Reimagining History – Counterfactual Risk Analysis

Just under ten years ago, as the global financial crisis was unfolding, the book The Black Swan emerged as the most quoted critique of the financial modeling for rare events. The author, Nassim Taleb — the poster boy of sceptics — asserted that these could not be imagined, let alone predicted. Over the past decade, whenever an unmodeled catastrophe has occurred, such as the magnitude 9 earthquake and tsunami that struck Tohoku, Japan on March 11, 2011, catastrophe risk modelers have been reminded of these elusive “black swans”.

Ever since the publication of The Black Swan, I have challenged myself to develop a framework within which such events might be imagined. The solution lies in reimagining history. Since Copernicus, we no longer perceive the Earth as being specially located in the universe. Yet, the anthropocentric viewpoint has maintained that the historical past is somehow special, rather than being just one realization of what might have happened. Most events have either happened before, almost happened before, or might have happened before.

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Europe Severe Convective Storm: Hail on the Agenda

When a hail event lasting just minutes hit southern Germany on July 28, 2013, it generated a US$3.9 billion insured loss. Some 80,000 buildings and tens of thousands of automobiles were damaged — many severely. Such a high hail loss was unprecedented in Europe. It was this event that represented the wake-up call for the insurance and reinsurance industry to think harder about the risk due to severe convective storms.

I had the privilege to lead my team of seven modelers from RMS as we attended the ninth European Conference on Severe Storms (ECSS) which took place between September 18-22 this year in Pula, Croatia. This biannual conference sees hundreds of scientists predominantly from Europe and the U.S. but also from other parts of the world. Hail was prominent on the event agenda among the scientific community, and with rising interest in hail damage there is now also a considerable participation from the reinsurance industry. Munich Re is the main sponsor of the conference.

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California Wildfires: Latest Loss Estimates

Kevin Van Leer, senior product manager – Model Product Management, RMS

20:00 UTC Tuesday, October 17

Nearly ten days have passed since the first four wildfires spread rapidly in Northern California. As of Monday, October 16, over 10,000 firefighters battled 14 fires, principally in the wine-growing valleys north of San Francisco. Fires in Napa, Solano, Sonoma, Mendocino, Lake, Yuba, Butte, Fresno, Calveras, Orange and Nevada counties have burned about 213,000 acres (86,000 hectares), destroying about 5,700 structures and forcing the evacuation of over 100,000 people, according to CAL FIRE and local officials. Aerial photographs show whole neighborhoods in northern Santa Rosa destroyed, and a neighborhood of about 70 houses has been destroyed in east Santa Rosa. Reports on Monday, October 16 state that there are 41 recorded fatalities, and hundreds of people are missing.

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California Wildfires: How Quickly Your World Can Change in 24 Hours

This week’s wildfires in Northern California are an example of how nature, weather, and environment combined into the perfect fire storm that no defense could have prevented. And, when an event like this happens and directly impacts your family and friends, resilience takes on a whole new meaning.

At RMS, we are used to thinking about the “what if” of catastrophic events such as the recent hurricanes, earthquakes, and cyberattacks. We are accustomed to working with our clients, public agencies, and city officials to think about how best to protect their communities from disasters, defining what defenses are needed to keep tragedy at bay, and how to “build back better” should an event happen. But this all comes into sharp focus when it affects people you know and love.

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Wine Country Wildfire Progression and Loss Estimate

Kevin Van Leer, senior product manager – Model Product Management, RMS

22:00 UTC Thursday, October 12

Image Credit: AP Photo/Rich Pedroncelli

After four days of active burning throughout the wine growing regions of Northern California, there are still eight fires threatening both lives and significant amounts of exposure. Conditions conducive to fire ignition and spread persist, and have resulted in extreme fire behavior, especially during the nights of Sunday, October 8, and Wednesday, October 11, in which strong, dry Diablo winds were observed. In total, over 100,000 acres have been burned in Napa, Sonoma, and Solano counties alone, with several additional fires ongoing throughout the state of California.

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Looking Beyond the Catch-all “Cyber” Category

The mass production of the internal combustion engine facilitated many new kinds of insurable damage and loss. It also provided opportunities to extend and expand older forms of crime. Before cars, robbers were reduced to committing burglary within their own town or village, potentially aided by a speedy horse. Cars took these crimes to a new level. Cars facilitated “smash-and-grab” raids on banks, and kidnap and ransom, grabbing the unfortunate victim on the street and hustling them into the back of the car. Cars facilitated rapid getaway after any kind of attack, whatever the motivation — sabotage, vandalism, revenge. And that is before all the causes of loss associated with cars themselves, such as hit-and-run, manslaughter, dangerous driving, or speeding.

The term “car crime” relates specifically to the robbery of the car or its contents, or otherwise damaging the car — we would not consider lumping together all these different ways in which the car has facilitated losses and crimes under a single heading.

So why does it make sense to lump together all those varieties of crime and loss facilitated by another quantum leap in communications, through computing and the Internet? Because that is what we currently do when it comes to the use of the catch-all term “cyber”.

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Rapidly Spreading Wildfires Impact Northern California Wine Country

Kevin Van Leer, senior product manager – Model Product Management, RMS

17:00 UTC Tuesday, October 10

Figure 1: Neighborhood near Coffey Park in Santa Rosa, California. Image credit: Golden Gate California Highway Patrol

Driven by Diablo wind gusts of up to 70 miles per hour (112 kilometers per hour) and with very low relative humidity, 14 fires burning across swaths of eight Northern California counties have resulted in significant property damage and loss of life.

These strong winds caused the fires to spread quickly. The Tubbs Fire, located just north of Santa Rosa, grew from 200 acres on Sunday night (October 8) to over 20,000 acres by Monday morning (October 9) and is now over 27,000 acres. As of 4 p.m. Pacific Time (PT) on Monday, October 9, the Tubbs Fire together with the Atlas Peak Fire, located just north of Napa, combined have destroyed over 50,000 acres of land, and impacted several wineries along with high value residential and commercial structures. So far, 1,500 structures are reportedly destroyed, making this at least the fifth most destructive fire in California history as shown in the table below.

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Hurricane Nate: Two Sides of the Story

22:00 UTC Saturday, October 7

Michael Kozar, senior modeler – Model Development, RMS

Hurricane Nate continues to race towards the central Gulf Coast today. The hurricane has become significantly better organized in the last several hours, and now has maximum sustained winds in excess of 90 miles per hour (144 kilometers per hour) based on the RMS HWind snapshot at 18:00 UTC today. This surface wind analysis is based upon data collected from the National Oceanic and Atmospheric Administration and U.S. Air Force Reserve Hurricane Hunters in addition to some surface and satellite-based observations.

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Tropical Storm Nate: Latest HWind Track Probability Analysis

01:00 UTC Saturday, October 7

Michael Kozar, senior modeler – Model Development, RMS

The latest track probability analysis of the current model forecasts has been released by the RMS HWind team, based on forecast models initialized at 12:00 UTC Friday, October 6. Using this new proprietary track forecast probability product from RMS HWind provides unique insight into the likelihood of where a storm might go, and helps to deliver insights beyond what is available from public sources.

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RMS HWind and Earth Networks: Sharpening the Focus on Tropical Cyclone Wind Hazard

Jeff Waters, product manager – Model Product Management, RMS

Mark Hoekzema, chief meteorologist, Earth Networks

As we have already seen during the 2017 North Atlantic hurricane season, tropical cyclones such as Harvey, Irma, and Maria cause an array of impacts to homes, businesses, and people, each with varying drivers of damage and recovery timelines. The resulting effects from these and other events reinforce the importance and value of preparedness and responsiveness when managing hurricane risk.

Having an accurate view of the extent and severity of hurricane hazard is imperative in informing effective event response strategies — both throughout a real-time event, and for efficient claims management processes afterwards. It can help insurers anticipate claims locations, counts and overall impacts to their book, where power outages and business interruption are likely to occur, where to deploy claims adjusters of various experience levels, and identify where fraudulent claims are likely (or unlikely) to occur.

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