Following Hurricane Matthew in October 2016, which claimed over a thousand lives from the Caribbean to southeastern US, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) sprang into action. The most expensive Atlantic hurricane since Hurricane Sandy in 2012, Matthew resulted in more than $10.5 billion in damages. CCRIF paid out $29 million in insurance payments across five countries within just two weeks-- by any metric, a remarkable success story in post-disaster financial recovery. The rapid payout and success of CCRIF is a stark contrast to the relative failure of the insurance mechanisms that responded to Hurricane Sandy. Three years after the devastation of Sandy, many residents are still mired in legal disputes over alleged insurance underpayments.
The impressive response of CCRIF to Hurricane Mathew is an important wake-up call for local, state, and national government officials in the US: would American cities be financially and physically prepared for a Black Swan event, more deadly than Fukushima or Hurricane Sandy, during which communications and energy infrastructure might be destroyed?
Swiss Re and students at the Johns Hopkins School of Advanced International Studies (SAIS) have teamed up to analyze this question in the Pacific Northwest, where the Cascadia Subduction Zone threatens a catastrophic seismic event and tsunami that could devastate Oregon, Washington, Northern California, and Vancouver. Earthquakes, however, are just one of the risks. The research will examine the underlying causal relationships between climate change and natural disasters, like drought and wildfire, on energy grid disruption in the hydropower-dominated Pacific Northwest, with an emphasis on transmission systems. The report, which will be published in summer 2017, will also study the impact of other natural disasters (flooding, earthquakes) on the grid.
While innovative, “pre-event” risk transfer insurance mechanisms are available from private insurers and reinsurers, the true costs of such a natural hazard remain unclear and these instruments are therefore underutilized. The upcoming study will identify the vulnerabilities, risks, and gaps in energy grid infrastructure and quantify the level of vulnerability so that public entities and private utilities, in partnership with the insurance industry, can plan for a catastrophe before it happens and organize an effective disaster response. While the scope of the project is mainly limited to the energy grid in the Pacific Northwest, the study plans to identify commonalities in energy grid vulnerabilities across countries and continents, in both developed and developing nations. Ultimately, if the US federal government and cities have learned anything from recent disasters, it is that they need to properly assess their risk, own it, and manage it—with the experiences of other regions and sectors acting as useful guides in this effort.
Category: Climate/natural disasters: Climate change, Disaster risk, Drought, Earthquakes, Floods/storms, Resilience
Location: Pacific Northwest, United States, Canada