Author Archives: Chris Folkman

About Chris Folkman

Chris Folkman is a senior director of product management at RMS, where he is responsible for specialty lines including terrorism, casualty, wildfire, marine cargo, industrial facilities, and builders' risk. He has extensive experience on both the broker and carrier sides of insurance, where he has led many aspects of property and casualty operations including underwriting, pricing, predictive analytics, regulatory affairs, and third-party commercial coverage and claims.

Prior to RMS, he was a managing director at CompWest Insurance Company, a workers’ compensation start-up that was acquired by Blue Cross Blue Shield of Michigan. Chris holds a bachelor's degree from Stanford University. He is a licensed insurance broker and a Chartered Property and Casualty Underwriter (CPCU).

Camp and Woolsey Fires: A Historical and Numerical Perspective

At the time of writing, the recent Camp and Woolsey Fires in California have burned a combined total of 245,000 acres (93,000 hectares) — an area about the size of Dallas. These fires have destroyed more than 12,000 homes and businesses, and killed 80 civilians. Ordinarily these would be called extreme events. But these are not ordinary times. After back-to-back record breaking wildfire seasons, including the Wine Country fires (US$11 billion) and Southern California Fires (US$2.3 billion) in 2017, and the Carr Fire (~US$1.2 billion) and Mendocino Complex fires (~US$200 million) this year in July, California Governor Jerry Brown perfectly summed up the current situation in his state: “This is the new abnormal.”

As firefighters make continuing progress on containment of both fires, the California Department of Forestry and Fire Protection (CAL FIRE) is quickly assembling an inventory of each burned structure, to detail the extent of the damage. Based on this data, plus a simulated reconstruction of the event’s wind, moisture, fuel, and fire spread parameters, RMS estimates the insured damage at between US$7.5 billion and US$10 billion for the Camp Fire, and US$1.5 billion and US$3 billion for the Woolsey Fire. This estimate accounts for burn and smoke damage; structure, contents, business interruption (BI), and additional living expenses (ALE) payouts; damage to autos; and modest post loss amplification (PLA) that may result from surges in labor costs, ordinance and law endorsements, and related coverage extensions.

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Impact of the California Wildfires: Chris Folkman from RMS on CNN’s Quest Means Business

Chris Folkman, senior director of product management at RMS, was interviewed by Paula Newton on CNN’s Quest Means Business program on Monday, November 12, about the impact of the California wildfires.

Paula asked Chris about the range of factors that have made these wildfires so intense, and also about the potential causes of the fires. Chris explained how the fires could have started and how the almost perfect conditions for the fire produced such a rapid spread. For the Camp Fire in Northern California, deaths were caused by the fire’s sheer speed that had overwhelmed residents as they tried to escape from the path of the flames.

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The New Reality of North America Wildfire

Describing the scale and savagery of the wildfires currently burning in California is difficult to do, but a simple recounting of the statistics is a good starting point. They are thus:

At the time of writing, fifteen wildfires are now burning more than 280,000 acres (~113,000 hectares) in California. Collectively, they have laid waste to almost 7,000 homes and businesses. 31 people have died in the fires. 300,000 more were evacuated. 12,000 firefighters are working the front lines, making admirable progress at containment.

The biggest of these events, the Camp Fire (named for the road of its point of origin) is the most destructive wildfire in history, with 6,700 structures burned. During a period of particularly intense wind, it spread at a rate of more than one football field per second. Entire towns in its path are effectively destroyed.

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California Earthquake: Big Risk, Big Exposure

Unlike most U.S. property and casualty insurance, whose take-up rates range from ten percent (California residential earthquake) to greater than 90 percent (for fire insurance), workers’ compensation insurance is required by law. In California, nearly all of the 18.5 million employees across the state are covered by workers’ compensation, whether through an employer’s policy or self-insurance. This enormous exposure generates more than US$18 billion in premium annually, and because California is an “exclusive remedy” state, injuries arising out of and in the course of employment resulting from an earthquake are not excludedBut how can the cost of this obligatory, high risk exposure be measured?

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Hurricane Harvey: Impact on Marine Cargo

Chris Folkman, director – Product Management, RMS

Rajkiran Vojjala, vice president – Modeling, RMS

As Hurricane Harvey barreled eastward from Houston, Port of Houston officials spoke of restarting operations by Labor Day (Monday, September 4) after its channels are checked for shoaling and obstructions. The eighth busiest container port in the U.S. reported no major damage to its terminals, warehouses or storage facilities, and traffic was diverted to other regional ports and processing facilities away from the storm’s path. Maritime officials, it seems, have learned lessons from Superstorm Sandy, where cargo was hastily unstacked in anticipation of high winds before a devastating storm surge caused extensive damage to cargo, chassis, and port warehouses.

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Will a Clearer Picture Emerge for Terrorism Insurers?

What a difference a week makes. A week before the tragic events in Manchester, RMS was in New York, and the previous week in London as we hosted over 400 risk professionals from across the (re)insurance industry at two half day terrorism seminars. The seminars featured several of the world’s leading experts on counterterrorism, modeling, and terrorism risk management and highlighted the fluid threat environment, its insurance implications, and the impact of technology on terrorism risk. Continue reading

The Rise and Stall of Terrorism Insurance

In the 15 years since the terrorist attacks of September 11, 2001, partnerships between the public sector and private industries have yielded more effective security and better public awareness about the threat of terrorism. We may never come to terms with the sheer volume of human loss from that day and among the hundreds of attacks that continue every year. But we have achieved greater resilience in the face of the ongoing realities of terrorism – except for when it comes to looking ahead at recovering from the catastrophic costs for rebuilding in its aftermath.

Terrorism insurance is facing a structural crisis: hundreds of terrorist attacks occur annually, but actual insurance payouts have been negligible. The economic costs of terrorism have skyrocketed, but demand for terrorism coverage has remained relatively flat. And despite a proliferation of catastrophe bonds and other forms of alternative capital flooding into the property insurance market, relatively little terrorism risk has been transferred to the capital markets. If terrorism insurance – and the insurers who provide it – are to remain relevant, they must embrace the new tools and data available to them to create more relevant products, more innovative coverages, and new risk transfer mechanisms that address today’s threat landscape.

The September 11th, 2001 attacks rank among the largest insurance losses in history at $44 billion, putting it among catastrophes with severe losses such as Hurricane Katrina ($70 billion), the Tohoku earthquake and tsunami ($38 billion), and Hurricane Andrew ($25 billion).

But unlike natural catastrophes, whose damages span hundreds of kilometers, most of the 9/11 damages in New York were concentrated in an area of just 16 acres. Such extreme concentration of loss caused a crisis in the insurance marketplace and highlighted the difficulty of insuring against such a peril.

Following the events of the September 11 attacks, most insurers subsequently excluded terrorism from their policies, forcing the U.S. government to step in and provide a backstop through the Terrorism Risk and Insurance Act (2002). Terrorism insurance has become cost effective as insurer capacity for terrorism risk increased. Today there are an estimated 40 insurers providing it on a stand-alone basis, and it is bundled with standard property insurance contracts by many others.

But despite better data on threat groups, more sophisticated terrorism modeling tools, and increased transparency into the counter-terrorism environment, terrorism insurance hasn’t changed all that much in the past 15 years. The contractual coverage is the same – usually distinguishing between conventional and CBRN (chemical, biological, radiological, and nuclear) attacks. And terrorism insurance take-up remains minimal where attacks occur most frequently, in the middle east and Africa, highlighting what policymakers refer to as an increasing “protection gap.”

Closing this gap – through new products, coverages, and risk transfer schemes – will enable greater resilience following an attack and promote a more comprehensive understanding of the global terrorism risk landscape.

No More Guessing Games for Marine Insurers

Huge ports mean huge amounts of cargo. Huge amounts of cargo mean huge accumulations of risk.

As a guiding principle about where marine insurers are exposed to the highest potential losses, it seems reasonable enough. But in fact, as RMS research has proven this week, this proposition may be a bit misleading. Surprisingly, a port’s size and its catastrophe loss potential are not strongly correlated.

Take the Port of Plaquemines, LA which is just south-east of New Orleans. It is neither well known nor big in comparison with others around the world. Yet it has the third highest risk in the world of insurance loss due to catastrophe: our analysis revealed its 500-year marine cargo loss from hurricane would be $1.5 billion.

Plaquemines is not an isolated case. There were other smaller ports in our ranking: Pascagoula, MS in the United States ranks 6 on our list with a potential $1 billion marine cargo loss due to storm surge and hurricane; Bremerhaven in Germany (ranked 4th at $1 billion) and Le Havre in France (ranked 10th at $0.7 billion).

Asia-Pacific ports featured less frequently, but worryingly one Asia port topped the list: Nagoya, Japan was number 1 ($2.3 billion potential losses) with Guangzhou, China a close second ($2 billion). Our analysis modeled risk posed by earthquake, wind, and storm surge perils in a 500-year return period across 150 ports – the top ten results are further down this blog.

Ports At Risk For Highest Lost
(500 year estimated catastrophe loss for earthquake, wind, and storm surge perils)

Estimated Marine Cargo Loss in Billions USD
1 Nagoya, Japan 2.3
2 Guangzhou, China 2.0
3 Plaquemines, LA, U.S. 1.5
4 Bremerhaven, Germany 1.0
5 New Orleans, LA, U.S. 1.0
6 Pascagoula, MS, U.S. 1.0
7 Beaumont, TX, U.S. 0.9
8 Baton Rouge, LA, U.S. 0.8
9 Houston, TX, U.S. 0.8
10 Le Havre, France 0.7

* Losses rounded to one decimal place.

Our analysis demonstrates what we at RMS have long suspected: outdated marine risk modeling tools and incomplete data obscure many high-risk locations, big and small. These ports are risky because of the natural perils they face and the cargos which transit through them, as well as the precise way those cargos are stored. But many in the marine sector don’t have these comprehensive insights. Instead they have to make do with a guessing game in determining catastrophe risk and port accumulations. And with the advanced analytics available in 2016 this is no longer good enough.

Big Port or Small – Risk Can Now Be Determined

Back to that seemingly simple proposition about the relationship between port size and insurance risk which I began this blog with. As the table above demonstrates, smaller ports can also present a huge risk.

But the bigger ships and bigger ports brought about by containerization have led, overall, to a bigger risk exposure for marine insurers. Not least because larger vessels have rendered many river ports inaccessible forcing shippers to rely on seaside ports, which are more vulnerable to hurricanes, typhoons, and storm surge.

The value of global catastrophe-exposed cargo is already huge and is likely to keep growing. But the right tools, which use the most precise data, can reveal where the risk of insurance loss is greatest. Leveraging these tools, (re)insurers can avoid dangerous cargo accumulations and underwrite with greater confidence.

Which means that, at last, the guessing game can stop.

In a box: Our ranking of high risk ports used the new RMS Marine Cargo Model™, with geospatial analysis of thousands of square kilometers of satellite imagery across ports in 43 countries. RMS’ exposure development team used a proprietary technique for allocating risk exposure across large, complex terminals to assess the ports’ exposure and highlight the risk of port aggregations. The model took into account:

  • Cargo type (e.g. autos, bulk grains, electronics, specie)
  • Precise storage location (e.g. coastal, estuarine, waterside or within dock complex)
  • Storage type (e.g. open air, warehouse, container — stacked or ground level)
  • Dwell time (which can vary due to port automation, labor relations and import/export ratios)

Cracking the Cargo Conundrum

The smoke from nearby forest fires drifting across the entrance to the Port of Singapore wasn’t unduly worrying the captain of Titan, arriving from Shanghai with 10,000 containers on board. He had clocked the oil tanker off his starboard side and was content that, after obviously having a few navigational hiccups, the pilot of that vessel was now holding a course and speed safely out of Titan’s way. It was as he relaxed back in his chair and looked out across the bow that the smoke thinned out and he saw it. Another tanker. Huge. Q­max class carrying liquefied natural gas.

This is not the plot of a blockbuster book or the climactic scene of a Hollywood disaster movie. It is one of a number of plausible scenarios in the new RMS report on the challenges facing insurers because of the huge growth in marine cargo.

The report “Marine Cargo Catastrophe Modeling: Navigating the Challenges, Charting the Opportunities” examines the outdated techniques and incomplete data that marine insurers have had to make do with in order to estimate their cargo cat risk and port accumulations. Put simply, for too long knowing how much exposure they’ve built up in enormous international ports has been a guessing game. And two recent CAT events, which caused multibillion dollar losses because of huge concentrations of cargo, have exposed this weakness to an uncomfortable scrutiny.

The risks of global trade

Whereas the risks for land or property are essentially static, cargos are constantly moving and so the risk variables might seem unfathomably complicated. It’s not just the number of ports the vessel will go through and the CAT­ risks in those locations: hurricanes, storm surges, earthquakes, and terrorist attacks. Consideration needs to be given to the geology in that region, the construction of the ports in that country, and the level of disaster­ preparedness that exists.

As we saw during Superstorm Sandy, loss outcomes can be influenced by factors such as the exact location of cargo storage (In containers? In warehouses? Stacked?). Equally important is the vulnerability of the products. Are they fragile like electronics (ruined by water) or more resilient like jewelry (which can more easily be salvaged)?

The new RMS report in combination with the soon-to-be launched RMS Marine Cargo Model will bring clarity to these issues.

A purpose-built model for the industry

The RMS Marine Cargo and Specie model will be generally available this May, with the launch of RiskLink version 16.

To develop the model, the RMS geospatial team analyzed thousands of square kilometers of satellite imagery of top global ports and created a proprietary technique for allocating risk exposure across port terminals and storage structures. The port Industry Exposure Databases (IEDs) included in the RMS Marine Cargo Model, also incorporate important information on “dwell time,” or how long cargo spends at a given location. This variable, which is critical in determining port accumulations, can be highly influenced by variables such as weather, port automation, import/export ratios, and labor relations.

Covering almost 80 countries and three perils (wind, storm surge, and earthquake), the new marine model will provide 11 high-resolution and 150 medium resolution port industry exposure database, enabling the best insight on cargo vulnerability and global port accumulation currently available to the industry.

Tianjin Is A Wake-Up Call For The Marine Industry

“Unacceptable”  “Poor”  “Failed”

Such was the assessment of Ed Noonan, Chairman and CEO of Validus Holdings, on the state of marine cargo modeling, according to a recent report in Insurance Day.


China Stringer Network/Reuters

The pointed criticism came in the wake of the August 12, 2015 explosions at the Port of Tianjin, which caused an estimated $1.6 – $3.3 billion in cargo damages. It was the second time in three years that the cargo industry had been “surprised”—Superstorm Sandy being the other occasion, delivering a hefty $3 billion in marine loss. Noonan was unequivocal on the cargo market’s need to markedly increase its investment in understanding lines of risk in ports.

Noonan has a point. Catastrophe modeling has traditionally focused on stationary buildings, and marine cargo has been treated as somewhat of an afterthought. Accumulation management for cargo usually involves coding the exposure as warehouse contents, positioning it at a single coordinate (often the port centroid), and running it though a model designed to estimate damages to commercial and residential structures.

This approach is inaccurate for several reasons: first, ports are large and often fragmented. Tianjin, for example, consists of nine separate areas spanning more than 30 kilometers along the coast of Bohai Bay. Proper cargo modeling must correctly account for the geographic distribution of exposure. For storm surge models, whose output is highly sensitive to exposure positioning, this is particularly important.

Second, modeling cargo as “contents” fails to distinguish between vulnerable and resistive cargo. The same wind speed that destroys a cargo container full of electronics might barely make a dent in a concrete silo full of barley.

Finally, cargo tends to be more salvageable than general contents. Since cargo often consists of homogenous products that are carefully packaged for individual sale, more effort is undertaken to salvage it after being subjected to damaging forces.

The RMS Marine Cargo Model, scheduled for release in 2016, will address this modeling problem. The model will provide a cargo vulnerability scheme for 80 countries, cargo industry exposure databases (IEDs) for ten key global ports, and shape files outlining important points of exposure accumulation including free ports and auto storage lots.

The Tianjin port explosions killed 173 and injured almost 800. They left thousands homeless, burned 8,000 cars, and left a giant crater where dozens of prosperous businesses had previously been. The cargo industry should use the event as a catalyst to achieve a more robust understanding of its exposure, how it accumulates, and how vulnerable it might be to future losses.