Category Archives: Natural Catastrophe Risk

The Value of Flood Protection: Quantifying the Benefits of Defenses Along U.K. Rivers

Whenever the U.K. is hit by major flooding, attention quickly turns to the performance of the nation’s flood defenses. Some defenses, such as London’s Thames Barrier, are regularly recognized for their vital role in protecting people and property. The value of other mitigation measures, however, has been frequently challenged, such as when defenses failed to prevent significant flooding in Cumbria during storm Desmond in 2015.

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The Disappearing Tokyo Risk Audit

Without the ability to measure, how do we know if we are making progress?

In December 2012, in preparation for the renewal of the UN Millennium Development Goals, I wrote a report for the U.K. Government Department for International Development (DFID) advocating that catastrophe models should be used to measure progress in disaster risk reduction. I suggested goals could be set to target a 50 percent reduction in expected casualties and a 20 percent reduction in normalized economic losses, over the period of a decade, based on the output of a catastrophe model.

Two years later, the seven targets agreed at the UN meeting on Disaster Risk Reduction, held on March 14–18, 2015, in Sendai, Japan – were a disappointment. The first two targets for “Disaster Mortality” and “Affected People” would simply compare data from 2020-2030 with 2005-2015. The third target was to “reduce direct disaster economic loss in relation to global GDP by 2030”. Yet we know, especially for casualties – even at a global level, a decade is not enough to define a stable mean. For cities and countries, comparing two decades of data will generate spurious conclusions.

And so, it was a relief to see that only two weeks later, the Japanese and Tokyo city governments announced they had set themselves the challenge of halving earthquake casualties over a decade, measured by modeling a hypothetical event based on the M7 1855 Edo earthquake under Tokyo. I referenced this announcement and quoted it widely in presentations, to highlight that risk modeling had been embraced by the country with the most advanced policies for disaster risk reduction.

Over the last two years, I started searching for some update on this initiative. What kind of progress in risk reduction was being achieved, whether the targets for Tokyo would be met? And I found my original links had all stopped connecting. Perhaps in my enthusiasm I had dreamt it?

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May Tornadoes Leave U.S. in a Whirlwind

Late May 2019 was a startlingly active period for severe convective storms (SCS) in the U.S., even after considering that May is typically one of the most active months of the year. Until about halfway through the month, the number of tornadoes being reported was around average, but after a major outbreak starting in mid-May this number shot up, bringing the year-to-date total to 1,017 tornado reports. This count is only surpassed by the extremely active years of 2008 and 2011 (Figure 1).

This year’s late May outbreak was also unusually long: by the end of Wednesday, May 29, at least eight tornadoes had been experienced each day across a record-breaking 13 consecutive days, according to preliminary data from the National Weather Service (NWS). The previous record was set in 1980, after 11 consecutive days with at least eight tornadoes.

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Calm or Chaotic? Looking Ahead at the 2019 North Atlantic Hurricane Season

The 2019 North Atlantic hurricane season officially got underway on Saturday, June 1, and marked the start of a six-month period that runs right through to November 30. Blatantly ignoring this official start, the North Atlantic has already produced its first named storm of 2019. On May 20, Subtropical Storm Andrea formed over open water in the western Atlantic, several hundred miles south of Bermuda. It was a relatively weak and short-lived storm, lasting for less than a day before dissipating. This is the fifth consecutive year that a storm had formed ahead of the official start date of the hurricane season.

As I shared in a previous blog, storms can form at any time of year, but it is important to remember that there is no historical relationship between the date of the first named storm and the overall seasonal hurricane activity, so the early start to 2019 does not provide us with any clues as to how the season might pan out.

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Impact Trek: Living (and Thriving) in Areas Exposed to Multiple Perils

In March this year, I joined a team of six RMS employees and three clients travelling to Manila in the Philippines on the annual RMS Impact Trek, as part of an ongoing partnership with Build Change. RMS and Build Change share the aim of increasing resiliency and reducing the impact of disasters, especially in the communities that are most vulnerable to their effects. The Philippines is one of the most disaster-prone countries in the world; its position on both the Pacific Ring of Fire and within the western North Pacific tropical cyclone basin means the country is at risk from both earthquakes and typhoons.

Previous Impact Treks had taken participants to Haiti and Nepal – countries which were at the time recovering from the impacts of catastrophic earthquakes. This year was different, in that Manila has not experienced a recent disaster, and the Trek focused on pre-disaster measures that can be taken to increase resiliency and prepare for the next big event when it inevitably occurs.

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Impact Trek: How to Make Millions of Homes More Resilient

Just over a year ago, I was in Manila for a workshop on the design of PCDIP – the Philippines City Disaster Insurance Pool. Recognizing the Philippines as a country prone to earthquakes, typhoons and frequent flooding, as well as having a rapidly increasing economy, population and building stock, the design of PCDIP was funded by the Asian Development Bank and implemented by a consortium of consultants, led by RMS. The aim: to manage the risk that Philippine cities face from natural catastrophes through the use of parametric risk transfer, to give the cities a rapid source of funding when disaster strikes.

In March, I returned to Manila, alongside a team of both RMS colleagues and our clients on the annual RMS Impact Trek with Build Change – a longstanding RMS partner. RMS works closely with Build Change in promoting, and, crucially, implementing risk-reducing retrofit measures in low-income communities around the globe. This time, the focus of the trip was arguably less on risk transfer (as during my last visit to Manila), and more on risk reduction, because effective risk management must always be a combination of both – reduction and transfer.

Transferring risk from the first to the last dollar (or Philippine Peso…) is never efficient from a financial perspective; not to mention the non-financial benefits risk reduction measures can have on the lives and livelihoods of communities. At the same time, risk also cannot be fully “reduced away” – even after the most ambitious risk reduction measures some residual risk will always remain. And this is where risk transfer can provide vital protection, to ensure (or insure?) that adequate financial means are available in response to the most extreme catastrophe events.

During the Impact Trek, we spent a lot of time with the local Build Change team and some of their key partners – microfinance organizations, local and national government, and, most importantly, homeowners.

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Blue Chip Catastrophes

What do the 393 grounded Boeing 737 MAX aircraft have in common with BP’s “Deepwater Horizon” fire and uncontrolled oil release, or with Volkswagen’s (VW) “cheat technology” that ensured its diesel engine cars could pass stringent U.S. and European emissions test standards?

All three situations cost their respective companies tens of billions of dollars. Two of them concerned the development of in-house software that caused more self-inflicted damage to the company’s balance sheet than any corporate hit from an external cyberattack. And all three highlight defective risk management and regulation.

Volkswagen Group, BP and Boeing are all world class companies: ranked #18, #24 and #49 globally in the recently published Forbes Global 2000. For investors these are “blue chip” stocks: “… the stalwarts of industry – safe, stable, profitable and long-lasting companies, they represent safe, low volatility investments.” Investors might prefer to return to the original definition of “blue chip” in poker-playing, where it designates the highest value token but says nothing about the risk.

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EXPOSURE Magazine: Exploring the World of Risk Management

With the start of the U.S. wildfire season on the horizon, in the latest edition of EXPOSURE – the RMS magazine for risk management professionals, wildfire is our lead story, as we examine whether it now needs to be considered a peak peril. The 2017 and 2018 California wildfires have forced one of the biggest re-evaluations of a natural peril since Hurricane Andrew in 1992, as the industry begins to comprehend the potential loss severities.

The article argues that there are similarities with U.S. wildfire as there was with North Atlantic hurricane in 1992 – catastrophe models were relatively new and had not gained market-wide adoption, and many organizations were not systematically monitoring and limiting large accumulation exposure in high-risk areas. Find out why a rethink is required about how the risk management industry currently analyzes the exposure and the tools it uses.

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Version 18.1 Delivers Updated Views of North Atlantic Hurricane and Asia Earthquake Risk

With the release of version 18.1 on April 22 from RMS, there is plenty to explore, validate and put into production.

Updated Insights on North Atlantic Hurricane Risk

Starting with the RMS North Atlantic Hurricane (NAHU) Models, version 18.1 (v18.1) includes updates to the long-term and medium-term event rates throughout the Atlantic Basin, historical event reconstructions from recent seasons, and hazard and line-of-business specific vulnerability enhancements informed by new data and RMS building research.

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Wildfire: Managing a Peak Peril

A new wildfire season looms on the horizon across the United States, and as the last two years of huge wildfire insured losses and extensive devastation to lives and property clearly illustrates, wildfire is no longer an easily manageable loss for the (re)insurance industry – but a new peak peril.

So, what could be in store for the 2019 season? The industry is reeling from back-to-back seasons with losses over US$10 billion. This is unprecedented even during a period when average losses between 2011-2018 were at US$3.7 billion. And looking back, this is up 40x compared to 1964-1990, where losses were below US$100 million in today’s prices. What is changing with this peril, what are the risk drivers that we need to look out for?

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