Category Archives: disaster risk reduction

EXPOSURE Magazine: Essential Insight for Changing Times

I invite you to explore the latest digital edition of EXPOSURE Magazine, which also hit the streets of Monte Carlo as a print edition for those attending Les Rendez-Vous de Septembre, and will be available at RMS events over the coming months.

There is a clear mission for EXPOSURE, which is “… to provide insight and analysis to help insurance and risk professionals innovate, adapt and deliver.” And change is in the air for all businesses in the industry, whether it is developing new opportunities, getting products to market faster, being more agile and efficient, or using data-driven insight to transform decision making.

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Set to Impact Entire West Coast of Florida, Irma Raises Significant Storm Surge Concerns

14:30 UTC  Sunday, September 10

Tom Sabbatelli, hurricane risk expert – RMS

As Hurricane Irma makes landfall in the Florida Keys as a Category 4 storm, the range of the storm’s possible future tracks in the latest RMS HWind forecast product is rapidly narrowing. It is now certain that Irma will track along Florida’s west coast and impact all major population centers from Naples to Tallahassee.

What is less certain is the length of time Irma’s center will remain over water, with some scenarios projecting a landfall near Fort Myers and others delaying the landfall until Irma reaches the state’s Big Bend region.

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Flood Risk, NFIP and the Role of Reinsurance

Shortly after its landfall, my colleague, Ben Brookes, and I drew attention in the RMS live Harvey updates to the fact that the storm was “not a wind event.” Like Sandy, flood losses, we wrote, would quickly overtake wind losses.

We recalled how Dr. Robert Muir-Wood had insisted back in February 2014 that “water is the new wind.” Those with exposure in harm’s way, he argued, needed to “get to grips with the details of modeling and managing hurricane-driven flood risk.”

It was unsurprising, then, to hear Robert on BBC World News last week describing Hurricane Harvey’s destruction as absolutely avoidable. Yes, Harvey is an extreme event. There were, however, historical precedents for stalling rain storms — and there are clear business cases for investing in resilience before extreme events, rather than just responding after.

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Unpacking Basis Risk

When catastrophe strikes, it is not unusual for the insurance payout to differ from the policyholder’s expectation. The possibility of such a discrepancy is referred to as “basis risk”. The term, however, can be ill-defined and easily misunderstood.

Therein lies the problem, without definition it is easy for the basis risk associated with a structure to remain unidentified and unquantified. If left unspoken, basis risk can lead to problems down the line, when events do occur. So, as a starting point, we can most simply define basis risk as the “difference between expectation and outcome”.

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The Politics of Basis Risk

Imagine you are a government minister responsible for disaster response. Five days have passed since the hurricane hit your country, and the floods have still not receded. Tens of thousands of your citizens have been made homeless. In the eyes of the people, the government is simply moving too slowly, and the press is baying for action. There is some reassurance though, as you know that over many years your country has paid premium into an international pooling scheme designed to provide substantial funds quickly when such a disaster strikes, to help pay some of the costs of recovery.

But then you hear from the regional multi-state insurance pool to which your finance minister has been contributing hard-fought annual premiums for the past decade. Your country is not going to receive a pay-out. In the scheme’s parametric formula, the value is below the threshold. You have discovered the toxic politics of basis risk.

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The Role of Catastrophe Risk Finance in Developing Nations

We all know that prevention is better than cure. Trouble is, sometimes you catch a cold. And if you’re already vulnerable, a relatively small infection presents a big risk – especially if you don’t have timely access to sufficient amounts of the necessary medicines.

Despite the best will in the world, nobody can stop the ground from shaking or the wind from blowing. Nobody can say that the worst-case scenario will never happen.

So, when Mother Nature strikes a vulnerable, low-income country, how bad will the ensuing humanitarian crisis likely be? What will it take financially to recover and rebuild? And is there a role for insurance along with donor aid?

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How to Accelerate the Understanding of Disaster Risk

RMS is delighted in playing an integral role at the United Nations’ Global Platform for Disaster Risk Reduction in Cancun next week.  This is the first time that government stakeholders from all 193 member countries have come together on this subject since the Sendai Framework for Disaster Risk Reduction was adopted in March 2015.  Cancun looks forward to welcoming some 5,000 participants.

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