As my colleague Mohsen Rahnama reminded us in his recent blog, the last destructive earthquake to strike Northern California was on October 17, 1989. Loma Prieta was a magnitude 6.9 earthquake which resulted in 63 deaths and about four thousand injuries. The epicenter was about ten miles northeast of Santa Cruz, and seismic waves took about 30 seconds to reach San Francisco. But there was no way of communicating any earthquake early warning to residents of the Marina district of San Francisco, which suffered some of the worst damage from shaking and fire outbreak.
On October 17, 2019, the thirtieth anniversary of this earthquake, the California Governor’s Office of Emergency Services unveiled a smartphone app from the University of California, Berkeley Seismological Lab that will give all Californians the opportunity to receive earthquake early warnings.
Governor Gavin Newsom, who happened to be in the Marina district at the time of the 1989 earthquake, has urged people to download the MyShake app. This app (myshake.berkeley.edu) is available on the Apple App Store and Google Play, and relies on the ShakeAlert earthquake early warning system, developed by the U.S. Geological Survey (USGS).
Thirty years ago, the Mw6.9 Loma Prieta Earthquake
struck the San Francisco Bay Area. When looking back at disasters, it is always
particularly relevant to understand the moment in time impacted. The Loma
Prieta Earthquake struck on Tuesday, October 17, 1989 at 5:04 p.m. local time,
but it was no ordinary Tuesday afternoon. Game Three of the Major League
Baseball 1989 World Series was to start at 5:35 p.m. between the two Bay Area
teams: the Oakland Athletics and the San Francisco Giants.
Typically, 5:04 p.m. would represent the height of rush hour in the Bay Area, but because of the game a significant component of the workforce had left work early or had stayed late to watch it. While 63 lives were lost, this loss level was much lower than it might have been given the level of damage that impacted highways across the region including the failures of the Nimitz Freeway and the San Francisco–Oakland Bay Bridge.
I was at Stanford University in the Terman Engineering Building studying when the earthquake struck. The Stanford campus made up of numerous historical buildings saw substantial damage. In all, more than 200 structures were impacted. The restoration of the damage took more than a decade to fix and cost Stanford more than US$160 million. Classes were canceled for more than a week. Students were locked out of damaged buildings which meant they could not access their research samples, data and equipment. Adding to the stress were the innumerable aftershocks. For those of us studying engineering, it really brought home the importance of our work.
Risk scoring is a fundamental part of the property and casualty underwriting process, allowing underwriters to sort and rank the quality of submissions. This process culminates in critical business decisions on quoting, declination, referral, and pricing, which taken together can make the difference between an insurer’s survival and its failure. The best insurers make these decisions in a manner that is disciplined, consistent, and data-driven. Those who fail to do this fall prey to adverse selection, pay high reinsurance costs, and suffer at the hands of disapproving rating agencies.
Given this high stakes game, why does the industry continue to rely on oversimplified, unproven, and outdated risk scores for natural catastrophe underwriting?
Japan continues to assess the extent of the damage caused by
Typhoon Hagibis, which made landfall near the Izu Peninsula in Shizuoka
Prefecture on Saturday, October 12. Current reports state that at least 66
people have been killed, dozens of people are missing, and hundreds are injured.
At this time, the worst impacted prefectures include Nagano, Saitama,
Shizuoka, and Fukushima.
However, the full extent of the damage is not expected to be known for several days as rescue operations and official damage assessments continue – rescuers cannot reach some areas due to high water levels. The Japanese Prime Minister, Shinzo Abe, stated that there is no plan to slow rescue operations, with around 13,000 police, 66,000 firefighters and 31,000 Self-Defense Forces personnel involved. The numbers of structures and properties affected is predicted to rise.
RMS launches new exposure management application focused on the portfolio manager – ExposureIQ on the new cloud platform, Risk Intelligence™.
The role of a portfolio manager is a demanding one. It represents a high-wire balancing act between managing profitability and growth on one hand and keeping within exposed limits and minimizing risk accumulation and potential losses on the other. It is the portfolio manager who must uncover the “hot spots” if an individual line of business, geography, or risk type is looking under pressure as a loss driver – and highlight the “cold spots” where segments have growth potential.
They are always under the watchful eye of regulators and governance functions who need regular reports to show that the business is sticking to its stringent boundaries and limits. And if all this wasn’t enough, they are also on the frontline when a cat event strikes and on duty throughout to regularly update and reveal the impact of the event on the portfolio before, during, and post-event.
The last two North America wildfire seasons have seen total insured losses skyrocket to over US$23 billion – compared to 1991-2010 where average annual losses totaled US$600 million. Wildfire has staked its claim as a major U.S. peril, with events now consistently topping the multi-billion dollar mark. Four of the five all-time biggest wildfire events occurred in 2017 and 2018, and seven wildfires exceeded the US$1 billion threshold in this timeframe.
When the WUI is Not Enough
Wildfire risk can no longer be managed through accumulation strategies, hazard zoning, or simple extrapolation of historical data because the fundamental drivers of wildfire risk are changing:
There are 30 percent more buildings at risk than there were 30 years ago
Recent weather patterns show that the fire season is getting hotter and drier than in the past
All these factors mean that past losses cannot be easily extrapolated to predict future risk levels. Instead, the industry needs tools from a probabilistic catastrophe model to properly capture future wildfire risk.
Wildfire risk is not limited to the Wildland Urban Interface (WUI) anymore. The figure below shows DINS (Damage Inspection) data from CAL FIRE overlaid on the burn perimeter for the 2017 Tubbs Fire in Northern California. Almost half of the destroyed structures in that fire came from areas considered to have no wildfire risk since they are in sub-urban areas classified as non-burnable by existing risk scoring methods. It is not sufficient to manage insurance portfolios with simple hazard zoning approaches.
of Thursday afternoon (October 10), Super Typhoon Hagibis remains a powerful
Category 4 equivalent hurricane with maximum sustained wind speeds of 150 miles
per hour (240 kilometers per hour). The Japan Meteorological Agency (JMA) has described the storm as “violent” – its highest tropical cyclone classification.
Hagibis hit the headlines in recent days after it underwent one of the most rapid intensifications ever observed: its maximum sustained wind speeds intensified from 60 to 160 miles per hour in just 24 hours on October 6-7. According to media reports, only Hurricane Wilma in 2005 and Patricia in 2015, are known to have strengthened more quickly. Its peak wind speed of 160 miles per hour (258 kilometers an hour) is equivalent to a Category 5 hurricane on the Saffir-Simpson Hurricane Wind Scale.
Typhoon Faxai was the strongest landfalling typhoon to impact the Greater Tokyo area since Typhoon Ma-on in 2004. Making two landfalls as it traveled across the Tokyo Bay, Faxai made a brief landfall over the Miura Peninsula, Kanagawa prefecture in the Kanto region of Japan, just 35 miles (57 kilometers) south-southwest of Tokyo early morning local time on Monday, September 9.
It then tracked northeast to make a second landfall
over the city of Chiba (pop. ~979,000), Chiba prefecture, 20 miles (32
kilometers) east of Tokyo. Maximum sustained wind speeds at its landfalls were
equivalent to a Category 2 hurricane on the Saffir-Simpson Hurricane Wind
Scale. Just four days after, RMS reconnaissance was in Chiba prefecture,
surveying the damage.
On Thursday, September 26, a contingent from RMS attended the Reactions’ 2019 North America (Re)Insurance Conference and Awards in New York. It was such an enjoyable event and it was a great honor to receive the North America Risk Modeler of the Year award. To win a Reactions award, you not only needed to impress the panel of independent judges, you also need market approval. Thank you to the judges and to everyone who took the time to support us.
Alongside us were many of our clients and partners who were either award nominees or winners on that night, including North America Insurer, Specialty Reinsurer, ILS Investment Manager, and Consultancy of the Year. Congratulations to our clients gaining recognition for great work. We are proud to be in such good company!
Almost three months ago we passed a
remarkable record in catastrophe loss.
And yet no one seems to want to
No banner headlines in the newspapers.
No speeches at the Monte Carlo Reinsurance Rendezvous.
The first half of 2019 generated the lowest catastrophe insurance loss for more than a decade. The estimates come in at: US$15 billion (Munich Re), US$19 billion (Sigma), or US$20 billion (Aon). In straight dollar terms, independent of any adjustment for inflation or exposure, this is lower than any year since 2006.