Tag Archives: Resilience

How Can We “Build Back Better” After the Disaster?

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.

There is one small problem.

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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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EXPOSURE Magazine Snapshots: Water Security – Managing the Next Financial Shock

This is a taster of an article published by RMS in the second edition of EXPOSURE magazine.  Click here and download your full copy now.

18 Apr 2017 Exposure Drought image

 

EXPOSURE magazine reported on how a pilot project to stress test banks’ exposure to drought could hold the key to future economic resilience, as recognition grows that environmental stress testing is a crucial instrument to ensure a sustainable financial system.

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Day Three at Exceedance 2017

It’s Wednesday, which meant another full day of sessions, presentations, The Lab, a networking event, and more, happening here in New Orleans.

22 Mar 2017 - The Lab EXCD small

Attendance has been exceptional at Exceedance, and some track sessions have been so popular that we are repeating a few of them. For those of you here in New Orleans, the sessions will repeat on Thursday morning, starting at 10 a.m. Be sure to check the Exceedance app for details.

The main theme of the morning’s general session was a demonstration of how RMS is working to help clients explore and manage new and emerging perils, as well as applying RMS model expertise to long-standing lines. Speakers included Mike Steel, Christos Mitas, Robert Reville, Steve Jewson, and Andrew Coburn.

Wednesday Highlights

A few of the highlights of the day’s sessions included:

  • Christos Mitas took us deep into what he described as the unique and exceptional world of cyber terror and cyber risk modeling, with insights that included the upcoming (April 2017) launch of the RMS Cyber Accumulation Management System CAMS v. 2.0.
  • Robert Reville from Praedicat explored product stewardship and product liability risk, explaining the causes of liability accumulation, how the risk of major technological innovation is not known, and how risk accumulation can go on for years.
  • Steve Jewson transported us to India and China, presenting new agricultural risk models – including drought models for four countries. Agricultural risk is one of the top concerns for our clients in Asia-Pacific and Latin America, offering the market exciting growth opportunities.
  • Andrew Coburn from RMS and Dr. Hjörtur Thráinsson from Munich Re combined to present the RMS strategy of a single data standard for all lines and classes of insured exposure, as well as opportunities to generate exposure analytics for more business lines, a single client, or a single location.

Our Second Theme – Resilience – Personified.

The afternoon general session focused on resilience, and the exceptional work happening here in New Orleans over the past several years. Paul Wilson began by acknowledging the accomplishments of Build Change, a partner organization to RMS that continues to build resilience in emerging nations.

He then walked the crowd through a brief history of New Orleans – a city that has been built, and rebuilt, on its experience with hurricanes – before introducing keynote speakers Tanya Harris-Glasow of the Make It Right Foundation, and Jeff Herbert, chief resilience officer for New Orleans. The success of the city following Hurricane Katrina stems from the efforts of innovators like them, and their stories of strength, perseverance, teamwork, and inspiration, truly personify the theme of resilience.

The session continued with Dr. Robert Muir-Wood’s discussion on risk modeling and resilience in Louisiana, and concluded with remarks from RMS President Mike Pritula, who spoke on a variety of topics including his commitment to concentrate on RMS clients, and the challenge of embracing the inevitable change that technology is bringing to the catastrophe modeling community.

The Lab is the Hot Spot in New Orleans!

Customer feedback about The Lab continues to be extremely positive – with a lot of great conversations, product demos, and training sessions focusing on the latest developments from Version 17 and Risk Modeler to help customers choose the best routes for adopting new solutions for 2017 and beyond.

Get Your Mojo Rising on at the EP Tonight!

Last night’s well-attended masquerade in The Lab is now a happy memory. And far as we can tell, everyone removed their masks in time for the first general session this morning.

22 Mar 2017 - Masked Ball Small

But if you’re here at Exceedance, our legendary “EP” is coming up tonight – offering three tastes of New Orleans in one unique location – Generations Hall, built in the 1820’s and originally a sugar refinery.

With three themes, Jazz Night Club, Mardi Gras, and Louisiana Cajun, be ready to put on your dancing shoes and show us your voodoo.

Thursday is our final day in New Orleans, so please check back tomorrow for highlights and a message from Hemant!

Closing the Resilience Gap: A Tale of Two Countries, Nepal and Chile

Nepal house smallOn April 25, 2015, a magnitude 7.8 earthquake struck nearly 50 miles (80 km) northwest of Kathmandu, the capital of Nepal.  This resulted in more than 8,600 fatalities, the destruction of around half a million homes, and left 2.8 million people displaced.

Some two years on and rebuilding efforts have barely started, as US$4.1 billion of pledged international aid is reportedly stalled within Nepal’s National Reconstruction Authority.

As of February 2017, 14,000 homes have been rebuilt and some 30,000 homes are in construction – less than a tenth of the total number of homes destroyed.

Contrast this with the situation in Chile. Since a magnitude 9.4 earthquake in 1960, the country has focused on adequate seismic design requirements within its building code, with both government and the public willing to follow the principles of earthquake-resistant building design. And it’s paying off.

After a magnitude 8.8 quake in 2010, structures in areas that experienced strong shaking had less damage than would have been seen if building codes were weaker. Of 370,000 housing units affected by the earthquake, nearly half experienced only minor damage, and just 22 percent were destroyed.  Where commercial buildings were designed with the help of structural engineers, only five were destroyed, according to the U.S. Geological Survey.

This wide inequity in resilience between two countries facing major seismic hazard brings into sharp focus the urgent need for better quantification, mitigation, and post-event protection for all people, regardless of their location.

Bridging the Divide

Communities around the world can become more resilient both before an event strikes, through practices such as construction education and the implementation of building codes, or post-event by providing insurance and other appropriate risk transfer solutions for individuals and governments. By empowering these stakeholders, our industry can play a vital role in helping to ensure a safer world for all.

Social enterprises such as Build Change, who work on the ground in countries like Nepal, Columbia, and Haiti, are helping to bridge some of this ‘resilience gap’ by working with local governments to institute building codes and train their construction sectors in locally attainable and safe building practices. Over the past 10 years, Build Change has trained over 25,000 people in the basics of safe construction, created over 12,000 local jobs, and enabled 245,000 people to live and learn in safer homes and schools within some of the most catastrophe-prone regions of the planet.

Nepal builder smallThis week, during the annual RMS Impact Trek, both our employees and our clients representing major insurance and reinsurance firms are working together on the ground in Nepal with Build Change, exploring solutions to bring greater synergy and resilience capacity-building to the forefront of our market. We are proud to partner with Build Change by also providing grants to jumpstart and enhance its country programs, and allowing the organization to use our products for free in order to better quantify the risk landscape of the countries in which they operate.

All of us within the insurance industry have an opportunity to reshape the future for communities around the globe by allowing them to better measure and understand their risk, so that responsible mitigation efforts can take shape. We can create tools to help ensure that those who are struck by catastrophe can recover quickly and completely.

At RMS, we remain focused on contributing to this mission by strengthening resilience from the ground up, and continuing our work alongside impactful organizations like Build Change.

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.

“Italy is Stronger than any Earthquake”

Those were the words of the then Italian Prime Minister, Matteo Renzi, in the aftermath of two earthquakes on the same day, October 26, 2016. As a statement of indomitable defiance at a scene of devastation it suited the political and public mood well. But the simple fact is there is work to do, because Italy is not as strong as it could be in its resilience to earthquakes.

There’s a long history of powerful seismic activity in the central Apennines: only recently we’ve seen L’Aquila (2009, Mw6.3), Amatrice (August 2016, Mw6.0), two earthquakes in the area near Visso (October 2016, Mw 5.4 and 5.9) and Norcia (October 2016, Mw6.5). These have resulted in hundreds of fatalities, mainly attributed to widespread collapse of old buildings, emphasizing that earthquakes don’t kill people – buildings do. Whilst Italy’s Civil Protection Department provides emergency management and support after earthquakes, there is too little insurance help for the financial resiliency of the communities most affected by all these events. While the oft-repeated call for earthquake insurance to be compulsory continues to be politically unobtainable, one way it could be spread more widely is through effective modeling. And RMS expertise can help with this, allowing the market to better understand the risk and so build resilience.

Examining High Building Fragility

The two most significant factors for earthquake risk in Italy are (i) construction materials and (ii) the age of the buildings. The majority of the damaged and destroyed buildings were made from unreinforced masonry, and built prior to the introduction of the most recent seismic design and building codes, making them particularly susceptible. With the RMS® Europe Earthquake model capturing both the variations in construction types and age, as well as other vulnerability factors, (re)insurers can accurately reflect the response of different structures to earthquakes.  This allows the models to be used to evaluate the cost benefits of retrofitting buildings.  RMS has worked with the Italian National Institute for Geophysics and Volcanology (INGV) to see how such analyses could be used to optimize the allocation of public funds for strengthening older buildings, thereby reducing future damage and costs.

Seismic Risk Assessment

The high-risk zone of the central Apennines is described well by probabilistic seismic hazard assessment (PSHA) maps, which show the highest risks in that region resulting from the movement of tectonic blocks that produce the extensional, ‘normal’ faulting observed. The maps also show earthquake risk throughout the rest of Italy. RMS worked with researchers from INGV to develop our view of risk in 2007, based on the latest available databases at that time, including active faults and earthquake catalogs. The resulting hazard model produces a countrywide view of seismic hazard that has not been outdated by newer studies, such as the 2009 INGV Seismic Hazard Map and the 2013 European Seismic Hazard Map published by the SHARE consortium, as shown below:

blog_italy-eq

The Route to Increased Resiliency

Increasing earthquake resiliency in Italy should also involve further development of the private insurance market. The seismic risk in Italy is relatively high for western Europe, whilst the insurance penetration is low, even outside the central Apennines. For example, in 2012, there were two large earthquakes in the Emilia-Romagna region of the Po valley, where there are higher concentrations of industrial and commercial risks. Although the type of faults and risks vary by region, such as the potential impact of liquefaction, the RMS model captures such variations in risk and can be used for the development of risk-based pricing and products for the expansion of the insurance market throughout the country.

Whilst Italy’s seismic events in October caused casualties on a lesser scale than might have been, the extent of the damage highlights once again the prevalence of earthquake risk. It is only a matter of time before the next disaster strikes, either in the Central Apennines or elsewhere. When that happens, the same questions will be asked about how Italy could be made more resilient. But if, by then, the country’s building stock is being made less susceptible and the private insurance market is growing markedly, then Italy will be able to say, with justification, it is becoming stronger than any earthquake.

Shrugging Off a Hurricane: A Three Hundred Year Old Culture of Disaster Resilience

If a global prize was to be awarded to the city or country that achieves the peak of disaster resilience, Bermuda might be a fitting first winner.

This October’s Hurricane Nicole made direct landfall on the island. The eyewall tracked over Bermuda with maximum measured windspeeds close to 120 mph. Nonetheless there were there were no casualties. The damage tally was principally to fallen trees, roadway debris, some smashed boats and many downed utility poles. The airport opened in 24 hours, with the island’s ferries operating the following day.

Bermuda’s performance through Nicole was exemplary. What’s behind that?

Since its foundation in 1609 when 150 colonists and crew were shipwrecked on the island, Bermuda has got used to its situation at the heart of hurricane alley. Comprising 21 square miles of reef and lithified dunes, sitting out in the Atlantic 650 miles west of Cape Hatteras, a hurricane hits the island on average once every six or seven years. Mostly these are glancing blows, but once or twice a century Bermuda sustains direct hits at Category 3 or 4 intensity. Hurricane Fabian in 2003 was the worst of the recent storms, causing $300 million of damage (estimated to be worth $650 million, accounting for today’s higher prices and greater property exposure). The cost of the damage from Hurricane Gonzalo in 2014 was about half this amount.

How did Bermuda’s indigenous building style come to adopt such a high standard of wind resistance? It seems to go back to a run of four hurricanes at the beginning of the 18th Century. First, in September 1712 a hurricane persisted for eight hours destroying the majority of wooden buildings. Then twice in 1713 and again more strongly in 1715 the hurricane winds ruined the newly rebuilt churches. One hurricane can seem like an exception, four becomes a trend. In response, houses were constructed with walls of massive reef limestone blocks, covered by roofs tiled with thick slabs of coral stone: traditional house styles that have been sustained ever since.

The frequency of hurricanes has helped stress test the building stock, and ensure the traditional construction styles have been sustained. More recently there has been a robust and well-policed building code to ensure adequate wind resistance for all new construction on the island.

Yet resilience is more than strong buildings. It also requires hardened infrastructure, and that is where Bermuda has some room for improvement. Still dependent on overhead power lines, 90 percent of the island’s 27,000 houses lost power in Hurricane Nicole – although half of these had been reconnected by the following morning and the remainder through that day. Mobile phone and cable networks were also back in operation over a similar timescale. Experience of recent hurricanes has ensured an adequate stockpile of cable and poles.

Expert Eyes on the Island

It helps that there is an international reinsurance industry on the island, with many specialists in the science of hurricanes and the physics and engineering of building performance on hand to scrutinize the application of improved resilience. Almost every building is insured, giving underwriters oversight of building standards. Most importantly, the very functioning of global reinsurance depends on uninterrupted connection with the rest of the world, as well as ensuring that on-island staff are not distracted by having to attend to their family’s welfare.

Bermuda’s experience during Nicole would merit the platinum standard of resilience adopted by the best businesses: that all functions can be restored within 72 hours of a disaster. The Bermuda Business Development Agency and the Association of Bermuda Insurers and Reinsurers were fulsome in their praise for how the island had withstood the hurricane. The strong and widely-owned culture of preparedness, reflects the experience of recent storms like Gonzalo and Fabian.

Stephen Weinstein, general counsel at RenaissanceRe, commented “It’s remarkable that one day after a major hurricane strike, Bermuda is open for business, helping finance disaster risk worldwide, and poised to welcome back business visitors and vacationers alike.”

In early 2017, RMS will issue an update to Bermuda wind vulnerability in the version 17 software release as part of a broader update to the 33 islands and territories covered by the North Atlantic Hurricane Models. Updates to Bermuda vulnerability will consider past hurricane observations and the latest building code research.

Terrorism Insurance Under a Trump Presidency

It is likely that very few of the 60 million U.S. citizens who voted for Donald Trump would have done so because of his stance on terrorism insurance. Only because terrorism insurance is too arcane an issue to have come up in the presidential debates. However, many of the nation’s wavering voters may have been swayed by his pledge to make America safer from the scourge of terrorism. Under his presidency, border security will surely be tightened – even if no frontier wall is ever built and changes made to entry decisions for Syrian Muslim refugees into the United States.

Reauthorization of TRIA – Talks Start in 2018

On January 12, 2015, the Terrorism Risk Insurance Program Reauthorization Act of 2015 was signed into law by President Obama. This third extension of the original 2002 Terrorism Risk Insurance Act (TRIA) will sunset at the end of 2020, coinciding with the end of the first term of the Trump presidency. In the drafting of the 2015 reauthorization bill, detailed consideration was given by the House Financial Services Committee to alternative wordings that would have reduced the coverage provided by the U.S. government insurance backstop. One such alternative would have focused U.S. government involvement in the terrorism insurance market on covering terrorism losses from extreme attacks using weapons of mass destruction. When the future of terrorism risk insurance is raised once more on Capitol Hill in 2018, the Republican White House and Congress are likely to seek to further extend the private terrorism insurance market. Though I consider this to be contingent on President Trump keeping his pledge to keep America safe until then.

Balancing Civil Liberties in the Face of Reducing Terrorism Risk

In the democracies of the western alliance, the balance of keeping people safe from terrorism and preserving civil liberty is much debated issue. After the July 2005 London Transport bombings, the head of the British security service, MI5, warned that ‘there needs to be a debate on whether some erosion of civil liberties may be necessary to improve the chances of our citizens not being blown apart as they go about their daily lives’. On a national scale across America, a similar debate was prevalent during the 2016 U.S. presidential election. It may seem that in this instance, the champion of civil liberties, minority rights, and political correctness lost to the conservative advocate of oppressive counter-terrorism action and profiling of terrorist suspects.

Regardless of who occupies the White House, however, terrorist plots against the U.S. will persist and terrorists must be stopped before they move to their attack targets. Success in interdicting these plots depends crucially on intelligence gathered from electronic surveillance. It is well-documented that more intrusive surveillance can successfully increase the chances of lone wolf plots being stopped. And President-elect Trump has already affirmed his readiness to authorize more surveillance. He can claim a public mandate for this: for America to be great again, it has to be safe again – even from lone wolf terrorist plots. After the Orlando nightclub attack on June 12, 2016, perpetrated by the radicalized son of an Afghan immigrant, Donald Trump said that ‘we cannot afford to be politically correct anymore’. And in fighting global Islamist extremism vigorously, he may be able to count on President Putin’s support. While the two world leaders differ on geopolitics, their mutual respect as a President may be maintained through abrasive counter-terrorism action.

When Michael Chertoff was appointed Secretary of Homeland Security, President George W. Bush told him not to let 9/11 happen again – and he didn’t. President-elect Trump will expect a similarly impressive clean sheet. On a more personal level he also has a special interest in increased security against terrorist attacks. His own real estate empire includes some notable potential terrorist targets, including high-profile landmark buildings bearing his name. While the New York Stock Exchange has too tight security to be attacked, in contrast, the Trump Building on Wall Street has easy public access. There are numerous opportunities for terrorist target substitution.

After Matthew: Putting a Value on Natural Coastal Defenses

As coastal communities in the U.S. continue to clear up and count the costs following Hurricane Matthew, we already know things could have been much worse. So, had the storm not weakened and veered off into the Atlantic but made direct landfall as a major hurricane would the infrastructure and coastal defenses along the south-east coast of the U.S. have held up? Or could we have been better prepared? One element often overlooked is that of natural coastal defenses, such as salt marshes and wetlands.

While it’s still early days, it’s clear these natural ecosystems played a role in shielding Georgia and the Carolinas from some of the damage that Matthew inflicted. We can see these effects in the details of our reconstructions of Matthew’s storm surge footprint, but also because of some related research we’re publishing just today that for the first time puts an actual economic value on the protective effect of natural coastal defenses.

Matthew’s surge was greater than 6 feet (1.8m), according to the National Weather Service, when it made landfall about 55km northeast of Charleston on October 8 as a Category 1 storm. Wetlands – such as those around Savannah and Charleston – would have taken the brunt, slowing down the force of the water and offering urban areas some protection against inundation from the sea. Because of the new study we’re now able to express the value of this protection in dollars.

Hurricane Sandy flooding

The study, Coastal Wetlands and Flood Damage Reduction was led by the University of California, Santa Cruz, The Nature Conservancy, and the Wildlife Conservation Society in partnership Guy Carpenter, Lloyd’s, and RMS. We contributed cutting-edge modeling expertise. The research looks back to Hurricane Sandy, which hit New York and New Jersey particularly hard in 2012, although its effect was felt across large swathes of the Eastern Seaboard. The study concluded that:

  • Over $625m in property damage was avoided, with coastal wetlands providing a 10% reduction in property damages across states on average;
  • In New Jersey, wetlands prevented an estimated $425m in losses;
  • The protective value of wetlands during Sandy was nearly 30% in Maryland.

Although the protections offered by features such as wetlands, salt marshes and barrier reefs are already captured by RMS catastrophe models, this was the first time we’d extracted, isolated and measured their unique role. This capacity to better understand and quantify the economic value of natural defenses is a critical tool for policymakers, conservationists and the insurance industry, particularly in regions where wetlands are being degraded.

At RMS we anticipate that macro trends, such as sea level rise, will inevitably elevate the role of natural wetlands in the future. While the jury is still out on how climate change will impact the frequency and severity of hurricanes in the North Atlantic, the Intergovernmental Panel on Climate Change (IPCC) anticipates we will see more weather extremes by the end of the century.

In its 2013 report the IPCC predicted that it was “more likely than not” that the number of the most intense storms will increase in certain parts of the world. And even without any significant change in windstorm severity, sea level rise can be expected to drive up coastal storm losses.

According to Risky Business: The Economic Risks of Climate Change in the United States, a 2014 initiative led by former New York Mayor Michael Bloomberg and former U.S. Treasury Secretary Henry Paulson (and supported by RMS modeling), higher sea levels combined with storm surge will increase the average annual cost of coastal storms along the Eastern Seaboard and the Gulf of Mexico by $2 billion to $3.5 billion in just 15 years.

Better understanding the financial benefits of natural coastline features will ultimately help communities build greater resilience to future storms and floods and to attract more funding for sea defense conservation and restoration. The necessary response may be driven by science and gradual sea level rise. Or it may come only after major catastrophes have done their damage in the future.