Aon Benfield Research Newsletter

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1 Aon Benfield Research Newsletter Edition One Autumn 2010 Editorial Welcome to the first edition of the Aon Benfield Research Newsletter, which shares the successes of our global research organisations and highlights how academia can work hand in hand with business to improve risk awareness and deliver practical results for the re/insurance industry. The past few months have been highly productive and we felt it was time to start sharing updates via a regular bulletin. For instance, in May, we announced the launch of Aon Benfield Research s new academic and industry research collaboration to deliver relevant research material and help re/insurers enhance their understanding and management of risks. The collaboration combines world class research with Aon Benfield s catastrophe modeling, actuarial analysis and broking expertise. Our research is driven by the natural hazard and socio-economic challenges facing the re/insurance industry, and we would like to hear about the research projects that could make a real difference to your business, so please contact us. Since 1996 we have built strong links with leading institutions and organisations a full list can be found on the back page and at We hope you enjoy this inaugural issue of the Aon Benfield Research Newsletter. In addition to news on the latest research projects, you will find inside an interview with earthquake expert Dr Kristy Tiampo from the University of Western Ontario and a feature on climate forcing from Prof Bill McGuire. We marked the launch of the collaboration with Aon Benfield Research Month in June, showcasing the expertise of a selection of our research organisations with reports on volcanoes, earthquakes and hurricanes. More than 200 people attended our inaugural event at the Merchant Taylors Hall in London to delve into the science behind natural hazards and the resulting financial implications for re/insurers. Professor Bill McGuire from the Aon Benfield UCL Hazard Centre unveiled where the next mega-earthquake could occur. We were also joined by Professor Mark Saunders from Tropical Storm Risk, who predicted a stormy 2010 Atlantic hurricane season while Nick Wood from EuroTempest looked at lessons learnt from recent European storms. We are putting our research into practice, particularly through our extensive work in catastrophe modelling. Working with academics we use expert engineering judgment, combined with significant loss data, to test and enhance models. Keep in touch, Paul Miller Head of International Catastrophe Management at Aon Benfield, and chair of Aon Benfield Research s steering committee paul.miller@aonbenfield.com In this issue Top 5 mega-earthquake hotspots identified New European windstorm research partnership Natural Hazards Research Platform ETH advances tropical cyclone risk model European flood risk management Aon Benfield Research New hurricane tracking product Aon Benfield launches real-time cat tool Interview with Earthquake expert Kristy Tiampo Feature from Prof Bill McGuire

2 New research Top 5 mega-earthquake hotspots New research from Aon Benfield and the Aon Benfield UCL Hazard Centre has identified the Caribbean, Cascadia in North America, Chile, Indonesia and Japan as areas where megaearthquakes of moment magnitude (Mw) 8+ are most likely to occur. Aon Benfield s, When The Earth Moves: Mega-Earthquakes To Come? report outlines the scientific assessment and addresses the re/insurance implications of a mega-earthquake in each region. The five most vulnerable regions are: Caribbean (Lesser Antilles) The 2cm a year rate of plate convergence is enough to produce a mega-earthquake of Mw 9.0 once every 3000 years. A major loss in the Caribbean would quickly use up available reinsurance capacity; Chile As the only segment of the Chile-Peru Subduction Zone not to have ruptured within the last 100 years, the north Chile segment is now considered to be a region at high risk from an earthquake similar in size to the 2010 event. Following this year s earthquake in Maule, reinsurance programs are now renewing with increases of 75% or more; Indonesia (Sumatra) Padang is now regarded as being at high risk from a mega-earthquake comparable to that which occurred in 1797, with a magnitude of 8.5 or more. A mega-earthquake would undoubtedly increase the price of reinsurance following a sizeable insured loss; Japan The South Japan Subduction Zone (Nankai Trough) has a complex pattern of three segments. The largest earthquakes rupturing along the whole subduction zone may have magnitudes of up to 8.6. A megaearthquake in this region would most likely be a market-moving event; North America (Cascadia) The last megaearthquake on this subduction zone occurred 300 years ago. While the short to medium term probability of a mega-earthquake may be low, insurers should not disregard the associated risks to the cities along the coast. Previous earthquakes provide useful loss data for calibration of the catastrophe models, which remain a key tool for insurers. This will enable a greater understanding of their exposures and enable a more scientific approach to purchasing reinsurance. Contact: Dr Simon Day ucfbsjd@ucl.ac.uk Aon Benfield Research 2

3 Latest projects Aon Benfield partners with Cologne University on European windstorm Aon Benfield has signed an exclusive partnership with the University of Cologne a leading research centre with a long record of windstorm diagnostics, extreme weather modeling and impact assessment to advance research into European windstorms. The University of Cologne is the latest institution to join Aon Benfield Research, the academic and industry research collaboration. The partnership is focusing on the following areas to input into models by Impact Forecasting, Aon Benfield s catastrophe model development center of excellence: introduction of output data generated by global climate models to extend the analysis period beyond the typical 50 years of meteorological records; winter storms, the key hazard for most of western and central Europe, and in addition summer / hail storms where some countries in central and eastern Europe also face exposure; how the losses of western, central and eastern regions correlate and impact the available capacity of reinsurance cover. John Moore, International head of Aon Benfield s Analytics team, commented: Windstorms are a major driver of reinsurance purchases so this partnership is all about giving our clients access to the latest research and data in order to generate the most comprehensive loss estimations. Dr. Joaquim Pinto, senior researcher at the Institute of Geophysics and Meteorology from the University of Cologne, said: Research on windstorm occurrence, their development and impacts have been the main focuses of our team. It is a pleasure to accept Aon Benfield s Impact Forecasting invitation to coordinate efforts and combine state-of-the art scientific knowledge with risk modeling expertise. Contact: Dr. Joaquim Pinto jpinto@meteo.uni-koeln.de UCL creates Institute for Risk and Disaster Reduction The Aon Benfield UCL Hazard Centre (ABUHC) is at the core of the new UCL Institute for Risk and Disaster Reduction (IRDR). The IRDR is bringing together at least 70 academics, across 12 departments and seven faculties, involved in world-class research, teaching and practice in risk and disaster reduction, with the goal of overcoming the barriers to understanding risk and reducing the impact of disasters worldwide. As part of the launch, the IRDR issued a report, Volcanic Hazard from Iceland: Analysis and Implications of the Eyjafjallajökull Eruption, warning that with the high frequency of eruptions of Katla, an eruption in the short term is a strong possibility. You can read the report at: ations/iceland Contact: Prof Peter Sammonds p.sammonds@ucl.ac.uk New Zealand launches Natural Hazards Research Platform David Middleton has been appointed chair of the New Zealand government s new Natural Hazards Research Platform. David, who is also visiting professor of the Aon Benfield UCL Hazard Centre, will lead the Strategic Advisory Group to influence the direction and content of natural hazards research. With an annual investment of NZ$14 million for the next 12 years, members of the Platform include GNS Science, the National Institute of Water and Atmospheric Research, universities and private sector organizations. Contact: David Middleton damiddleton@paradise.net.nz Aon Benfield Research 3

4 ETH advances tropical cyclone risk model ETH Zurich s Risk & Safety Group has been developing a probabilistic tropical cyclone risk model, primarily comprising wind hazard modeling and portfolio risk assessments, in collaboration with Aon Benfield. It is being further improved by incorporating new insights of tropical cyclone events obtained using high-resolution regional climate models. In parallel, ETH is developing probabilistic flood and storm surge risk models for tropical cyclone risk analysis, using the indicator-based generic risk analysis framework of the Merci project ( Kazuyoshi Nishijima at ETH Zurich said: There are multiple benefits from the new research. For example, it will allow more precise tropical cyclone risk analysis of insurance portfolios and provide useful information on the tropical cyclone risks at different geographical resolutions, such as municipal or country levels. Moreover, the applied probabilistic methodology facilitates for updating of hazards and risks subject to near real time information concerning evolving typhoons. These and other features of our recent developments will help decision makers to allocate resources for risk management in an optimal manner. The mid-term scope of the research is to combine risk models for individual hazards, such as wind, flood and storm surge, on a tool-platform for an integrated tropical cyclone risk analysis. Contact: Kazuyoshi Nishijima nishijima@ibk.baug.ethz.ch Seeds of a Bolivian project Dr. Stephen Edwards from the Aon Benfield UCL Hazard Centre (ABUHC) has completed three weeks in Bolivia for a risk reduction and climate change adaptation project. In conjunction with CAFOD the Catholic Agency For Overseas Development the aim of the trip was to design a collaborative research project on risk analysis and reduction, based on development models and the impact of mega-projects. Dr Edwards in Bolivia Water risk was identified as the key theme, as all development models must be underpinned by responsible assessment and exploitation of water resources. Other issues investigated spanned from flood, drought and wildfire to water and food security, health and mining. Contact: Dr Stephen Edwards s.edwards@ucl.ac.uk At the heart of European flood risk management HR Walllingford is contributing to two new European flood risk management projects, funded by the European Commission. FLOODProBE and UrbanFlood will advance European knowledge on urban flood risk management. FloodProBE is addressing Technologies for Improved Safety of the Built Environment in Relation to Flood Events. The four year program started in November 2009 and researchers are aiming to provide cost-effective ways of reducing flood risk in urban areas. The project will develop technologies, methods, concepts and tools for assessment purposes and to adapt new and existing buildings and infrastructure. It will: improve methods for assessing the vulnerability to flooding of the urban environment, especially by extending conventional methods with the ability to assess indirect impacts of damage to networks and assets with a high value; Aon Benfield Research 4

5 improve the understanding and assessment of urban flood defence performance in order to develop suitable protection measures and to increase the cost-effectiveness of future investments; develop and test construction technologies and concepts to improve the performance of existing and new flood defences and for floodproofing of the urban environment. HR Wallingford is also working on UrbanFlood to investigate the use of sensors within flood embankments to support an online early warning system, real time emergency management and routine asset management. The project started in December 2009 and will run for three years. The UrbanFlood project will create a framework that can be used to link sensors via the internet to predictive models and emergency warning systems. Contact: Mark Morris m.morris@hrwallingford.co.uk The new real-time product the Ensemble Forecast Wind & Gust Swathe comprises an ensemble set of 100 different forecast wind/gust swathes each with the same probability of occurrence. Re/insurers with access to a wind loss model will be able to calculate the impact on their portfolios of each outcome and thus the likelihood that portfolio wind loss will exceed different thresholds. Professor Mark Saunders at Tropical Storm Risk said: Considerable research underpins this new real-time forecast technology. The development recognises that wind-impact and wind-loss forecasts must be defined in terms of probability. Our approach, which models the forecast uncertainty of real events, provides an alternative perspective to the simulated event output of catastrophe models. With seasonal forecasts pointing to an active or very active 2010 hurricane season the release of this new product may be timely. Contact: Mark Saunders mas@mssl.ucl.ac.uk Aon Benfield launches real-time catastrophe risk management tool Aon Benfield has launched ImpactOnDemand a tool that allows re/insurers to visualize, quantify and connect their exposures to catastrophic events. Re/insurers can upload their portfolios for viewing and analysis, with the ability to plot a million risk locations in less than five seconds. Flood defences in The Netherlands Source: FLOODsite Product launches TSR launches breakthrough hurricane tracking product Tropical Storm Risk (TSR) Business, which provides real-time mapping and prediction of tropical cyclone windfields worldwide and is cosponsored by Aon Benfield, has launched a breakthrough product to help re/insurers estimate their potential wind losses for active hurricanes and tropical cyclones worldwide. The web-based tool provides real-time information on catastrophes including earthquakes, hurricanes, wildfires, tornado and hail events, volcanic eruptions, and other ad-hoc events, allows for continuous exposure analysis. Live data feeds from Tropical Storm Risk and EuroTempest, the leading resource for predicting and reporting on European windstorm activity, both of which are part of Aon Benfield Research s academic collaboration, enable clients to use forecast and historical information to support claims and capital management processes. Contact: Paul Miller paul.miller@aonbenfield.com Aon Benfield Research 5

6 Interview How will your work benefit the insurance industry? Dr Kristy Tiampo is Associate Professor and holds the NSERC and Aon Benfield/ICLR Industrial Research Chair in Earthquake Hazard Assessment at the University of Western Ontario in Canada. We talk to Kristy about understanding the earthquake process, early warning systems and Lanzarote lava tubes. A better understanding of the earthquake process and time-dependent earthquake hazard, in particular, will allow us to provide better estimates of localized damage potential in regions of high seismic hazard. In addition, these estimates can be used to provide urban planners and emergency hazard providers with information critical to mitigating damage and death before the occurrence of large events such as the Haiti earthquake. What s your specialist area? I study earthquake hazard using both seismic and geodetic data. The overarching goal of my research is a better understanding of the earthquake process through the application of innovative data analysis and its assimilation into large-scale computation models of the fault system. How did you come to specialize in this field? My original degrees were in civil engineering. I became interested in geology and earthquake physics, in particular, during my graduate work in California. Why is this area so fascinating? Firstly, earthquakes are a very complex process we have learned a lot but much is still unknown. Today we are collecting more data about this obscure process than ever before, allowing us to make significant advances in our understanding. Secondly, the study of natural hazards of all kinds, especially earthquakes, is an area where we, as scientists, can have a direct impact on people's lives in a positive way. What s the most exciting future development in your field which could be of interest to the re/insurance industry? Early warning systems, which are currently being deployed and tested in areas of California and Japan, will allow up to a few tens of seconds of warning prior to large ground motions. This will allow for the rapid shutdown or closure of systems such as gas lines and railways and the implementation of secondary backup systems. What s been your most memorable field trip? At a conference on the Canary Islands in Spain, we toured the underground lava tubes on Lanzarote. The beauty and stillness of the tunnels was spectacular and awe-inspiring. Where are you based and what makes this a great city? I am based in London, Ontario in the Great Lakes region of Canada, southwest of Toronto. A midsized city, London is the perfect town for raising kids, with a great selection of local, farm-raised produce and a wide range of outdoor activities, all within biking distance of a world-class research university. Tell us about your current projects Our group is working on a wide variety of projects, including: an earthquake early-warning system using integrated GPS and seismic data; multi-scale models of natural earthquake fault systems; the development of innovative techniques for producing high-resolution radar images of the Earth's surface; studies of mining induced seismicity; and studies of earthquake hazard estimates using modern ground-shaking estimates and time-dependent earthquake hazard. Aon Benfield Research The Thames River in Ontario Contact: Dr Kristy Tiampo ktiampo@uwo.ca 6

7 Feature Waking the giant Prof Bill McGuire from the Aon Benfield UCL Hazard Centre Looking back at periods of exceptional climate change in Earth history, it is clear that there is also a response from the solid Earth bene ath our feet. When our planet s climate undergoes significant change, it is not just the atmosphere and oceans that are involved. Looking back at periods of exceptional climate change in Earth history, it is clear that there is also a response from the Geosphere in other words the solid Earth beneath our feet. To a large degree this response has involved enhanced levels of potentially hazardous geological (sub-surface) and geomorphological (surface) activity. This has been most obvious over the last couple of millions of years, when cycles of glaciation and deglaciation have resulted in huge changes in global temperatures and sea levels as enormous masses of water are repeatedly locked up as ice at the poles and releases in liquid form back into the ocean basins. During the course of such great environmental changes, the reaction of the Geosphere has been expressed through the adjustment, modulation or triggering of a broad range of surface and crustal phenomena, including volcanic and seismic activity, submarine and subaerial landslides, tsunamis and landslide splash waves, glacial outbursts and rock dam failures. Such a relationship between climate change and hazards would be of academic interest and nothing more were it not for the fact that human activities are now driving climate change at a rate comparable to, or even exceeding that encountered at any time since the glaciers started their long retreat some time after 20,000 years ago. Worryingly, modelling studies and projection of current trends point towards increased risk in relation to a spectrum of geological and geomorphological hazards in an anthropogenically warmed world. Meanwhile observations suggest that the ongoing rise in global average temperatures may already be eliciting a hazardous response from the Geosphere, most notably in an increased incidence of giant rock and ice avalanches. Scientific interest in how climate change can promote or force geological and geomorphological hazards is gaining ground; forming the focus of an international workshop at UCL in September 2009, organized by the Aon Benfield UCL Hazard Centre, and providing the theme of an issue of the journal Philosophical Transactions of the Royal Society (B), published in May this year. Far more work needs to be undertaken, however, before we can get any sort of handle on how and to what degree, contemporary climate change will invoke a hazardous response. To this end, researchers at the ABUHC and elsewhere are advocating a program of focused research in order to (i) understand better those mechanisms by which current and future climate change may drive hazardous geological and geomorphological activity; (ii) delineate those parts of the world that are most susceptible; and (iii) provide a more robust appreciation of potential impacts for society and infrastructure. Contact: Prof Bill McGuire w.mcguire@ucl.ac.uk Aon Benfield Research 7

8 Aon Benfield Research s academic & industry research links: University College London: Aon Benfield UCL Hazard Research Centre - Europe's leading multidisciplinary academic hazard research centre, comprising geological hazards, meteorological hazards & seasonal forecasting, and disaster studies & management Pretoria: Aon Benfield Hazard Centre - One of the leading research universities in South Africa, it serves as a harbour of information for the engineering, disaster management and insurance industries ClimateWise - a global collaboration of leading insurers, facilitated by the University of Cambridge Programme for Sustainability Leadership, focused on reducing the risks of climate change. ETH Zurich (Group of Risk and Safety) - Conducts research on rational decision support for the two key areas in society: 1. safeguarding of individuals, natural and economic resources of society with regard to natural and maninduced hazards; 2. continued sustainable development, maintenance and renewal of societal infrastructure and the built environment in general EuroTempest - Transforms weather forecasts and observations into the specific information required to make successful live risk management decisions. GFZ Potsdam - National research center for Earth Sciences in Germany, investigating global geological, physical, chemical and biological processes which occur at the earth s surface and in its interior HR Wallingford - world-leading analysis, advice and support in engineering and environmental hydraulics, and in the management of water and the water environment. Lighthill Risk Network - A not-for-profit organisation, which brings together scientific research worldwide, industry (initially Insurance), government and third party organisations in exchanging risk-related expertise. Matrisk - a leading consulting company specializing in risk assessment and decision support for the insurance, civil engineering and offshore industries worldwide. NTU Singapore - Institute of Catastrophe Risk Management - first multi-disciplinary catastrophe risk management research institute of its kind in Asia Risk Frontiers - World leader in quantitative natural hazards risk assessment and risk management supported by the Australian insurance community Spurr Consulting - Leading global consultancy on earthquake Tropical Storm Risk - Unrivalled accuracy in real time mapping and prediction of tropical cyclones worldwide University of Cologne - Leading research centre with a long record of wind storms diagnostics, extreme weather modeling and impact assessment University of Western Ontario - Leading initiatives in earthquake physics and associated time-dependent seismic hazard at the Department of Earth Sciences Aon Benfield Research 8