Category Archives: Natural Catastrophe Risk

Hurricane Risk on the U.S. East Coast: The Latest RMS Medium-Term Rate Forecast is More Than Just a Number

For the meteorologist in me, hurricane and climate research is fascinating in its dynamism. The last two years have seen continuous scientific debate about the state of Atlantic basin hurricane activity, which we’ve reflected on thoroughly in the RMS blog.

But for the insurance industry, it’s more than just a fascinating debate: business decisions depend on clear insight. It’s more than just a number.

In April with the release of the RMS Version 17 North Atlantic Hurricane Model, we will include the latest biennial update to the industry’s long-term rates, in addition to the RMS medium-term rate forecast.

For the first time since its introduction, the RMS medium-term rate forecast has dipped slightly below the long-term rate.

For the U.S. as a whole, the new 2017-2021 medium-term rate forecast MTRof hurricane landfall frequency is now one percent below the long-term rate for Category 1–5 storms, and six percent for major hurricanes (Category 3–5 storms).

Mind the Tail

The impact of the rate changes on the view of risk will vary from portfolio to portfolio. Measuring the new medium-term rate against the RMS Industry Exposure Database, we see a 16 percent decrease in the U.S. average annual loss (AAL) relative to the previous medium-term rate forecast – mainly driven by lower risk in Florida and the Gulf.

However, to focus solely on the headline AAL-based changes, or the national impacts, ignores the risk implications of the unique atmospheric conditions and key features of the new forecast.

At the 250-year return period, the decrease is more muted – at eight percent – which positions the medium-term rate slightly higher (one percent) than the long-term rate. Unlike with previous below-average periods, persisting warm sea surface temperatures in the Atlantic continue to indicate that the medium-term rate risk remains above the long-term rate in certain key U.S. regions, such as the Northeast.

The Science and Process Underpinning the Medium-Term Rates

Grounded in objective science, we follow a systematic process to develop the biennial medium-term rate each time we update it. We analyze 13 different statistical climate models, which all provide a five-year forecast of activity for the Atlantic basin.

The climate models reflect three main theories of hurricane variability in the Atlantic over recent decades:

  • Shift models identify historical, multi-decadal periods of high or low hurricane activity, which are viewed as natural, inevitable oscillations
  • Sea surface temperature (SST) models identify relationships between SSTs and hurricane landfalls in the past and use these to predict similar patterns in the future
  • Active baseline models suggest that the low activity phase of the 1970s and 1980s was caused not by natural variability, but by high levels of atmospheric aerosols which are not expected to recur in the future

To provide a more reliable forecast, we take a weighted average across all 13 models – based on tests made of each model’s predictive “skill.” These tests compare how well the models predict hurricane activity in sample periods from the past, against what occurred. This rigorous testing process is revisited with each release of the medium-term rate.

The Latest Data – How Do the Climate Models Interpret It?

The new medium-term rate forecast uses updated information from the HURDAT2 hurricane dataset and the latest sea surface temperature data, including the 2014 – 2016 seasons.

MTR2

North Atlantic Basin major hurricane counts, 1970-present

The updated hurricane data reveals a four-year stretch of below-average Atlantic major hurricane activity between 2012 and 2015, leading to a five-year average trend that is decreasing.

MTR3

North Atlantic Basin main development region sea surface temperatures, 1970-present

On the other hand, sea surface temperatures over this same period have been rising. Energy derived from warm temperatures serves as an important driver for hurricanes – so you would expect to see an increasing rate of hurricanes, not fewer.

When the data is fed into the climate models they do not point in the same direction for future hurricane activity.

The shift models used in our medium-term rate forecast focus on the decrease in major hurricanes and identify the seasons since 2011 as statistically distinct from acknowledged active periods observed since 1950. This could be significant because it may indicate a transition to a quieter phase of hurricane activity, as discussed in Nature Geosciences.

But while the shift models indicate this transition, both the sea surface temperature and active baseline models do not identify a similar transition to a less active hurricane phase, in part based on the warmer Atlantic sea surface temperatures.

It’s Not Just a Factor

As I discussed earlier, the medium-term rate considers multiple drivers of hurricane activity, including sea surface temperatures. Peer-reviewed research highlights the influence of sea surface temperatures (SSTs) on hurricane tracks; thus, analysis of projected SSTs provides different forecasts not only of where along the coastline hurricanes are likely to occur, but at what strength hurricanes will make landfall. This is a process that RMS terms regionalization.

During higher sea surface temperature periods, the body of warm water over which hurricanes develop expands eastward towards Africa. This expansion increases the likelihood that hurricanes re-curve away from the eastern U.S. coast, towards the northeast and maritime Canada, following paths similar to hurricanes Irene and Sandy.

In the medium-term rate forecast it is regionalization that causes forecasted activity in the U.S. northeast and mid-Atlantic to be above the long-term average, despite a below-average forecast for the U.S. as a whole. This creates a pattern that differs from normal climatological expectations, which would typically be focused on the risk to Texas and Florida – although, obviously, in those southern states the risk does remain higher in absolute terms.

The forecast’s regionalization also produces slightly above long-term risk beyond the 100-year return period, on the industry U.S. exceedance probability curve. At the 250-year return period, for example, while the new medium-term rate has decreased risk by eight percent, the new forecast remains one percent above the long-term rate. Despite decreases in the forecasted frequency of large loss-causing, tail events in Florida and the northeast U.S., warm Atlantic sea surface temperatures continue to support the possibility of these events occurring at a rate above the long-term average.

Delivering the Model

Pre-release data sets for the new medium-term rate are now available in advance of the April release of the updated RiskLink® Version 17 North Atlantic Hurricane Models. These are accompanied by technical documentation describing the process’ methodology and its impact on risk. It will also be concurrently available within Risk Modeler on the RMS(one)® platform.

For further insights from RMS experts on the new forecast, as well as on model updates and the latest on the RMS(one) solutions platform, join us at Exceedance in New Orleans, March 20-23.

Exceedance 2017 – Coming in Just a Few Weeks!

It’s hard to believe but Exceedance 2017 will be here in just a few weeks, and the excitement is building!

Exceedance_6Feb2Many companies are sending their cross-functional teams to fast track their ability to put new capabilities to work. And with good reason. With the releases of Risk Modeler on the RMS(one)® platform and Version 17 in April, attendees will experience more tracks (22) and more sessions (105) than in previous years.

There will also be many opportunities for interaction with model experts, up close team training, networking opportunities, and so much more. Enabling your success is the driving force behind Exceedance!

Here are some highlights of the topics we are preparing for you and your team:

  • Risk Modeler powered by RMS(one): You will obtain a deep understanding of the modeling and analytics that provide the core of the Risk Modeler workflow, including setting up analyses, creating structures and positions, and accessing models from multiple RiskLink® versions for key use cases such as change management, modeling reinsurance programs, and analyzing insurance portfolios.
  • Version 17 North America Earthquake: The changes to the North America Earthquake Models represent the latest view of risk across the U.S., Canada, and Mexico. We will provide the full scope of the update by delving into the model components, including our unique implementation of the latest source models from the USGS, directional loss changes by region and line of business, and detailed loss change exhibits.
  • Event Response: How did your business respond to Hurricane Matthew? Learn what we are doing to enhance RMS Event Response, including future offerings, making it work for your business, addressing the main challenges faced during a real-time event like Hurricane Matthew, and more.
  • U.S. Flood Model: Flood risk management is becoming an increasingly important peril to manage for the insurance industry in the U.S. We’ll provide the latest details on all model components, including the simulation-based model methodology, the innovative vulnerability components of the upcoming RMS U.S. Flood HD Model, and how best to capture opportunities in the evolving U.S. flood market.

The Lab at Exceedance: Solutions, Model Releases, and In-Depth Training with RMS ExpertsExceedance_6Feb

The Lab will be packed with our latest modeling and software releases, in addition to special areas dedicated to research from Horizons (RMS scientific publication) and resilience initiatives across the globe. Over 50 RMS scientists and modelers will be in The Lab to offer technical insights, training, and support – and will be available for personalized discussions.

There’s a Lot to Be Excited About

This is an important year for all of us in the industry, and RMS is ready to meet our commitments to you as we remain on track for a full schedule of delivery throughout 2017. If you’re attending, be sure to let your colleagues know about all Exceedance has to offer.

To see the full agenda with information about the tracks and sessions, The Lab, speakers, networking events, and more, visit the conference website at: exceedance.rms.com. You can also register for Exceedance here. Look for our next blog with more exciting Exceedance updates in the coming days!

Billions in Liabilities: Man-Made Earthquakes at Europe’s Biggest Gas Field

The Groningen gas field, discovered in 1959, is the largest in Europe and produces up to 15 per cent of the natural gas consumed across the continent. With original reserves of more than 100 trillion cubic feet, over the decades the field has been an extraordinary cash cow for the Dutch government and the two global energy giants, Shell and ExxonMobil, which partner in managing the field. In 2014 alone, state proceeds from Groningen were approximately €9.4 billion ($9.8 billion).

But now, costs to the Dutch government are mounting as the courts have ordered that compensation is paid to nearby propery owners for damage caused by the earthquakes induced by extracting the gas. Insurers who were covering liabilities at the field now find that the claims have the potential to extend beyond the direct shaking damage to include the reduction in property values caused by this ongoing seismic crisis. And the potential for future earthquakes and their related damages has not disappeared – a situation which again illustrates the importance of modeling the risk costs of liability coverages, a new capability on which RMS is partnering with its sister company Praedicat.

The Groningen gas reservoir covers 700 square miles and, uniquely among giant gas fields worldwide, it is located beneath a well-populated and developed region. The buildings in this region, which half a million people live and work in, are not earthquake resistant: 90% of properties are made from unreinforced masonry (URM).

The ground above the gas field has been subsiding as the gas has vented out from the 10,000-feet deep porous sandstone reservoir and the formation has compacted. This compaction helps squeeze the gas out of reservoir, but has also led to movement on pre-existing faults that are present throughout the sandstone layer, a small number of which are more regional in extent. And these sudden fault movements radiate earthquake vibrations.

How A Shake Became a Seismic Crisis

The first earthquake recorded at the field was in December 1991 with a magnitude of 2.4. The largest to date was in August 2012 with a magnitude of 3.6. In most parts of the world, such an earthquake would not have significant consequences, but on account of the shallow depth of the quake, thick soils and poor quality building construction in the Groningen area, there were more than 30,000 claims for property damage, dwarfing the total number from the previous two decades.

Since the start of 2014 the government has limited gas production in an attempt to manage the earthquakes, with some success. But the ongoing seismicity has had a catastrophic effect on the property market, which has been compounded by a class-action lawsuit in 2015. It was filed on behalf of 900 homeowners and 12 housing co-operatives who had seen the value of their properties plummet. The judge ruled that owners of the real estate should be compensated for loss of their property’s market value, even when the property was not up for sale. The case is still rumbling on through the appeal courts but if the earlier ruling stands, then the estimates of the future liabilities for damage and loss of property value range from €6.5 billion to €30 billion.

Calculating the Risk

While earthquakes associated with gas and oil extraction are known from other fields worldwide, the massive financial risk at Groningen reflects the intersection of a moderate level of seismicity with a huge concentration of exposed value and very weak buildings. And although limiting production since 2014 has reduced the seismicity, there still remains the potential for further highly damaging earthquakes.

Calculating these risk costs requires a fully probabilistic assessment of the expected seismicity, across the full range of potential magnitudes and their annual probabilities. Each event in the simulation can be modeled using locally-calibrated ground motion data as well as expected property vulnerabilities, based on previous experience from the 2012 earthquake.

There is also the question of how far beyond actual physical damage the liabilities have the potential to extend and where future earthquakes can affect house values. The situation at Groningen, where it took almost thirty years of production before the earthquakes began, highlights the need for detailed risk analysis of all energy liability insurance covers for gas and oil extraction.

Friday 13th and the Long-Term Cost of False Alarms

If the prospect of flooding along the East Coast of England earlier this month was hard to forecast, the newspaper headlines the next day were predictable enough:

Floods? What floods? Families’ fury at evacuation order over storm surge … that never happened (Daily Mail)

East coast residents have derided the severe storm warnings as a ‘load of rubbish’ (The Guardian)

Villagers shrug off storm danger (The Times)

The police had attempted an evacuation of some communities and the army was on standby. This was because of warnings of a ‘catastrophic’ North Sea storm surge on January 13 for which the UK Environment Agency applied the highest level flood warnings along parts of the East Coast: ‘severe’ which represents a danger to life. And yet the flooding did not materialize.

Environment Agency flood warnings: January 13 2017

Water levels were 1.2m lower along the Lincolnshire coast than those experienced in the last big storm surge flood in December 2013, and 0.9m lower around the Norfolk towns of Great Yarmouth and Lowestoft. Predicting the future in such complex situations, even very near-term, always has the potential to make fools of the experts. But there’s a pressure on public agencies, knowing the political fallout of missing a catastrophe, to adopt the precautionary principle and take action. Imagine the set of headlines, and ministerial responses, if there had been no warnings followed by loss of life.

Interestingly, most of those who had been told to evacuate as this storm approached chose to stay in their homes. One police force in Essex, knocked on 2,000 doors yet only 140 of those people registered at an evacuation centre. Why did the others ignore the warnings and stay put? Media reports suggest that many felt this was another false alarm.

The precautionary principal might seem prudent, but a false alarm forecast can encourage people to ignore future warnings. Recent years offer numerous examples of the consequences.

The Lessons of History

Following a 2006 Mw8.3 earthquake offshore from the Kurile Islands, tsunami evacuation warnings were issued all along the Pacific coast of northern Japan, where the tsunami that did arrive was harmless. For many people that experience weakened the imperative to evacuate after feeling the three-minute shaking of the March 2011 Mw9 earthquake, following which 20,000 people were drowned by the tsunami. Based on the fear of what happened in 2004 and 2011, today tsunami warnings are being ‘over-issued’ in many countries around the Pacific and Indian Oceans.

For the inhabitants of New Orleans, the evacuation order issued in advance of Hurricane Ivan in December 2004 (when one third of the city’s population moved out, while the storm veered away), left many sceptical about the mandatory evacuation issued in advance of Hurricane Katrina in August 2005 (after which around 1500 drowned).

Agencies whose job it is to forecast disaster know only too well what happens if they don’t issue a warning as any risk looms. However, the long-term consequences from false alarms are perhaps not made explicit enough. While risk models to calculate the consequence are not yet available, a simple hypothetical calculation illustrates the basic principles of how such a model might work:

  • the chance of a dangerous storm surge in the next 20 years is 10 percent, for a given community;
  • if this happens, then let’s say 5,000 people would be at grave risk;
  • because of a recent ‘false’ alarm, one percent of those residents will ignore evacuation orders;
  • thus the potential loss of life attributed to the false alarm is five people.

Now repeat with real data.

Forecasting agencies need a false alarm forecast risk model to be able to help balance their decisions about when to issue severe warnings. There is an understandable instinct to be over cautious in the short-term, but when measured in terms of future lives lost, disaster warnings need to be carefully rationed. And that rationing requires political support, as well as public education.

[Note: RMS models storm surge in the U.K. where the risk is highest along England’s East Coast – the area affected by flood warnings on January 13. Surge risk is complex, and the RMS Europe Windstorm Model™ calculates surge losses caused by extra-tropical cyclones considering factors such as tidal state, coastal defenses, and saltwater contamination.]

After the devastating 2015 earthquake how is Nepal recovering?

It’s more than 20 months since a magnitude 7.8 earthquake hit Nepal in April 2015, swiftly followed by another earthquake of magnitude 7.3 the next month.

Nearly 9,000 people died. More than 600,000 houses were destroyed and around 290,000 were damaged, according to the United Nations.

On the face of it local people now appear to be getting on with life as normal but look closer and reminders of the disaster are never far away. Whether it be a snaking crack in a wall, large enough to put an arm through – or the still air now taking the space where temples once stood.

International donors have pledged some $4 billion following the earthquake but this is yet to produce the required progress in Nepal’s rebuilding or significantly improve the life of people on the ground.

Framing of a schoolhouse in village hit by earthquake

The scale of the damage is huge and the reconstruction costs – to a country already poor – are overwhelming. The challenge is to rebuild in a way that makes Nepal more resilient to future earthquakes which, in such a seismically active region, are more a question of ‘when’ not ‘if’.

The capital, Kathmandu, wasn’t affected as badly as many feared but as you head out into the hills you see conditions deteriorate considerably. Partially collapsed buildings and piles of rubble are a common sight. Rural Nepalese houses normally consist of three stories, with the first used for livestock, the second for living and the third for agricultural use. These tall buildings are made from heavy and brittle materials, typically stone and mud mortar, which produce a vulnerability to earthquake to match that in many other regions of the world.

Earthquake damage to a traditional three-story house

Recently I saw the damage for myself. Along with four of my RMS colleagues, I travelled to Nepal to support Build Change’s work to strengthen the resilience of rural communities. It’s an organization focussed on helping people in developing countries make their homes and schools better able to withstand earthquakes and hurricanes.

Immediately after the 2015 Nepal earthquake it deployed teams to the affected areas to perform surveys of the damage and validate engineering assumptions as to why some buildings remain standing when others had collapsed.

Build Change’s site engineers oversaw the retrofitting and rebuilding work carried out by local builders who themselves had been trained by Build Change. Being scientists and engineers, the RMS team was impressed to see the high quality of workmanship and design, the positive response of Build Change’s staff to our suggestions for incremental improvements – as well as the engagement of the wider community.

RMS and Build Change staff advise on house retrofitting

And on a personal level, it was this community which made an especially powerful impression on me. Kindness and generosity were shown by the Nepalese who have been hit so hard, yet are so willing to share – we were routinely offered food by the local people who were so interested to know why there are foreigners in their village. Perhaps they took hope from seeing that they hadn’t been forgotten.

Money is not abundant in Nepal, but the engineering expertise is developing. And along with this expertise there is more than enough human grit and determination among the Nepalese people to rebuild their country stronger.

The Cost of Shaking in Oklahoma: Earthquakes Caused by Wastewater Disposal

It was back in 2009 that the inhabitants of northern Oklahoma first noticed the vibrations. Initially only once or twice a year, but then every month, and even every week. It was disconcerting rather than damaging until November 2011, when a magnitude 5.6 earthquake broke beneath the city of Prague, Okla., causing widespread damage to chimneys and brick veneer walls, but fortunately no casualties.

The U.S. Geological Service had been tracking this extraordinary outburst of seismicity. Before 2008, across the central and eastern U.S., there were an average of 21 earthquakes of magnitude three or higher each year. Between 2009-2013 that annual average increased to 99 earthquakes in Oklahoma alone, rising to 659 in 2014 and more than 800 in 2015.

blog_100117

During the same period the oil industry in Oklahoma embarked on a dramatic expansion of fracking and conventional oil extraction. Both activities were generating a lot of waste water. The cheapest way of disposing the brine was to inject it deep down boreholes into the 500 million year old Arbuckle Sedimentary Formation. The volume being pumped there increased from 20 million barrels in 1997 to 400 million barrels in 2013. Today there are some 3,500 disposal wells in Oklahoma State, down which more than a million barrels of saline water is pumped every day.

It became clear that the chatter of Oklahoma earthquakes was linked with these injection wells. The way that raising deep fluid pressures can generate earthquakes has been well-understood for decades: the fluid ‘lubricates’ faults that are already poised to fail.

But induced seismicity is an issue for energy companies worldwide, not just in the South Central states of the U.S.. And it presents a challenge for insurers, as earthquakes don’t neatly label themselves ‘induced’ and ‘natural.’ So their losses will also be picked up by property insurers writing earthquake extensions to standard coverages, as well as potentially by the insurers covering the liabilities of the deep disposal operators.

Investigating the Risk

Working with Praedicat, which specializes in understanding liability risks, RMS set out to develop a solution by focusing first on Oklahoma, framing two important questions regarding the potential consequences for the operators of the deep disposal wells:

  • What is the annual risk cost of all the earthquakes with the potential to be induced by a specific injection well?
  • In the aftermath of a destructive earthquake how could the damage costs be allocated back to the nearby well operators most equitably?

In Oklahoma detailed records have been kept on all fluid injection activities: well locations, depths, rates of injection. There is also data on the timing and location of every earthquake in the state. By linking these two datasets the RMS team was able to explore what connects fluid disposal with seismicity. We found, for example, that both the depth of a well and the volume of fluid disposed increased the tendency to generate seismic activity.

Earthquakes in the central U.S. are not only shallow and/or human-induced. The notorious New Madrid, Mo. earthquakes of 1811-1812 demonstrated the enormous capacity for ‘natural’ seismicity in the central U.S., which can, albeit infrequently, cause earthquakes with magnitudes in excess of M7. However, there remains the question of the maximum magnitude of an induced earthquake in Oklahoma. Based on worldwide experience the upper limit is generally assumed to be magnitude M6 to 6.5.

Who Pays – and How Much?

From our studies of the induced seismicity in the region, RMS can now calculate the expected total economic loss from potential earthquakes using the RMS North America Earthquake Model. To do so we run a series of shocks, at quarter magnitude intervals, located at the site of each injection well. Having assessed the impact at a range of different locations, we’ve found dramatic differences in the risk costs for a disposal well in a rural area in contrast to a well near the principal cities of central Oklahoma. Reversing this procedure we have also identified a rational and equitable process which could help allocate the costs of a damaging earthquake back to all the nearby well operators. In this, distance will be a critical factor.

Modeling Advances for Manmade Earthquakes

For carriers writing US earthquake impacts for homeowners and businesses there is also a concern about the potential liabilities from this phenomenon. Hence, the updated RMS North America Earthquake Model, to be released in spring 2017, will now include a tool for calculating property risk from induced seismicity in affected states: not just Oklahoma but also Kansas, Ohio, Arkansas, Texas, Colorado, New Mexico, and Alabama. The scientific understanding of induced seismicity and its consequences are rapidly evolving, and RMS scientists are closely following these developments.

As for Oklahoma, the situation is becoming critical as the seismic activity shows no signs of stopping: a swarm of induced earthquakes has erupted beneath the largest U.S. inland oil storage depot at Cushing and in September 2016 there was a moment magnitude 5.8 earthquake located eight miles from the town of Pawnee – which caused serious damage to buildings. Were a magnitude 6+ earthquake to hit near Edmond (outside Oklahoma City) our modeling shows it could cause billions of dollars of damage.

The risk of seismicity triggered by the energy industry is a global challenge, with implications far beyond Oklahoma. For example Europe’s largest gas field, in the Netherlands, is currently the site of damaging seismicity. And in my next blog, I’ll be looking at the consequences.

[For a wider discussion of the issues surrounding induced seismicity please see these Reactions articles, for which Robert Muir-Wood was interviewed.]

Indonesia’s Protection Gap – How the Sumatra Earthquake Shows that Coverage Must Spread

On December 7, 2016, a shallow magnitude 6.5 earthquake struck northern Sumatra in Indonesia, severely damaging or destroying more than ten thousand homes and many businesses, as well as causing over a hundred deaths. The disaster struck a poorer area away from the major cities, where the standards of building design, construction methods, and material quality are not sufficient to withstand such an earthquake.

sumatra1

USGS Shake map for Mw 6.5 Earthquake

We have up-to-date research on local building design and construction practices in Indonesia, which we have incorporated into the latest version of the RMS® Indonesia Earthquake Model. This research was done last year when members of the RMS vulnerability team, including me, visited southeast Asia as part of the process to update the model. We held workshops with local earthquake engineering experts who practice there, and attended an earthquake engineering conference, as well as visiting commercial and industrial buildings, including those under construction, to see first-hand how they were designed and built.

sumatra2

A workshop with local experts

sumatra3

International Conference – Jogja Earthquake in Reflection (May, 2016)

This on-the-ground research provided insights into Indonesia’s rules and practices around construction, seismic design, code enforcement, as well as information on the relative quantities of different types of buildings in the country. We discovered significant differences between mainstream construction and those buildings covered by earthquake insurance, namely:

  • Past earthquakes have demonstrated that single family dwellings and/or low rise buildings are the most vulnerable building types compared to those built for commercial and industrial use, because of a lack of engineering design, poor construction, and lower material quality.
  • Buildings outside of major cities are mostly low rises and they may not be designed for earthquake risk.
  • Major cities such as Jakarta, Bandung, and Surabaya enforce a strict structural design review process for the construction of mid- and high-rise buildings.
  • Insurance penetration rates are higher for commercial and industrial buildings in and near major cities, with much lower penetration for residential properties in rural areas.

It’s perhaps not surprising that if poorer communities have less insurance protection, that they also cannot afford to invest in the higher quality construction that is designed to better withstand earthquakes. This is one of the primary reasons for the ‘protection gap’. As these countries become more developed, there’s the potential for that gap to start closing. In fact, Indonesia is one of the fastest growing economies in southeast Asia, with the property insurance and (re)insurance market expanding rapidly.

But as the earthquake disaster demonstrated, there are still many poorer regions with low insurance penetration which are also prone to repeated natural disasters. Sadly, there is still a long way to go before people in those places benefit from the resilience in their built environment which other, richer parts of the world may take for granted.

Exceedance 2017 Is Coming to New Orleans!

Welcome to the first in a series of blogs leading up to Exceedance 2017, March 20-23.

We’re looking forward to the event, which will be held at the Hyatt Regency New Orleans. Situated less than a mile from the historic French Quarter, and about a mile-and-a-half from Jackson Square, it’s a great location in the heart of the ‘Big Easy.’

This year’s theme, ‘Create Resilience,’ reflects the strength and spirit of New Orleans, including the tremendous progress made in the ten years since the devastation caused by Hurricane Katrina. Exceedance 2017 will emphasize how innovation, analytics, and ingenuity can create more resilience in our global catastrophe risk management practices.

Hands-On Training for Risk Modeler on the RMS(one) Platform and Version 17

With the release of Risk Modeler on the RMS(one)® platform and Version 17 upcoming in April, this year’s Exceedance schedule is focused on training and enablement. It’s the only place to get key insights into these new RMS releases – and be trained to assess risk more effectively.

Exceedance2017Exceedance will feature over 22 speakers and provide many opportunities to dive deep into more than 20 new models, including North America Earthquake, North Atlantic Hurricane, and major advances in science, software, and HD-simulation models.

The agenda is designed to provide attendees with all the information they need for our new solutions developed for a rapidly changing market. Solutions that will increase operational effectiveness, agility, resilience, and business growth.

Take Some Time to Have Some Fun

Along with experiencing all there is to see and learn at Exceedance, there are plenty of opportunities to relax and have some fun with the following pre-conference activities:

Golf at TPC Louisiana: Enjoy a round at TPC Louisiana, rated one of Golfweek’s “Best Courses You Can Play.” It’s a great place for you and your colleagues to experience a one-of-a-kind day on a championship golf course.

Tour the Lower 9th Ward: Join the Make It Right Foundation for a walking tour of the Lower 9th Ward. You’ll experience first-hand how innovative partnerships and community-led design sessions are transforming the neighborhood that was most devastated by Hurricane Katrina.

Horse-Drawn Carriage Ride and Cooking Class: Journey through the French Quarter by carriage, where you’ll pass through the city’s eighteenth- and nineteenth-century French and Spanish architecture. Then, satisfy your appetite with chef extraordinaire Amy Sins who will guide you through an interactive culinary experience that ends with a delectable meal.

Spirits and Spirits – an Evening Tour: Take a guided evening stroll through the spooky side of the old French Quarter. You’ll hear tales from the city’s storied history, and perhaps even encounter a ghost or two. Then enjoy local cocktail favorites at one of New Orleans’s oldest restaurants, a former Spanish armory.

To learn more about these events, visit the Exceedance website. If you’re ready to register, fill out your form.

Exceedance will be here soon, so look for our next blog in two weeks. It will include the latest information on the session tracks and content, as well as details of the keynote speakers.

Extreme Wind Speeds Over the Ocean – an International Workshop of Experts

It’s one thing being invited to speak at an industry event in front of dozens of the leading scientists in your field. It’s another to find, with a certain astonishment, that virtually all of them use RMS HWind to validate their scientific work.

Last month, at a U.K. Met Office-hosted workshop, I spoke about the RMS HWind hurricane modeling solutions to a group of high-wind remote-sensing scientists from academic and government agencies from around the world, including:

  • European Space Agency (ESA)
  • National Aeronautics and Space Administration (NASA)
  • French Research Institute for Exploitation of the Sea (IFREMER)
  • Royal Netherlands Meteorological Institute (KNMI)
  • Met Office (U.K.)
  • European Center for Medium-Range Weather Forecasts
  • National Space Science Center, Chinese Academy of Sciences
  • Institute of Applied Physics of the Russian Academy of Sciences
  • National Oceanic and Atmospheric Administration (U.S.)

All of the above agencies are researching how satellite-mounted remote wind sensors can be used, most effectively, to inform on hurricanes and typhoons developing over the ocean.

During the workshops I was delighted to learn that every major remote sensing agency had used the RMS HWind archive of historical storms to validate and calibrate their sensor programs for detecting high winds from space. RMS HWind also provides real-time analysis of hurricanes as they happen with observational data from instruments in the air, in the sea and on land – including aircraft reconnaissance, GPS dropsonde instruments, sea buoys and satellites.

By citing HWind products and research in their peer-reviewed publications, these agencies provide independent endorsements that enhance the scientific credibility of the HWind archives and services, while also giving us a chance to evaluate cutting-edge technology before it becomes operationally available.

There is tremendous value in scientific collaboration and, as such, RMS facilitates the science community’s understanding of hurricanes by providing our academic partners free access to HWind products for their scientific investigations.

Sensors in Space

None of the satellites we discussed at the Met Office workshop actually measure wind directly – rather, they measure a signal which is influenced by the wind. So, for example, the new NASA CYGNSS system measures the reflection of GPS signals off sea’s surface, which is like the reflection of the moon on the surface of a lake. Winds disturb the surface and this scatters the signal.

Another satellite, the Canadian RADARSAT-2, has already been up for a few years and can capture images of the fine scale roughness of the ocean surface. But to collect these images and convert them to a wind speed reading requires a lot of advance planning, followed by lengthy processing.

Which is where RMS HWind comes in. Our 1 km gridded HWind Snapshots make it easy for scientists to overlay their satellite instrument measurements (typically a microwave signal reflected from the sea surface) over our wind analyses. They can do this for several storms of various sizes and intensities to convert the measured signal to wind speed over a range of meteorological and oceanic conditions.

Due for release this winter, the HWind Enhanced Archive of wind hazard metrics will provide a high resolution library of tropical cyclone wind fields for the North Atlantic, the Caribbean, Gulf of Mexico, and the east and central Pacific. In the coming years we’d hope to see the expansion of tropical cyclone wind field monitoring globally.

This expansion could benefit areas of the world with insurance protection gaps hugely. Increased insurance penetration in the Asian and Australian markets, together with new risk transfer products using parametric triggers, could help improve financial resilience to catastrophic tropical cyclones in whole new regions of the world.

Understanding Risk Accumulations in Taiwan’s Science Parks

“The 6.4 magnitude Tainan earthquake in February 2016 resulted in a sizeable insured loss from the high-tech industrial risks and reminded the insurance industry of the potential threat from the risk accumulated in science parks.” (A.M. Best Special Report, Sept 2016)

Reading the sentence above you might be forgiven for wondering why science parks would give insurers and reinsurers any particular cause for concern. But consider this statistic: although Taiwan’s three major science and industrial parks occupy only 0.1% of the island’s total land mass, they represent 16% of Taiwan’s overall manufacturing – they are hugely significant, both economically and with regards to the insured exposure in Taiwan.

For example, the Hsinchu Science Park (HSP), known for semiconductor production, employs more than 150,000 people and contributes over $32 billion in revenues – approximately 6% of national GDP. By one estimate HSP represents over $319 billion in total insured values. In addition, some of the latest high tech areas within HSP, such as advanced “clean rooms,” present additional challenges due to their vulnerability to ground shaking or power interruption. The importance of this risk was observed in February’s Tainan earthquake where some significant losses to high-tech industrial risks were caused by damage to the equipment and the related business interruption due to power outage.

Improving data quality for advanced and detailed modeling is an important way to manage these risks, concludes the A.M. Best report quoted above. This is so as to accurately assess the potential loss impact on insurers’ books. RMS has already been analysing earthquake risk in Taiwan for 12 years – long before this year’s Mw 6.4 event – and in that time our view of seismic risk in Taiwan has not changed, since our model benefits from spectral response-based hazard and damage functions, that even include local liquefaction and landslide susceptibilities.

The 1999 Chi-Chi Earthquake (known in Taiwan as the 921 Earthquake) was the key event in building the RMS® Taiwan Earthquake Model in terms of the quake’s seismicity, ground motion, soil secondary effects and building response. Since then there have been no significant events to justify a re-calibration of the components of the model. In fact, the damages observed in this year’s event were broadly in line with RMS’ expectations and validated the robustness of the current model.

But although A.M. Best views the Taiwan insurance industry as prudently managed with relatively high catastrophe management capability, there are still lessons to be learnt from the 2016 event, and RMS has solutions which offer additional insight into understanding the risk posed by these business parks in Taiwan.

Concentration of Exposure into Science Parks

The RMS® Asia Industrial Clusters Catalogs were released in 2014 to identify hotspots of exposure, and profile their risk. The locations and geographic extent of the science parks within Taiwan are detailed to help understand risk accumulations for industrial lines and develop more robust risk management strategies.

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Example of industrial cluster captured in the RMS Taiwan Industrial Clusters Catalog. The red outline illustrates the digitized boundaries of the Formosa Petrochemical Co. Plant in Yunlin Hsien.

High Fragility of the Semiconductor Industry

For coding of Industrial Plants, the RMS® Industrial Facilities Model (IFM) captures the unique nature of different industrial risks, as a high percentage of property value is often associated with machinery and equipment (M&E) and stock. This advanced vulnerability model supports the earthquake model to define the damageability of a comprehensive set of industrial facilities more accurately, and calculate the financial risk to these specific types of facilities, including building, contents, and business interruption (BI) loss estimates. The IFM differentiates the risks for different types of business within the science parks, and highlights the higher fragility of semiconductor plants compared to other industrial units, as shown below.

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Lessons Learnt?

The huge damage from the 1999 Chi Chi earthquake has not halted the rapid development of Taiwan’s science parks in this seismically active area – indeed the island’s third biggest science park has since been built there. But this year’s comparatively small Mw 6.4 event further highlighted the substantial exposures concentrated within this sector, reminding the industry of the potential for significant losses without sound accumulation management practices, informed by the best modeling insights.