Monthly Archives: January 2020

How Did the Global Risk Report Become Existential?

Mid-January saw the publication of the annual World Economic Forum (WEF) “Global Risks Report” timed to set the agenda during this week’s WEF Annual Meeting in Davos.

With each new edition – and this year’s edition is the fifteenth, inevitably, one first turns to the opening page of the report, to discover the Top Five Global Risks for 2020, in terms of their “likelihood” and “impact”. What has been trending and what has slipped down the chart?

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Risk Modeling for the Future

The World Economic Forum (WEF) has celebrated its fiftieth-year at its annual meeting in Davos. Increasingly the business/political nexus has become that articulated in WEF founder Klaus Schwab’s Davos Manifesto, that corporations “… must assume the role of a trustee of the material universe for future generations.”

In 2020, “Action on climate change” has now become the number one risk in terms of impact in the World Economic Forum’s Global Risk Report. The work at RMS on quantifying risk and exploring how risk is expected to shift under climate change has never been more important or timely.

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Spread of the New Coronavirus in the Year of the Rat

When the Middle East Respiratory Syndrome (MERS) was first identified as a coronavirus in 2012, the case fatality rate was very high at 35 percent; but thankfully there was very low human-to-human transmission. Such transmission happened in healthcare settings, or to a much lesser extent in households where people caring for an infected person had close contact. 

Camels were identified as a “reservoir host” for MERS, with infection primarily caused through direct contact with camel fluids. As evidence of very low human-to-human transmission, there were no MERS cases reported in either the 2012 or 2013 Hajj pilgrimage to Mecca, although an Indonesian couple may have caught MERS in the 2014 Hajj.

In China, there is an even larger annual migration tied to the lunar calendar – as the lunar New Year starts on Saturday, January 25. This is normally a time of happiness and celebration during family reunions. This year, there will be fear and foreboding over the new coronavirus, which emerged in December from a seafood market in Wuhan, Central China. On January 21, Chinese health authorities confirmed human-to-human transmission of the coronavirus. Fortunately, the case fatality rate seems to be quite low, just a few percent.

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2018 USGS Hazard Map Updates: Is RMS Revising the U.S. Earthquake Model?

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.

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New Lethal Coronavirus In China

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.

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Risk Maturity Benchmarking Example: IRB Brasil Re

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
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Risk Maturity Benchmarking: Riding the Wave of Change

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.

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Haiti Earthquake: Ten Years On

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 devastating.

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.

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Australia Bushfires: A New Normal?

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.

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Je Suis Charlie 2020

“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.

Memorial at the Place de la Republique in Paris. Image credit: Author’s own

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.

At 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[1]. 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.


[1] Woo G. (2019)  Downward counterfactual search for extreme events. Frontiers in Earth Science https:/doi.org/10.3389/feart.2019.00340