Currently showing: Climate/natural disasters > Earthquakes

23 Mar 17 19:12

What's the price tag on a volcanic explosion?

A few weeks after I started as a novice in the reinsurance industry I got a call from an underwriter. He inquired about the potential thread to some industrial assets from an ongoing eruption of Mount Rabaul.I asked myself, "what can I as an earthquake specialist contribute there?" Only later I realized that my team is not only responsible for the earthquake risk assessment of Swiss Re but also the risk related to volcanoes. So that was my first exposure to volcanoes in the context of the insurance industry. My approach was clearly naïve.

My second one came in 2010 when Eyjafjallajökull erupted. My boss at the time was stuck in London for several days and there was an important upcoming client visit. So I also experienced my share of disruption of plans. My approach was clearly reactive.

At this point I realized that in the catastrophe modelling world we have all the skills at hands to quantify this risk in a systematic way. Why don't we use our skills and answer the obvious questions: What would happen if the same ash-cloud hit a major city? How likely is that? I chose to take a more pro-active approach.

Cities grow around volcanos putting 1 billion people at risk------------------------------------------------------------------------------

We have developed the first probabilistic model to quantify the risk posed by volcanic ash fall. We were able to quantifying the spatial extent as well as the frequency of the various volcanic hazards (e.g. ash fall, pyroclastic flows, mud flows, lahars) and assessing their impacts on property. Thanks to Swiss Re's flexible natural catastrophe model architecture we can make such a model quickly accessible to our underwriters.

Cities were in the focus as there are the centers of population, economic activity and growth. They have a high concentration of assets and infrastructure and are hence prone to large financial losses caused by natural catastrophes.

We summarized our findings in the study "The destructive power of volcanic ash fall". In it you will find a ranking of all major urban areas in the world relative to their exposedness to volcanic ash-fall threat. Citizens and governments can for the first time see, what the financial impact of an event will be. Knowing what's at stake is the foundation to decide, what can be done to minimize the impact.

A risk model for volcano – and now what exactly?---------------------------------------------------------------------

Let's take a pro-active approach and have evacuation plans, intelligent zoning laws and efficient building codes in place. This will already be a big step to minimize the impact and people and livelihoods. But even in the best case there will be damages – to private properties or to businesses. If a company does not get its supplies, because roads are blocked by ash, it can't produce. For small and medium sized companies this can be a huge financial burden. And cities and governments need money, to clean up road, sewage lines and reconstruct damaged infrastructure.

Here we in the insurance industry must do our share. We must design easy to understand and affordable policies for all kinds of stakeholders. And if the ash falls, we must pay out fast, to honour the trust the policy holder put into us. Here we must prepare how we pay out in an environment with wide-spread disturbances on infrastructure in regions covered by ash.

We have now a tool in form of our new model to quantify the financial consequences of volcanic ash fall for over 600 of the most important urban centres in the world.

We make this information available via our CatNet ® site on the internet.

If governments, primary insurers and all other stakeholders work together we will be able to design reliable and affordable coverages to get businesses and private households back on their feet quickly after the ash settled down.

Category: Climate/natural disasters: Earthquakes


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