The Risks of Hazard

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:

As you may recall, a few weeks ago I mentioned I was planning a trip to Asia to try and find out how insurers, brokers, and reinsurers are handling their risk assessment, particularly for flood risk.

As I sit on the flight from Hong Kong to San Francisco, I have the memories from my 10-day Asia Risk Tour still fresh in my mind. Foremost are the warm welcomes we received everywhere we went, with immaculate hospitality from all our hosts. The food is also still vivid in my mind, from the Under Bridge Spicy Crab in Hong Kong to the famous street food stalls of Singapore, filled with sate and spicy seafood. Coffees and cocktails were enjoyed both under the ground and hundreds of feet in the sky.

I also learned a lot about how the insurance market in Asia manages location-specific risks, especially from natural catastrophes (nat cat), which of course is what I was there to do.

Here in Colorado, where Intermap is based, one of the most dramatic fires in recent memory was the Waldo Canyon fire, which engulfed some of the western suburbs of Colorado Springs in 2012. It was an intense wildfire that stormed down the front range incredibly fast and consumed almost 350 homes. However, most of those houses weren’t behind the fire-line — they were ignited by embers blown by the same winds that blew the fire down the mountains.

Severe Convective Storm is, generally speaking, the type of storm responsible for damage from tornado, hail, “straight-line” wind (i.e., not a tornado), and lightning. (For a more thorough, academic definition of SCS I will point you toward the American Meteorological Society.) Recently, I have begun researching how to present risks related to SCS in the USA and Canada, and I've come across some interesting challenges.

Modeling these types of natural events to a level where individual properties can be evaluated is not easy, if it’s even possible. There is no direct influence from anything in a fixed location (terrain, vegetation, etc.) — all the primary drivers are atmospheric. So, unlike flood or wildfire, SCS risk models need to portray the likelihood of an event that could happen anywhere (within certain bounds). Not an easy task.