Tag Archives: Risk Management

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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Setting the Stage for Exceedance 2019

If you are joining us in Miami (May 13-16) for Exceedance this year, we are looking forward to welcoming you to what promises to be an exceptional conference. With the global risk management community coming together again at Exceedance, to learn, be inspired and get answers to the challenges faced by the industry, we have raised the bar to deliver another ambitious agenda.

And there is still time to secure your place at Exceedance with a pre-event discount of US$200 compared to the on-site registration price, find out more and register now.

Exceedance provides a unique environment for our delegates to explore, a place where the latest science, software, models and innovation come together. With RMS experts and renowned industry thought-leaders, we share the latest cutting-edge insights. Hands-on demonstrations in our Expert Bar show how to get the best from our solutions, and case studies take you through how leading businesses are moving forward to achieve their strategic goals.

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Exceedance 2019: Expanding Your Horizons

Regular attendees to the annual RMS Exceedance conference will know how comprehensive our agenda is, in terms of the sheer breadth of topics and areas we cover. Our aim is to deliver a program designed to highlight the issues, opportunities, and the solutions available to tackle the challenges that the risk management industry faces.

Join us in Miami (May 13 – 16) for this year’s Exceedance, and in addition to our keynote presentations (and of course, social events, The Expert Bar, our thirtieth anniversary, and the EP), the mainstay of our conference focuses on sessions spanning across seven in-depth “track” themes.

Our tracks cover a broad range within its defined theme over two days, with educational sessions, panel discussions, case studies, and “how-to” and technical deep-dives. All the track descriptors are available on the Exceedance website. Attendees can immerse themselves in a single track or pick and mix across all seven to create their perfect agenda.

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Get Ready – Exceedance 2018 Is Coming to Miami

Welcome to the first in a series of informative blogs leading up to Exceedance 2018, May 14 – 17.

Preparations are well under way for this year’s event, which will be held at the InterContinental Miami — set on the Biscayne Bay waterfront in the heart of downtown’s thriving financial and business district.

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Irma’s Landfall in Florida Could Have Been Worse

19:00 UTC  Monday, September 11

Tom Sabbatelli, hurricane risk expert – RMS

Irma is a hurricane no more: following a Category 3 strength second Florida landfall near Marco Island, south of Naples, the storm’s intensity rapidly faded as it traveled to the north and west overnight. Irma now only maintains tropical storm strength as it crosses northern Florida. Expect to see further commentary on the storm’s rapid decay from my colleagues in the RMS HWind team later today.

Irma’s landfall and overnight track has allowed RMS to narrow yesterday’s stochastic event selection. A landfall eliminates offshore track scenarios that produce lower levels of onshore wind but higher levels of storm surge hazard along Florida’s west coast. Irma’s passage to the east of Tampa reduces the risk of significant storm surge levels and loss near Tampa Bay.

Initial damage reports indicate that damage may not be as severe as once feared, despite sizable roof damage in Naples and the Florida Keys.

As per the RMS Event Response process, our attention shifts from the regular, reactive stochastic event selections to a comprehensive interrogation of all causes of loss, both modeled and unmodeled. During Hurricane Harvey, my colleague Michael Young explained that one of the biggest challenges we face is collecting enough wind observations to create a complete picture of a storm’s wind field. Although our RMS HWind team have been collecting and processing data every three hours, we face these challenges with Irma as well. More data will become available in the coming days, which will enhance the accuracy of our wind field and surge modeling.

As part of our event response service, we have the following activities underway:

  • Reconnaissance will help us narrow the uncertainty around what could be a potentially significant contribution to loss from storm surge and flooding. These efforts do not need to wait for boots to hit the ground, though; we have teams already scouring high-resolution satellite images to detail the exact extent of the flood waters and the underlying exposure at risk.
  • Our RMS Field Recon team, fresh off their trips to Texas following Hurricane Harvey, are reactivating their reconnaissance plans. In the days ahead, their visits to cities across Florida will help reveal the depth of the flood waters and the extent of wind damage observed throughout the state.

You may have already seen that our colleague, Victor Roldan, has been documenting his experience riding out the storm from his home in Miami. Victor has reported that basements are flooded along Brickell Avenue, and area that was hard hit in Wilma, but wind damage is minimal.

Following a hurricane, power outages predominantly contribute to heightened business interruption and post-event loss amplification, which is possible in an event of this magnitude. As many as seven million customers in Florida may have been without power at one time, almost triple the peak outage observed during Hurricane Matthew.

Caribbean Impacts

Let’s not forget about the Caribbean islands left in Irma’s wake, still cleaning up and attempting to restore power and telecommunications several days after the storm’s initial impact. For instance, as many as one-quarter of customers in Puerto Rico remain without power four days after Irma’s passage. This prolonged restoration may prove to be a figure that could compound insured losses across the island. During their comprehensive review of the event’s lifecycle, RMS modelers will refine projections of the insured loss across all Caribbean islands, which is assumed will contribute materially to the total industry loss.

As the Event Response team now transitions from producing real-time event updates, they have many existing key data sources from which they can draw these critical observations. Ultimately, these insights will inform our official insured industry loss estimate, targeted for publication in approximately two weeks’ time.

Recent Attacks Illustrate the Principles of Terrorism Risk Modeling

Some fifteen years after terrorism risk modeling began after 9/11, it is still suggested that the vagaries of human behavior render terrorism risk modeling an impossible challenge, but still the core principles underlying terrorism risk modeling are not widely appreciated. Terrorism risk modeling, as it has developed and evolved from an RMS perspective is unique in being based on solid principles, which are as crucial as the laws of physics are to natural hazard modeling.  The recent high-profile terrorist attacks in London, Stockholm, and Paris adhere to many of these principles.

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EXPOSURE Magazine Snapshots: Water Security – Managing the Next Financial Shock

This is a taster of an article published by RMS in the second edition of EXPOSURE magazine.  Click here and download your full copy now.

18 Apr 2017 Exposure Drought image

 

EXPOSURE magazine reported on how a pilot project to stress test banks’ exposure to drought could hold the key to future economic resilience, as recognition grows that environmental stress testing is a crucial instrument to ensure a sustainable financial system.

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From Real-time Earthquake Forecasts to Operational Earthquake Forecasting – A New Opportunity for Earthquake Risk Management?

Jochen Wössner, lead modeler, RMS Model Development

Delphine Fitzenz, principal modeler, RMS Model Development

Earthquake forecasting is in the spotlight again as an unresolved challenge for earth scientists, with the world tragically reminded of this after the deadly impacts of recent earthquakes that hit Ecuador and Italy. Questions constantly arise.  For instance, when and where will the next strong shaking occur and what can we do to be better prepared for the sequence of earthquakes that would follow the main shock? What actions and procedures need to be in place to mitigate the societal and economic consequences of future earthquakes?

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Has That Oilfield Caused My Earthquake?

“Some six months have passed since the magnitude (Mw) 6.7 earthquake struck Los Angeles County, with an epicenter close to the coast in Long Beach. Total economic loss estimates are more than $30 billion.  Among the affected homeowners, the earthquake insurance take-up rates were pitifully low – around 14 percent. And even then, the punitive deductibles contained in their policies means that homeowners may only recover 20 percent of their repair bills.  So, there is a lot of uninsured loss looking for compensation. Now there are billboards with pictures of smiling lawyers inviting disgruntled homeowners to become part of class action lawsuits, directed at several oilfield operators located close to the fault. For there is enough of an argument to suggest that this earthquake was triggered by human activities.”   

This is not a wild hypothesis with little chance of establishing liability, or the lawyers would not be investing in the opportunity. There are currently three thousand active oil wells in Los Angeles County. There is even an oil derrick in the grounds of Beverly Hills High School. Los Angeles County is second only to its northerly neighbor Kern County in terms of current levels of oil production in California.  In 2013, the U.S. Geological Survey (USGS) estimated there were 900 million barrels of oil still to be extracted from the coastal Wilmington Field which extends for around six miles (10 km) around Long Beach, from Carson to the Belmont Shore.

Beverly Hills High School Picture Credit: Sarah Craig for Faces of Fracking / FLICKR

Beverly Hills High School   Picture Credit: Sarah Craig for Faces of Fracking / FLICKR

However, the Los Angeles oil boom was back in the 1920s when most of the large fields were first discovered. Two seismologists at the USGS have now searched back through the records of earthquakes and oil field production – and arrived at a startling conclusion. Many of the earthquakes during this period appear to have been triggered by neighboring oil field production.

The Mw4.9 earthquake of June 22, 1920 had a shallow source that caused significant damage in a small area just a mile to the west of Inglewood. Local exploration wells releasing oil and gas pressures had been drilled at this location in the months before the earthquake.

A Mw4.3 earthquake in July 1929 at Whittier, some four miles (6 km) southwest of downtown Los Angeles, had a source close to the Santa Fe Springs oil field; one of the top producers through the 1920s, a field which had been drilled deeper and had a production boom in the months leading up to the earthquake.

A Mw5 earthquake occurred close to Santa Monica on August 31, 1930, in the vicinity of the Playa del Rey oilfield at Venice, California, a field first identified in December 1929 with production ramping up to four million barrels over the second half of 1930.

The epicenter of the Mw6.4 1933 Long Beach earthquake, on the Newport-Inglewood Fault was in the footprint of the Huntingdon Beach oilfield at the southern end of this 47 mile-long (75 km) fault.

As for a mechanism – the Groningen gas field in the Netherlands, shows how earthquakes can be triggered simply by the extraction of oil and gas, as reductions in load and compaction cause faults to break.

More Deep Waste Water Disposal Wells in California than Oklahoma

Today many of the Los Angeles oilfields are being managed through secondary recovery – pumping water into the reservoir to flush out the oil. In which case, we have an additional potential mechanism to generate earthquakes – raising deep fluid pressures – as currently experienced in Oklahoma. And Oklahoma is not even the number one U.S. state for deep waste water disposal. Between 2010 and 2013 there were 9,900 active deep waste water disposal wells in California relative to 8,600 in Oklahoma. And the California wells tend to be deeper.

More than 75 percent of the state’s oil production and more than 80 percent of all injection wells are in Kern County, central California, which happens to be close to the largest earthquake in the region over the past century on the White Wolf Fault: Mw7.3 in 1952. In 2005, there was an abrupt increase in the rates of waste water injection close to the White Wolf Fault, which was followed by an unprecedented swarm of four earthquakes over Magnitude 4 on the same day in September 2005. The injection and the seismicity have been linked in a research paper by Caltech and University of Southern California seismologists published in 2016. One neighboring well, delivering 57,000 cubic meters of waste water each month, was started just five months before the earthquake swarm broke out. The seismologists found a smoking gun, a pattern of smaller shocks migrating from the site of the well to the location of the earthquake cluster.

To summarize – we know that raising fluid pressures at depth can cause earthquakes, as is the case in Oklahoma, and also in Kern County, CA. We know there is circumstantial evidence for a connection between specific damaging earthquakes and oil extraction in southern California in the 1920s and 1930s. According to the location of the next major earthquake in southern or central California, there is a reasonable probability there will be an actively managed oilfield or waste water well in the vicinity.

Whoever is holding the liability cover for that operator may need some deep pockets.

EXPOSURE Magazine Snapshots: A New Way of Learning

This is a taster of an article published by RMS in the second edition of EXPOSURE magazine.  Click here and download your full copy now.

7 Apr 2017 - Machine Learning blog - Exposure banner image 720 x 168

 

In EXPOSURE magazine, we delved into the algorithmic depths of machine learning to better understand the data potential that it offers the insurance industry.  In the article, Peter Hahn, head of predictive analytics at Zurich North America illustrated how pattern recognition sits at the core of current machine learning. How do machines learn?  Peter compares it to how a child is taught to differentiate between similar animals; a machine would “learn” by viewing numerous different pictures of the animals, which are clearly tagged, again and again.

Hahn comments “Over time, the machine intuitively forms a pattern recognition that allows them to tell a tiger from, say, a leopard. You can’t predefine a set of rules to categorize every animal, but through pattern recognition you learn what the differences are.”

Hahn adds that pattern recognition is already a part of how underwriters assess a risk. “A decision-making process will obviously involve traditional, codified analytical processes, but it will also include sophisticated pattern recognition based on their experiences of similar companies operating in similar fields with similar constraints. They essentially know what this type of risk ‘looks like’ intuitively.”

The Potential of Machine Learning

EXPOSURE magazine asked Christos Mitas, vice president of model development at RMS, on how he sees machine learning being used.  Mitas opened the discussion saying “We are now operating in a world where that data is expanding exponentially, and machine learning is one tool that will help us to harness that.”

Here are three areas where Mitas believes machine learning will make an impact:

Cyber Risk Modeling: Mitas adds “Where machine learning can play an important role here is in helping us tackle the complexity of this risk. Being able to collect and digest more effectively the immense volumes of data which have been harvested from numerous online sources and datasets will yield a significant advantage.”

Image Processing: “With developments in machine learning, for example, we might be able to introduce new data sources into our processing capabilities and make it a faster and more automated data management process to access images in the aftermath of a disaster. Further, we might be able to apply machine learning algorithms to analyze building damage post event to support speedier loss assessment processes.”

Natural Language Processing: “Advances here could also help tremendously in claims processing and exposure management,” Mitas adds, “where you have to consume reams of reports, images and facts rather than structured data. That is where algorithms can really deliver a different scale of potential solutions.”

For the full article and more insight for the insurance industry, click here and download your full copy of EXPOSURE magazine now.

For more information on RMS(one)®, a big data and analytics platform built from the ground-up for the insurance industry, and solutions such as Risk Modeler and Exposure Manager, please click here.