tony knap president and director bermuda biological station for research st. george’s, bermuda...
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Tony KnapPresident and Director
Bermuda Biological Station for ResearchSt. George’s, BERMUDA (knap@bbsr.edu)
Insurance sector needs: a personal view (Steve Lyons, 2004)
Insurance/re-insuranceInsurance/re-insurance Need information on long-term climate Need information on long-term climate
how it relates to riskshow it relates to risks
However only specific to a few regional However only specific to a few regional areasareas
Need better information to be used in Need better information to be used in commercial risk modelscommercial risk models
Where does an IOOS fit in ?Where does an IOOS fit in ?
A personal view of insuranceA personal view of insurance
Take in premiums - invest $ - gather the profits- Take in premiums - invest $ - gather the profits- have good underwriting so they don’t lose it !have good underwriting so they don’t lose it !
When the stock market and other financial When the stock market and other financial markets soften - so does profitmarkets soften - so does profit
5 years ago markets softened - companies tried to 5 years ago markets softened - companies tried to underwrite real time hurricane landfall as energy underwrite real time hurricane landfall as energy risk (degree day heating) - many got burnedrisk (degree day heating) - many got burned
Presently traditional reinsurance is relatively Presently traditional reinsurance is relatively strong so they now stick to traditional underwriting.strong so they now stick to traditional underwriting.
Different risks and InsuranceDifferent risks and Insurance
Life, health, auto, unemployment, Life, health, auto, unemployment, protection and indemnity, D & O, protection and indemnity, D & O, product liability, Terrorismproduct liability, Terrorism
IOOS - Property/catastrophic IOOS - Property/catastrophic insurance - long term view - can’t insurance - long term view - can’t dump customers because of a Bill dump customers because of a Bill Gray - bad forcast !Gray - bad forcast !
Risks of interest (re-insurersRisks of interest (re-insurers)) Tropical Cyclones-landfall (frequency and intensity) long term Tropical Cyclones-landfall (frequency and intensity) long term
- mainly US/Japan/Australia- mainly US/Japan/Australia
Earthquake (frequency and intensity) existing areas and Earthquake (frequency and intensity) existing areas and concerns about new areas - including underwater (Tsunamis)concerns about new areas - including underwater (Tsunamis)
Windstorms (europe) (frequency/seriality)Windstorms (europe) (frequency/seriality)
Flood (in europe) - US covered by Govt.Flood (in europe) - US covered by Govt.
TornadoTornado
Hail Hail
FireFire
Top 5 Insured Losses, 1970-2000Top 5 Insured Losses, 1970-2000
Swiss Re, sigma no. 2/2001
Event Date Deaths Insured Loss (Billions 2000 $US)
Hurricane 1992 38 20Andrew
Northridge 1994 60 16Earthquake
Typhoon 1991 51 7Mireille
Winterstorm 1990 95 6Daria
Winterstorm 1999 80 6Lothar
0
5
10
15
20
25
30
1925 1935 1945 1955 1965 1975 1985 1995
Year
Billions 1992 $US
US Losses From HurricanesUS Losses From Hurricanes
Herbert, P.J., J.D. Jarrell, and M. Mayfield, 1996
1935 1955 1975 1995
30
25
20
15
10
5
0
Bill
ions
$U
S
Year
US Losses From Hurricanes US Losses From Hurricanes (Normalized for Inflation, Wealth, and Population)(Normalized for Inflation, Wealth, and Population)
1935 1955 1975 1995
25
20
15
10
5
0
Bill
ions
199
6 $U
S $76.8Billion
$34.2Billion
YearPielke and Landsea, 1998
Climate ResearchClimate Research
Wealth of new knowledgeWealth of new knowledge No knowledge of certainty about the future No knowledge of certainty about the future
climateclimate No certainty of how man’s actions will No certainty of how man’s actions will
influence the complicated climate systeminfluence the complicated climate system No methods to reliably predict the No methods to reliably predict the
behaviour of this complex systembehaviour of this complex system Do not know how to write for Climate Do not know how to write for Climate
change - no buyers - little interestchange - no buyers - little interest
Swiss Re have a more enlightened Swiss Re have a more enlightened approachapproach
Need to understand the climate Need to understand the climate system better through researchsystem better through research
Must tackle the uncertainty as a risk Must tackle the uncertainty as a risk which can be systematically which can be systematically analysed and overcomeanalysed and overcome
Global Climate ProtectionGlobal Climate Protection
Create adequate awareness of the Create adequate awareness of the problem (ignoring the problem will problem (ignoring the problem will not make it go away)not make it go away)
Industry needs to help pursue a Industry needs to help pursue a political solution (need to find ways political solution (need to find ways to implement climate protection to implement climate protection measures which are socially and measures which are socially and economically acceptable)economically acceptable)
Swiss Re’s climate change approachSwiss Re’s climate change approach Using research in products (RPI)Using research in products (RPI) Developing risk management strategies Developing risk management strategies
which exceed the boundaries of traditional which exceed the boundaries of traditional insurance cover - even a small change can insurance cover - even a small change can bring big casualties (dams, dykes)bring big casualties (dams, dykes)
Involved with UNEP - international climate Involved with UNEP - international climate conventionsconventions
Realization of the problem: political, social, Realization of the problem: political, social, economic, technical and cultural issueseconomic, technical and cultural issues
What can IOOS provide ?What can IOOS provide ?First Global insurance world cares about the US First Global insurance world cares about the US
- $’s drive the business- $’s drive the business
Improve historical and current data on risksImprove historical and current data on risks
Improve all aspects of the modelsImprove all aspects of the models
Provide information to the public about the Provide information to the public about the reality of changing climate. Public risk model ?reality of changing climate. Public risk model ?
Only 65 Major Landfalling Only 65 Major Landfalling Hurricanes In 20th CenturyHurricanes In 20th Century
NCDC web site
Overwash From Hurricane Winds Overwash From Hurricane Winds Leaves Sand LayersLeaves Sand Layers
Kam-biu Liu, 1998
• Storm surge Dome of water due to pressure drop(barometric tides + wind setup)
• Storm waves10 – 16 sec waves generated by wind shear stress
• Wave breakingWave setup in coastal area
Ocean Processes Ocean Processes due to Hurricanesdue to Hurricanes
storm surgestorm waves wave setup
ILLUSTRATION
NOT TO SCALE
normal water level
Cheung, 2003Cheung, 2003
Slosh Model Storm Surge SimulationSlosh Model Storm Surge Simulation Cat 3 into northern New Jersey
20
2021
19 1817 16 15
1413 12
11 10 9 8 7
6
10
15
20 km
N
Hick’s Beach
Cheesequake
Donnelly, 2003Donnelly, 2003
December, 1999December, 1999
ERC Frankonia Munich ReRMS
LotharLothar
MartinMartin
AnatolAnatol
Also, Benfield, Swiss Re (and others?)
Important QuestionsImportant Questions
• How clustered are European wind storms? The Bermuda bus concept !
• Why are they clustered? Are they 1 or 2 events ?
• Which factors are most important?
• Can seriality be predicted?
• Will seriality increase in the future?
• All require integrated ocean/atmos data
ENSO and U.S. Landfalling HurricanesENSO and U.S. Landfalling Hurricanes1900-19961900-1996
100
80
60
40
20
00 1 2 3 4 5 6 7
Pro
babi
lity
(%)
O’Brien et al., 1997 # of Storms
Cold Phase
Neutral
Warm Phase
US Hurricanes (1-Cumulative Frequency)
RPI’s Influence On Risk ModelsRPI’s Influence On Risk Models Focusing atmospheric research on topics with relevance to RPI sponsors
– New RMS hurricane model includes Extra-Tropical Transitions
Figure courtesy of J. Darr, Risk Management Solutions
Research on Extra-tropical Transitions of Tropical Cyclones
Year
Num
ber
Of I
tem
s
‘30s ‘40s ‘50s ‘60s ‘70s ‘80s ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02
25
20
15
10
5
0
RPI Workshop
Journal Articles
Conference Presentations
Decade
Existing Risk ModelsExisting Risk Models AIR, EQE, RMS, etc.AIR, EQE, RMS, etc.
– Proprietary, non-disclosure agreements with licenseeProprietary, non-disclosure agreements with licensee
““In-house” modelsIn-house” models– Proprietary, won’t be seen outside a companyProprietary, won’t be seen outside a company
FEMA’s HAZUS FEMA’s HAZUS – Public, but source code not availablePublic, but source code not available
Florida’s Wind Loss ModelFlorida’s Wind Loss Model– Will be public; but, will source code be available???Will be public; but, will source code be available???
Catastrophe Risk ModelCatastrophe Risk Model
terms of coverage
Insured Loss
Hazardlandfall probability
maximum sustained windspeak wind gust
radius of maximum windsforward speed and direction
decay rate
latitudelongitudeelevation
topographyconstruction type
surrounding structures
physical damagerepair costs
Damage
How Good Are The Models?How Good Are The Models? Significant effort devoted to development of Significant effort devoted to development of
each model; but, do you know:each model; but, do you know:– Which model is better?Which model is better?– Which models, if any, have skill?Which models, if any, have skill?
Insurers essentially use multi-model Insurers essentially use multi-model ensemble forecasting to estimate uncertaintyensemble forecasting to estimate uncertainty
No “public” verification, but each company No “public” verification, but each company has their own opinion on which model is best has their own opinion on which model is best for a given situationfor a given situation
An Ensemble Of Risk ModelsAn Ensemble Of Risk Models
XMedian AIR ARA EQE RMS16
14
12
10
8
6
4
2
0
Ensemble of 9 Wind, 9 damage, and 3 friction/topography algorithms
Kinetic Analysis Corporation, 2003
What Are The Models Missing?What Are The Models Missing? StandardizationStandardization
– Not easy to incorporate new or alternate dataNot easy to incorporate new or alternate data
FlexibilityFlexibility– Not easy to change hazard or damage algorithmsNot easy to change hazard or damage algorithms
TransparencyTransparency– Proprietary aspects limit understanding and usesProprietary aspects limit understanding and uses
VerificationVerification– No public assessment of model skillNo public assessment of model skill
Why Do Insurers Need AnWhy Do Insurers Need AnOpen-Source Risk Model?Open-Source Risk Model?
Accelerate Development of Risk ModelsAccelerate Development of Risk Models– Access to latest scientific/engineering advancesAccess to latest scientific/engineering advances
Enhance Liquidity of Alternative Risk ProductsEnhance Liquidity of Alternative Risk Products– Direct Securitization, e.g., Cat BondsDirect Securitization, e.g., Cat Bonds
Rationalize Insurance RegulationRationalize Insurance Regulation– Florida Hurricane CommissionFlorida Hurricane Commission– California Earthquake AuthorityCalifornia Earthquake Authority
Promote Financing of Natural Catastrophes in Promote Financing of Natural Catastrophes in Developing CountriesDeveloping Countries– World Bank programsWorld Bank programs
IOOS and the Insurance sectorIOOS and the Insurance sector
Interested in prediction - realize that the Interested in prediction - realize that the ocean is an important driver of climateocean is an important driver of climate
Interested in reliable dataInterested in reliable data
Tools and products have to integrate Tools and products have to integrate with modelswith models
Future directions: An open-source risk Future directions: An open-source risk model ?model ?
The Goal of the RPIThe Goal of the RPI
To support research on natural hazards To support research on natural hazards
and to transform science into knowledge and to transform science into knowledge
that our sponsors can use to assess risk.that our sponsors can use to assess risk.
RPI StructureRPI Structure
RPI CoreRPI CoreWorkshopsWorkshops
In-house ProductsIn-house Products
RPI Research GroupRPI Research GroupTropical cyclone forecastsTropical cyclone forecasts
and variabilityand variability
RPI Research GroupRPI Research GroupProxy records of intenseProxy records of intense
hurricane landfallhurricane landfall
RPI Research GroupRPI Research GroupEuropean weatherEuropean weather
and climateand climate
RPI Research GroupRPI Research GroupEarthquakes?Earthquakes?
ExtremeExtremeWeatherWeatherEventsEvents
SocietySociety(Increased(IncreasedPopulation,Population,
Wealth,Wealth,Vulnerability)Vulnerability)
Natural DisastersNatural Disasters
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