Earthquake Risk Modelling
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Transcript of Earthquake Risk Modelling
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Earthquake Risk Modelling
Dr. Dirk HollnackGeoRisks Research GroupMunich Reinsurance Company
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1. Principles of Risk Assessment
2. Hazard Maps
3. Earthquake Scenarios
4. Probabilistic Modelling
5. Insurance Aspects
Contents
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Principles of Risk Assessment
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Risk = fRisk = f
Hazard= occurrence probability for event of a certain size
Vulnerability ofbuildings, contents, BI
Values, Liabilities
Earthquake Risk and its Components
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Natural Catastrophe Modelling
Representation of natural phenomena
(severity, location, probability)
Calculate the consequences of these phenomena
Risk management (preparedness, mitigation)
Estimate loss potentials
Why do we use risk models?
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Player in EQ Risk Modelling
EQ Risk Modelling is done by:
Consultants
(Re)Insurances
Brokers
Geol. surveys and public agencies
Scientific groups/universities
‘Science’ and
public
‘Insurance Business’
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NatCat Risk Modelling for Insurance Business
Insurance business uses NatCat risk models since the 80th
Some examples:
- AIR since 1987
- Munich Re since 1987
- RMS since 1988
- EQECAT since 1994
- Benfield since 1999
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EQ Risk Modelling
Why are university risk models only used for a very limited extend in
insurance business?
The methodology, resolution and parameters to be used vary with the
purpose of risk modelling (i.e. mortality, disaster management, risk
reduction, financial risk)
EQ models for insurances have a kind of standard which meets the
requirements of the business. Research projects are often designed for a
small area (i.e. one city), working on a high resolution and/or are focused
on a detailed problem:
High computational requirements (run-time, memory)
Results are often difficult to adapt for insurance purposes
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Exposure: What is a “Risk Element”?
Building
Contents
Machinery & equipment
Construction sites
Consequential loss (Business interruption, Advanced loss of profit)
Vehicles, Life, Arts, Social events (Olympic games, rock concerts), etc
=> Much broader sense than in normally used in EQ Engineering
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Average annual loss (AAL) => rating – site specific
Probable maximum loss (PML) => catastrophe potential - regional scale
An adequate Price and PML must reflect
Risk Location - Hazard
Type of Risk - Vulnerability
Insurance Conditions
(Claims Experience)
Insurance Aspects
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PML
AAL
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In Principle two different types of contracts which require different
modelling methods:
Portfolio = large number of risks which are spatially distributed
Facultative = single risk (mainly large industry complexes or
buildings)
EQ Risk Models for Insurances
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return period
loss
in [
%]
TS
I
single risk
portfolio
Introduction to concepts of loss estimationSingle Risk vs. Portfolio
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Insurance Conditions
Self-participation
Deductibles
Limits
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Hazard Maps
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Nathan- World Map of Natural Hazards
(Maximum Intensity of a 475 years return period)
No information about other return periods
Hazard Maps
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Hazard Map/ Usage
Basis of building codes/regulations
Basis of tariff zones
Warning signal
Loss potential estimation
Comparison of two locations
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Hazard map/ problems
Affected region not clear
Verification difficult
No regional differences inside hazard zones
Secondary effects not included
Only for one return period
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Intensity plots
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7
8
9
10
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1.00 10.00 100.00 1000.00 10000.00 100000.00
Return period
Inte
nsity
Hazard at other return periods
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Earthquake Scenarios
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Scenario
What loss potentials can hit me in the case of a natural catastrophe?
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Scenario
Selection of scenarios
Historical
Modified historical
Theoretical possible (virtual)
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Isoseismal Map / Intensity Scales
Düren (1756) - M = 6.1
xz
xz
xz
xz
xz
xz
xz
xz
xz xz
xz
xz
xz
xz
xz
xz
xz
xz
xz
xzxz
xz
xz
Bonn
Köln
Essen
Neuss
Aachen
Krefeld
Dortmund
Düsseldorf
Leverkusen
Düren_17560 - 5.55.5 - 6.56.5 - 7.57.5 - 8.58.5 - 9.59.5 - 12
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Scenarios – Historical modified
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Scenarios/ use
As/if calculations
Comparison to market loss estimates
Verification of probabilistic models
Loss potential estimate/ budgets
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Scenario / limitations
Is my Scenario ...
realistic ?
adequate ?
out-dated ?
a support in determining the premium level ?
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Modelling Earthquake Risk
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Probabilistic modelling
What are the loss potentials I have to expect for my
portfolio?
How frequent do these losses occur?
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Introduction to concepts of loss estimationProbabilistic modelling
Principle:
Generation of large synthetic event sets
(thousands to hundreds of thousands)
Assignment of occurence probabilities
Calculation of losses
Calculation of exceedence probabilities
Calculation of PML curve and technical rate
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Event simulation is based on:
Measured events
Historic/ pre-historic events
Regional characteristics
Physical framework
Probabilistic modelling
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Vulnerability functionMunich Re's
loss experience
Set ofscenarios
Statistics
Expected loss/ lossoccurrenceprobability
Risk curve
Value distribution
Individual exposure
%
%
%%
%
%
%
%
%
%
%
%
%
Sapporo
Aomori
Nagasaki
Fukuoka
Kita Kyushu
HiroshimaKobe
Osaka
KyotoNagoya Yokohama
Kawasaki
Tokyo
Industrial Sum Insured (Earthquake) < 1,0001,000 - 3,0003,000 - 6,0006,000 - 10,000 > 10,000 Mio. ¥
% Major Cities
0 200 400 Kilometers
Scientific
input
Hazardinformation
The holistic Solution for Risk Assessment:
Risk Models
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Detailed Risk Information
Risk models require high resolution data:
(GPS) coordinates
Geotechnical information
Building characteristics
Age
Height
Occupancy
Construction type
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CRESTA – An Insurance Standard
CRESTA was set up by the insurance industry
in 1977 as an independent organisation for
the technical management of natural hazard
coverage.
CRESTA's main tasks are:
Determining country-specific zones for the uniform and detailed reporting of
accumulation risk data relating to natural hazards and creating corresponding
zonal maps for each country
Drawing up standardised accumulation risk-recording forms for each country
Working out a uniform format for the processing and electronic transfer of
accumulation risk data between insurance and reinsurance companies
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Greece – 16 ZonesGermany – 8270 Zones
The CRESTA Format
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Quality of Input Data
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Uncertainties in Risk Modelling
Event (location, size)
Intensity (attenuation, directivity)
Local influence (amplification, frequency)
Risk information (building quality, location)
Vulnerability (average damage, distribution)
Loss (estimation of values, demand surge)
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Uncertainties in Risk Modelling
There is a general tendency in modelling to increase the
resolution and the number of parameters:
Does this really increase the quality of the models?
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Secondary Effects
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Vulnerability: Single Location
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Izmit/Turkey, Aug 17, 1999
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Loss Assessment (Exercises)
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Location of the risk Intensity levels for various return periods Type and quality of the risk to estimate the
vulnerability Value of the risk Insurance conditions applied
Information required
Exercise 1:Estimation of Insurance Rate – Single Risk
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0
500000
1000000
1500000
2000000
2500000
3000000
3500000
1 10 100 1000 10000
return period
los
s
sum of premiums = sum of loss
(over a certain time) (over a certain time)
Estimation of Insurance Rate
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sum of premiums = sum of loss
(over a certain time) (over a certain time)
Estimation of Insurance Rate
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
1 10 100 1000 10000
return period
los
s
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Hazard Maps
As a rule of Thumb (only for earthquakes):If the return period for one Intensity is known, a factor of 3-4 can be used to assess the return period for other Intensities
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Rate Calculation
Rate (%) = 1/Return Period(1) * Loss%(1) + 1/Return Period(2) * Loss
%(2) ... + 1/Return Period(n) * Loss%(n)
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• Geographical distribution of the liabilities(Accumulation assessment zones)
• Risk classes (residential, commercial, industrial)
• Insured interests (building, contents, lop)
• Intensity field of the EQ-scenario
• Vulnerabilities
• Values
• Deductibles applied
Information required
Exercise 2Estimation of Scenario Losses
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Accumulation assessment zones Example
Definition of zones by either geographical regions or provinces or districts or
postal codes
Capital
4
2
1
10
7
9
8
6
5
3
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Dr. Dirk HollnackGeophysical/Geological RisksGeo Risks Research Dept.
Thank you for your attention!