In March 2018, RMS hosted the U.S. Geological Survey (USGS) workshop at our Newark headquarters in California to discuss the interim updates planned for the 2018 USGS National Seismic Hazard Map Project (NSHMP). Details can be found in my previous blog: Are You Ready for an Interim USGS NSHM Update?
The USGS informed the public and technical community about this interim update ahead of their regular six-year cycle of updates anticipated after 2020. The main purpose was to incorporate new ground motion modeling advances for Central and Eastern U.S. from Project 17, which has significant value for the national building code (details can be found here).
Towards the end of 2018, the USGS published the draft document and national hazard maps to receive scientific peer review and public feedback from the user community (Petersen et al. 2018). Since then, the USGS has been very busy incorporating the updates and finalizing the models. In December 2019, they published the official 2018 USGS NSHMP document in the Earthquake Spectra journal.
In this the centennial year of the great 1918 pandemic, I was invited to speak at a special symposium on emerging infectious diseases at the renowned Pasteur Institute in Paris. One presentation that was both fascinating and alarming was on viruses in fish. I haven’t eaten raw fish since. When I heard that, in mid-December, a new form of pneumonia had struck a seafood market in Wuhan, central China, it seemed like a new fish disease affecting humans might have finally emerged. It turns out that the seafood market at the center of the outbreak also sold live animals and meat from wildlife such as snakes and marmots, and a wildlife primary infection source is most probable.
In our previous blog post, we reviewed how RMS has developed Risk Maturity Benchmarking, a tool to help clients understand their current processes and maturity and create a blueprint for improvement tied to their business strategy.
In 2017, RMS conducted a Risk Maturity Benchmarking (RMB) study for IRB Brasil Re (click here to read the full case study) to assist IRB on the implementation of their three-year transformation plan.
The IRB Transformation
Plan objectives were closely aligned to the company’s primary strategic
drivers. These included:
To grow IRB’s international presence as a “best in class” global reinsurer
To achieve greater capital efficiency across all business lines
To develop a market-advancing Enterprise Risk Management capability
To maintain a focus on innovation as a key differentiator
To achieve a competitive advantage by advancing modeling and analytical capabilities
Helping clients through the evolution of catastrophe modeling is a core mission for RMS Consulting. To assist in the process we have developed a tool called Risk Maturity Benchmarking, which we’ll introduce below, that helps our customers do this. Secondly, we will review an example where we have applied this framework with a client to create their own target operating model for catastrophe risk.
I don’t believe we would have achieved what we have if we had not first undertaken the RMB study
Luis Brito, head of catastrophe modeling, IRB Brasil Re
The industry is presented with both challenges and opportunities as the pace of change in the (re)insurance industry accelerates. Challenges include increased M&A activity, the entry of alternative capital and continued rate pressure, coupled with catastrophe losses from 2017 and 2018. These headwinds are contrasted by opportunities: an expanding protection gap which is not being filled quickly enough by the market, and technology – from data analytics to automation, frequently touted as the Holy Grail. All these factors have forced the industry to look at itself and reexamine how and where to compete in this brave new world.
This week marks the tenth anniversary of
the devastating earthquake in Haiti. The magnitude 7.0 event ruptured a thrust
fault associated with the Enriquillo-Plantain Garden fault system 25 kilometers
(16 miles) west of the capital city Port-au-Prince. This fault system runs
along the length of the Tiburon Peninsula and is no stranger to earthquakes,
with major events impacting Haiti in both 1751 and 1770. This large time gap since
the last major events meant that there was little to no societal memory or
preparedness for earthquakes in the region, making the 2010 event particularly
In the 2010 event, the strong ground shaking lasted 30 seconds and caused extensive collapse of masonry and concrete structures due to both poor design and construction practices, and poor construction material quality. An estimate for the resulting death toll is a staggering 150,000 people.
The scale of the damage and the number of people killed impacted all aspects of life for the remaining inhabitants of Port-au-Prince and the surrounding regions. Vital infrastructure including hospitals, communication systems and transportation facilities (e.g., the airport and port in Port-au-Prince) was severely damaged or destroyed, hampering disaster response. With 250,000 homes severely damaged, more than one million people needed to be housed and fed.
The sheer scale of the Australian bushfires is hard to comprehend, as what has already been a long bushfire season continues apace. Australia’s most-populous state, New South Wales (NSW) has been the worst-affected, with 12.1 million acres (4.9 million hectares) burnt over the current bushfire season. According to the New South Wales Rural Fire Service, damage has recently escalated with 672 homes destroyed since January 1, during a season which has seen 1,870 homes destroyed and 653 damaged.
There has also been reports of significant damage in the neighboring states, including Victoria to the south and Queensland to the north of NSW. Overall, across southeast Australia, 15.6 million acres (6.3 million hectares) have burned, and 25 people have been killed as of January 7. According to the Insurance Council of Australia (ICA), as of January 10, a total of 10,550 claims have been filed since November 8, amounting to around AU$939 million (US$645 million) in insured losses. The ICA notes that it expects more claims to be filed in the coming weeks.
Australian insurers are under the spotlight, but are holding up very well – insurer IAG has publicly stated it was “… on track to blow its perils allowance for the six months to December by AU$80 million” but had strong reinsurance in place. The article in Financial Review commented that there may be a modest effect on earnings for the industry overall, and premiums may have to rise.
“Trump is a joke: why satire makes sense when politics doesn’t.” This was the title of a presentation at the McCourtney Institute for Democracy at Penn State on February 20, 2018. One of the cherished freedoms of democracy is satire. Since Saturday Night Live first aired on NBC in October 1975, all presidents from Ford to Trump, and other prominent public figures, have been targets of merciless satire. Censorship of satire is an affront to democracy. The murder of satirists is terrorism.
Five years ago, on Wednesday, January 7, 2015, the Paris office of the satirical weekly, Charlie Hebdo, was attacked by two Jihadi brothers, Cherif and Said Kouachi, armed with AK-47s. This was the day of the week when the editorial committee met. Of the dozen deaths, eight were Charlie Hebdo staff members, including the fearless editor Stéphane Charbonnier, known as Charb. He had declared he would “… prefer to die standing than live on his knees.” President Hollande condemned this terrorist attack as the most serious in France in more than forty years. Indeed, this event was referred to as France’s 9/11: it was like killing Voltaire.
A measure of the singular nature of this event was the global response it triggered; not only heavily armed police security in Paris, but also a popular demonstration of millions throughout France, joined by world political leaders, expressing international solidarity against terrorism. The popular slogan, “Je Suis Charlie”, coined spontaneously at a French style magazine, echoed around the world.
the start of a new decade, democracies are still threatened with acts of
terrorist violence, aimed at coercing changes in public policy. These threats
can emerge from the far right as well as from Islamists. The hate speech
peddled by terrorist groups needs to be vigorously countered by the free press,
including satirical publications.
As one of the most notable terrorist attacks in the Western world since 9/11, the attack on Charlie Hebdo has been insightful for affirming the basic principles of terrorism risk modeling. An overarching principle is that terrorist operations follow the path of least resistance. Charlie Hebdo was a prime target because of the global media publicity associated with the brutal assassination of the editorial committee. According to an ISIS doctrine, half of Jihad is media. Charlie Hebdo was also a soft target, having weak security compared with alternative political, economic or military targets.
Another important principle underlying terrorist operations is that too many terrorists spoil the plot. The surveillance profile of a plot is minimized by having as few operatives as possible. Brothers, like the Kouachis (and the Tsarnaev Boston marathon bombers), also have the advantage of a more compact counterintelligence footprint than terrorists from different families.
Since the great majority of terrorist plots against Western democracies are interdicted by the security and law enforcement services, a counterfactual perspective on plots is essential for terrorism risk modeling. This perspective of reimagining history is universal, and applies to any peril, natural or man-made. Carl von Clausewitz, the Prussian master of military strategy, noted that perfecting the art of warfare entails knowing not only what has occurred, but also everything that could have occurred.
On January 7, 2015, the editorial committee of Charlie Hebdo planned to have lunch after their meeting at a local bistro, Les Canailles (Little Rascals). A large table was routinely reserved for them on Wednesdays. This bistro had open public access, unlike the Charlie Hebdo office, so it would have been easy for the two shooters to storm in firing their AK-47s. Through target substitution, this bistro might well have been attacked rather than the Charlie Hebdo office.
Counterfactual thinking such as this is not mere hindsight; it can provide valuable foresight into the future. The vulnerability of Parisian restaurants and cafés was evident. Months later, on Friday, November 13, 2015, six Parisian restaurants were attacked by ISIS terrorists, along with the Stade de France sports stadium and the Bataclan theater.
Knowledge of history is a precious resource for terrorism risk modelers. Most attacks have either happened before – or might have happened before. For insurers as well as civic authorities and businesses, strategic surprise can be avoided by reimagining history.
If you are part of the risk management industry, you are acutely aware of the impact catastrophes have. Because of that understanding, many risk professionals actively help communities in need post-disaster, through donations, working with organizations to promote resilience, or through on the ground assistance.
We are fortunate to say that this is true for everyone at RMS. Our values embrace a stronger understanding of risk, building resiliency, and making a positive impact to improve the lives of communities suffering after disasters. One of the ways we live our values is through our annual RMS Impact Trek, where both RMS employees and our clients work together with the social enterprise Build Change in some of the world’s most catastrophe-prone areas (see the 2019 Impact Trek recap video here).
And for the fifth year in
a row, we’re again sponsoring representatives from our clients to join RMS
employees and Build Change and share their skills to build stronger
communities. If you are an RMS client, we have recently invited your
organization to participate in our annual RMS Impact Trek.
The core idea behind catastrophe modeling is that the architecture of risk quantification is the same whatever the peril. While a hurricane is not an earthquake, building a hurricane catastrophe model has elements in common with an earthquake catastrophe model. Stochastic event occurrence, the hazard footprint, the damage mechanism, clustering, post-event loss amplification are all shared concepts.
While on the university campus, disciplines may retain their nineteenth century segregations, in catastrophe modeling we are “ecumenical” about what is the driver of loss: whether it is wind, hail, vibration, flood, cyber, a virus or a terrorist attack. The track of a hurricane, the track of a fault rupture: the contagion of influenza, the contagion of NotPetya malware: the topographic controls of flooding, the topographic controls of wildfire. Exploring the parallels can be illuminating.
Which is why it is interesting to discover historical figures, who like catastrophe modelers, have looked sideways across the catastrophe disciplines. One such figure is the Anglo-Greek Lafcadio Hearn (unless you are from Japan where he is known as Koizumi Yakumo.)
Safety from volcanic eruptions is heavily influenced by economic factors. Those who earn their livelihood from farming around a volcano may be reluctant to evacuate, and those who operate tourist excursions may be reluctant to suspend them. This may have been the case with White Island Tours which holds an exclusive license to land tourists on the privately-owned island in New Zealand’s Bay of Plenty, named White Island by Captain James Cook. Tourists averse to sea sickness have also been able to arrive on the island via helicopter through Volcanic Air.
With around 10,000 customers per year, paying up to several hundred New Zealand dollars (US$0.66 per NZ dollar) for a tour, White Island Tours has been a substantial business. But one whose financial viability would have required that as few trips as possible were cancelled because of the volcano risk.
After 22 years of business operation, the volcano erupted on December 9, 2019. There were 47 tourists on White Island; most were killed or seriously injured. 38 of the tourists were from the cruise liner Ovation of the Seas, operated by Royal Caribbean Cruises Ltd., which denies any responsibility for their excursions, which were advertised with the statement that White Island is one of the most active volcanoes in the world. The terms and conditions of cruise tickets require that any lawsuit be filed in Miami. The U.S. courts will thus decide what liability Royal Caribbean Cruises Ltd. had in vetting White Island Tours.