County.