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.
Although tragic for everyone involved, some good can come from a devastating disaster as it does provide a unique opportunity to transform the building stock, and to “build back better”. Typically, many structures will have been demolished, or need to be removed. There will also be funding, whether it is via insurance payments, assistance grants and even international aid, to help support improvements. From an island in the Caribbean to a city in central Mexico, we could now institute these profound upgrades, so that for any repeat earthquake or hurricane, the damage and losses will be much reduced. Ironically, a disaster creates the best of all times to make improvements.
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.
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.”
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.
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?