Monthly Archives: August 2014

Assessing the Risk of a Global Ebola Pandemic

With the current outbreak of Ebola in western Africa, as well as the recent MERS coronavirus and H7N9 avian flu outbreaks, the world is becoming increasingly concerned about the risk of emerging infectious diseases and their potential to cause the next pandemic.

As catastrophe modelers, how do we assess the risk of a pandemic?

To understand the potential dangers of Ebola, it’s helpful to look to the framework we use at RMS to model infectious disease pandemics. The RMS® LifeRisks Infectious Disease Model projects the excess mortality risk for existing infectious diseases, like influenza, as well as infectious diseases that are emerging or have recently appeared, like Ebola. When modeling a disease, we first look at two main criteria: the virulence and the transmissibility of the pathogen responsible for causing the disease. We then take into account mitigating criteria, including medical and non-medical interventions.


Virulence is a measure of how deadly a disease is, typically measured by the case-fatality rate (CFR), which is the proportion of people who die from the disease to those who do not. The current Ebola CFR is 55 percent. For comparison, the CFR for bubonic plague typically ranges from 25 to 60 percent. CFR for flu is typically less than 0.1 percent.



Transmissibility refers to how likely an infected person is to transmit the disease to another person, and is measured in terms of the basic reproductive number, or R of infection, which is the average number of additional infections one person generates over the course of illness. In order to cause an epidemic, R needs to be greater than 1.

The R for the current Ebola outbreak is greater than 1, and the disease will continue to spread. Past Ebola outbreaks have been estimated to be in the 1.3 to 1.6 range, but have occasionally been greater than 5, which is why there is cause for concern. However, Ebola is less transmissible than many other infectious diseases. For example, measles, which is highly transmissible, has an R of greater than 10 in an unvaccinated environment.


Societal and Environmental Factors

Societal and environmental factors can play a large role in transmissibility. In this case, societal and environmental factors in West Africa have contributed to the disease’s spread. For example, traditional burial practices in which families wash the deceased can expose additional people to the virus.

However, the risk of Ebola developing into a pandemic that extends beyond the region is low, due to the standard public health and infection control practices in place in many countries globally. Ebola can only be transmitted via direct contact with bodily fluids, especially blood, which means that caregivers are the primary people who might be exposed to the virus. In many countries including the U.S., the general practice is to treat all blood as potential sources of infection, due to experience with HIV and other blood-borne diseases. In quarantine situations, such as those being used with the American Ebola cases in Atlanta, the likelihood of transmission from a single person is miniscule.

Medical and Non-Medical Interventions

Medical and non-medical interventions mitigate the risk of an infectious disease pandemic. Typical medical interventions for infectious disease include pharmaceuticals and vaccines. Often, there is no specific therapy or drug available for new or emerging diseases. In these cases, we model the effect of supportive care, which includes management of blood pressure, oxygen, and fluid levels. As we’ve seen with the current outbreak, supportive care and the access to healthcare can vary substantially, depending on the region or population. With the exception of experimental treatments, there are no pharmaceutical interventions available for Ebola. Experimental Ebola drugs are not applicable to large populations at this time.

If there are high enough immunization rates, vaccines can reduce or stop the spread of diseases like measles or whooping cough. Unfortunately, a vaccine isn’t currently available for Ebola. Ebola outbreaks occur sporadically and are caused by different virus strains, making vaccine development more difficult.

In addition to vaccines and medical interventions, we account for non-medical interventions when modeling the impact of pandemics. Non-medical interventions include quarantines, school closures, and travel restrictions. Various countries in Africa have begun to implement these methods in hopes of stopping the spread of Ebola. However, these types of countermeasures can often be difficult to time or enforce properly. Ebola can have an incubation period from two days to as long as 21 days.

So, what is the pandemic potential of Ebola?

The current outbreak is now the largest outbreak of Ebola to date, and the World Health Organization (WHO) has designated the outbreak as a Public Health Emergency of International Concern. However, while cases will continue to develop, a global pandemic is unlikely. Even if the disease were to spread to other regions of the world, Ebola is still considered a rare disease and the transmissibility is likely to be much lower due to quarantine and infection-control measures, even if the CFR remains high. We have not seen any community transmission outside of Africa, and this is expected to continue. Ebola is a very serious disease, with devastating consequences to impacted communities. As risk managers, we aim to improve understanding of catastrophes such as pandemic disease so that as a society we can be better prepared to mitigate risk and recover from catastrophes.

Rebecca Vessenes contributed to this post. As a Senior Quantitative Modeler at RMS, Rebecca is involved in the development and parameterization of the LifeRisks longevity models. She recently completed the longevity model for Japan and has worked on determining the correlation structure for mortality improvement between countries. Prior to working for RMS, she led the Financial Modeling group at AIR. Rebecca earned a Ph.D. in mathematics from California Institute of Technology and is an actuary with the Society of Actuaries.

Hawaii Narrowly Escapes Hurricane Landfalls in the Midst of an Active Season

Hawaiians held their breath early this month as not one but two hurricanes made their way toward the islands, following similar tracks. Hurricane Iselle was the second and strongest tropical storm on record to make landfall over Hawaii’s Big Island, and though it caused localized flooding, knocked out power to thousands of homes, and took down trees, it did not cause any major damage or injuries. Iselle was followed closely by Hurricane Julio, the fourth major hurricane to form in the East Pacific Ocean so far this year, which bypassed the islands altogether. The Hawaiian Islands were spared once again.

This was not surprising. Storms such as Iselle and Julio, which tracked directly east to west from the East Pacific, typically become disorganized before reaching the islands due to the cool waters and dry air that lie to the east. Hurricanes approaching from the south represent the biggest threat to the islands, due to the warmer waters and more unstable air to the south.

Prior to Iselle, only two hurricanes had made landfall over the Hawaiian Islands since 1949. In 1959, Hurricane Dot tracked from the south and made landfall as a Category 1 storm. In 1992, Hurricane Iniki formed just inside the East Pacific and tracked west into the Central Pacific. It remained well south of the islands and then curved north, making landfall as a Category 4 storm. Both systems made landfall over the island of Kauai, located to the far west of the Hawaiian Island chain.

Nonetheless, Hawaiians and insurers should keep a watchful eye on the weather in the East Pacific. Hurricane season in the East Pacific basin, which officially runs from May 15 to November 30, has so far been characterized by above average activity with 10 named storms, 5 hurricanes, and 3 major hurricanes. The NHC’s 1971-2009 average by August 7th is 7 named storms, 3 hurricanes, and 1 major hurricane.

Activity in the Central Pacific is closer to normal levels. According to the CPHC, between 1971 and 2013, an average of four or five tropical cyclones were observed in the region each hurricane season, which runs from June 1 to November 30. Activity ranged widely from no cyclones in 1979 to as many as 11 cyclones in 1992 and 1994.

While it is rare for hurricanes to make landfall in Hawaii, events such as Iselle and Julio are a reminder that even in paradise there is potential for natural catastrophe loss.

The California Drought: A Shift in the Medium-Term View of Risk

Indications are growing that there is a shift underway in the risk landscape in California that may last several years, prompted by the ongoing severe drought.

It’s no secret that California is a region prone to drought. History shows repeated drought events, and there is emerging consensus that the current drought has no end in sight. In fact, there are indications that the drought could just be getting started.

The situation could be exacerbated by climate change, which is increasing the rates of water evaporation in western regions of the U.S.

We also learned recently that the groundwater levels in Colorado have been depleted by a “shocking” amount, which affects California as a significant amount of water used in the state’s agricultural industry comes from the Colorado basin.

California’s abundant agricultural industry has been fueled by its high sunshine input and the availability of water from the Colorado basin.The state produces nearly half of U.S.-grown fruits, nuts, and vegetables, according to statistics from the California Department of Food and Agriculture.

The sustainability of the agricultural industry is now in question given the emerging information about the security of the water supply, with long-term implications for food production—and therefore prices. While the threat is not to the California economy as farming accounts for little more than two percent of the state’s $2 trillion economy, implications will be to broader food prices and food security issues, as well as the security of those employed to work in this industry.

From a natural catastrophe perspective, we can expect the severity and frequency of wildfire outbreaks to increase significantly for several years to come if current indications prove true. In addition, we can expect that more areas will be impacted by wildfires.

The insurance industry needs to pay close attention to methods for estimating wildfire risk to ensure the risk landscape is accurately reflected over the coming years, just as it adapted in the late 2000s to a forward-looking, medium-term view of the probability of landfalling hurricanes accounting for multi-decadal cycles of increased and decreased hurricane activity in the Atlantic basin relative to the long-term average – and the subsequent consequences for the medium-term risk landscape.

How is the 2014 North West Pacific Typhoon Season Shaping Up?

July’s Typhoon Matmo was the 10th named typhoon of 2014 and the 5th to make landfall in the West Pacific basin. Typhoons can occur throughout the year, but the peak of the season is July through October, when nearly 70 percent of all typhoons develop, so we expect to see more activity in the region in the coming months.

Let’s take a look at recent activity and typhoon risk in China, the Philippines, Japan, and Taiwan.


To date, China has been impacted by three landfalling typhoons in 2014, the strongest of which was Rammasun, a Category 4 strength storm, with maximum sustained winds of 135 mph impacting Hainan and Guangdong provinces, and the autonomous region of Guangxi.

The southeastern coastal provinces of Guangdong, Fujian, and Zhejiang are most vulnerable to landfalling typhoons. They also represent some of China‘s most economically developed areas. Typhoon Rammasun impacted Guangdong province in July, bringing damaging wind and heavy rain. Overall in China, typhoon-induced flooding is the biggest driver of risk in high-exposure areas such as Guangdong, driving approximately 80 percent of the average annual losses from typhoon.

Insurance penetration is extremely low in China, varying by province. On average, about 15 percent of residential property risk is insured. Hainan, where Typhoon Rammasun first made landfall, has one of the lowest insurance penetrations in China, while Guangdong, one of the more prosperous provinces, is the second largest province for property insurance purchases with 41.7 billion Yuan ($6.8 billion) in direct premiums in 2012, according to the China Insurance Regulatory Commission.


Typhoon activity kicked off early this year in the Philippines with Tropical Storm Kajiki in January. More recently, the second storm to make landfall was Typhoon Rammasun, which hit Legaspi City in the Albay Province, south of the capital Manila, as a Category 3 storm. In a 36-hour period it brought 11.6 inches of rainfall, leading to flash flooding and landslides. The provinces impacted by Rammasun contain over $180 billion of insurable commercial and industrial building exposure, and over $215 billion of residential building exposure.

Like China, the Philippines lags behind some other markets in Asia in relation to insurance expenditure – non-life insurance penetration is 0.09 percent – though with higher proportionally for commercial and industrial businesses, which are centred around Manila and the industrial zones.


Tropical Storm Neoguri made landfall over the Kumamoto Prefecture on Kyushu Island in southwest Japan as the country’s first landfall this season. Neoguri brought strong winds, heavy rains, flooding, landslides, and mudslides to parts of southwest Japan. On Kyushu, the city of Ebino reported 13 inches of rain in the first 24 hours, and on Okinawa, heavy rainfall triggered flash flooding.

The southwestern parts of the country are the most vulnerable, particularly Shikoku, Kyushu, and San-in. Tokyo is rarely hit by typhoons and much of the coastline is protected from by the tsunami walls designed to protect from a four-meter storm surge.

Japan is the second largest non-life market in gross premium terms behind the U.S., and there is relatively high penetration of personal lines insurance, with over 50 percent of households buying building insurance. However, corporate Japan is massively under-insured compared to its western equivalents. Many large corporations only insure their property on an indemnity basis, while many small to medium-sized enterprises are completely uninsured.


So far this season, Taiwan has only been impacted by Typhoon Matmo, which passed through the center of the country as a Category 2 storm, bringing heavy rain and strong winds.

Storms typically travel towards the northwest from the Philippines, losing speed when they encounter the mountain chain running north-south down the center of Taiwan, and dropping most of their rain on the eastern side, causing rivers to overflow due to the extra water runoff from the mountains.

The most dangerous typhoons are those that approach from the south. The north-south mountain chain funnels them north up the Taiwan Straits so that they hit the western and northwestern parts of the island, including Taipei, where large industrial and commercial exposure is situated, such as the Hsin Chu Industrial Park in the province of Hsinchu which reportedly has a combined property/business interruption accumulation of $33.33 billion. However, insurers have reported few insured losses arising from wind damage alone, as the main damages are a result of flooding. Most of the losses caused by typhoons in Taiwan are agricultural, and thus uninsured. Insurance penetration is very low compared to some other markets in South East Asia in relation to insurance expenditure, with insurance penetration for non-life at 0.08 percent.

Disaster Risk Reduction: Catastrophe Modeling Takes the Stage at the United Nations

The UN meeting room at the Palais de Nations in Geneva is oval shaped and more than 100 feet long with curved desks arranged in a series of “U”-shaped configurations. Behind each desk, delegates sit with their placards. On the long desk at the front, from left to right the placards read “IIASA” (a systems research institute based in Austria), “Mexico,” “Japan,” “Netherlands,” and “Risk Management Solutions.”

What was RMS doing on the podium at the UN?

Last month I presented on investing in disaster risk reduction, giving the modeler’s point of view on how risk modeling can be linked with incentivizing actions to reduce the impacts of disasters.
This was a key meeting of what was called “PrepComm,” aimed at coordinating national action for disaster risk reduction. The first such agreement, known as the Hyogo Framework for Action (the HFA), initiated in 2005, is up for renewal in 2015. The plan is to create a tougher and more tangible set of goals and procedures with demonstrable outcomes to reduce the loss of lives, livelihoods, and wealth in disasters.

In some form, catastrophe risk models or modeled outputs are required for setting and monitoring progress in disaster risk reduction. I often use the story of Haiti to make the point: fewer than ten people were killed in earthquakes in Haiti between 1900 and 2009; then in one afternoon in early 2010, an estimated 200,000 people were killed. You cannot use previous disaster data to measure future disaster risk; the underlying distribution of impacts is so skewed, so fat-tailed, and so unknown, that a decade of disaster outcomes reveals nothing about the mean risk.

The UNISDR—the influential UN agency that focuses on disaster risk—recognized the power of probabilistic modeling five years ago. However, it remains hard to communicate that to monitor progress on disaster risk reduction you will have to find some proxies for impacts, or use a model. That was the subject of my address to this session. Borrowing a quote from Michael Bloomberg, sponsor of the Risky Business study for which RMS was the modeler of all the future coastal and hurricane risks: “if you can’t measure it, you can’t manage it.”

The delegate from Algeria was skeptical about how to get the private sector involved in disaster risk reduction. I told the story of Istanbul, where the government makes deals with developers to demolish and reconstruct the most dangerous apartment buildings, rehousing the original occupants while the developer profits from selling extra apartments.

The Philippines wanted to know about empowering local authorities. My answer: get the future risk-based costs of disasters on their balance sheet.

Austria wanted to spread the idea of labeling the risk on every house. The Democratic Republic of Congo wanted to know why conflict is not considered a natural hazard. There were many questions and points of discussion over the course of the meeting.

When the next iteration of HFA arrives in a few weeks time, we will see how all the advice, debate, and consultation from the UN meeting has been digested. Regardless, when governments sign off on the new protocol in Sendai, Japan next March, catastrophe risk modeling is likely to become a core component of the global disaster risk reduction agenda.

Because as Michael Bloomberg said, “If you can’t measure it, you can’t manage it.”