The Risks of Hazard

The modeling of earthquake risk for property insurance is an inexact science. This is because the inner workings of the triggers are so obscure from direct observation; events of interest are relatively infrequent; and the time period between events is so long. These difficulties lead directly to the kind of innovation and creativity necessary to build models that live up to George Box’s tenet that “all models are wrong, but some are useful.”

Our planet is not a solid piece of rock, but rather a boiling slush of magma, with slight movements across the surface hinting at the dynamic inner depths of the planet. Sometimes, the evidence of that inner activity is unleashed as a massive release of energy that rends and shakes the surface of the Earth — a.k.a, an earthquake.

Unlike most natural processes, geology happens over immensely long time frames. Earthquakes (and their Volcanic cousins) occur at intervals that are sometimes longer than the entirety of human history. Interestingly, earthquake records actually comprise some of the earliest historical records we possess. 

One of the main recurring themes of The Risks of Hazard blog is the importance of location-based risk information. However, there is one major peril that does not require such property-specific data: wind.

Wind is one of the most destructive perils that can be insured against. Thus, it is very well modeled around the world, including USA hurricane, European windstorm, Asia/Pacific cyclone, and straight-line wind in convective storm. Wind does not include tornadoes, which are associated with convective storm models.

I have been watching some of the videos published by AM Best from the RIMS annual convention in New Orleans last month. The city hosted the event to mark 10 years since Katrina and Rita devastated the region. I couldn’t make it to the show, so I wanted to catch up on some of the current thought leadership surrounding natural catastrophe risk. 

In publications and websites devoted to risk, there is a distinct sub-genre of articles that can be called “Predicting Mega-Disasters.” A mega-disaster is a natural catastrophe that wreaks unprecedented destruction — either by an event of never-before-seen force, or a severe event that impacts an increasingly vulnerable population. Here are just three recent examples of these mega-disaster prediction articles: