Natural Hazard Property Losses

1
Natural Hazard Property Losses Climate Change

• John McAneney
• Risk Frontiers
• Macquarie University
• Sydney NSW

2
Overview

• Risk Frontiers
• Risk Assessment
• Climate Change
• North Atlantic Hurricane Windspeed Data
• Normalisation of ICA loss database
• Property losses from bushfires
• Policy implications
• Natural Hazard Risk Profiles

3
Risk Frontiers

• An independent and local research capacity to
  help insurers better understand and price natural
  hazard risks in the Asia-Pacific Region by

• Undertaking research in natural hazards
• Undertaking post-event reconnaissance
• Developing Probabilistic Catastrophe Loss models
• Increasing public awareness of natural perils

4
Conceptual framework of risk assessment
Risk f (Hazard, Exposure, Vulnerability)
Hazard
Mean damage ratio ()
Annual Exceedance Probability
Mean intensity
Vulnerability
Loss ( Million)
Risk
Exposure
5
Nicene Creed of Climate Change

• Global mean and extreme temperatures are
  increasing
• Heating is due to increasing atmospheric CO2 and
  other GH gases
• Warming is occurring where models suggest it
  should under increasing CO2
• Sea level is rising
• Take greenhouse gases out of the models, earth
  cooling slightly
• If reject increasing GH gases as explanation,
  need to find some other hypothesis

6
Uncertainties

• GCMs are too complex to be fully understood and
  the climate system depends upon many ingredients
  that must be represented either empirically or
  through ad hoc treatments that differ between
  models
• Arguments over the scale and speed of warming in
  the future
• Models have little to say yet about regional
  implications
• Models cant resolve phenomena like droughts,
  floods, storms, cyclones, etc.
• Attribution of individual weather events to
  climate change

7
Costs of weather-related natural catastrophe
losses are increasing why?
2005Hurricanes Katrina, Rita, Wilma,USD 65 bn
2004Hurricanes Charley, Frances, Ivan,
Jeanne,USD 29 bn
1992Hurricane Andrew,USD 22 bn
1999Storms Lothar/Martin,USD 10 bn
USD millions (2005 )
Source Swiss Re sigma Catastrophe database
8
Distribution by hazard worldwide of the largest
40 insured losses
1970-2004 (Source Swiss Re)
9
Atlantic basin hurricane data Wind speed
Atlantic basin hurricane tracks (Category 1-5)
during 1851-2006
Difference of wind speed distributions between
the early historical period (1851-1946) and the
recent six decades. - Early historical
records significantly underestimate the frequency
of Category 4-5 winds. - Wind speed
distributions over the past two, four and six
decades display little systematic changes.
10
U.S. landfalling segments since 1947
Damage to property and other assets is linked to
landfalling events. For the six decades since
1947, there are no sustained upward trends in -
Average annual count of landfalling segments
(blue curve) - Mean landfalling wind speeds
(red curve) This contrasts with the dramatic
increases in total economic and insured losses,
suggesting the losses must be attributed to
factors other than wind speed alone.
11
Australian Property Losses over 20th Century
12
Australian Losses - ICA Natural Disaster Event
List

• Insurance Council of Australia database of
  insured losses since 1967
• Estimate losses as if events took place in 2006
• Account for changes in
• Inflation
• Population
• Wealth
• Building Codes

13
Original Annual Aggregate Losses (July 1 June
30)
Original annual aggregate insured losses (AUD
million) for weather-related events in the ICA
Disaster List for years beginning 1 July
14
Methodology

• CL06 Li Ni,j Di,k x Btc
• CL06 - Normalised (current) dollar loss (year
  2006 value)
• Li - Original dollar loss (year i)
• Ni,j - Dwelling number factor
• Di,k - Dwelling value factor
• j - Urban Centre / Locality (UC/L) impacted
  by the event
• k - State or Territory that contains the
  impacted UC/L
• Btc - Building Code adjustment ( 1 for
  all hazards except tropical cyclones)

15
Number of occupied dwellings in the Sydney UCL
16
Average nominal new dwelling value (AUD
thousands) for WA.
17
Building Code Adjustment

• Estimate of loss due to wind vis-à-vis flood
• Proportions of pre- post-1981 construction then
  and now
• Use Central Pressure at landfall to determine
  characteristic gust speed for the cyclone
• Calculate pre- post-1981 loss ratios
• Adjust normalised loss
• Unique adjustment for each event

18
Attributes

• Uses publicly-available information
• Based on dwellings rather than population
• Number of dwellings Population
• Nominal value of new dwellings Inflation
  Wealth
• Nominal dwelling value excludes land value
• Assures reasonable alignment to insured losses
• Easy to apply

19
TC Tracy - 1974

• Original loss 200M
• Dwelling number factor 3
• Nominal dwelling value factor 13
• (1974 18.5K 2006 240K)
• All losses attributed to wind or wind-driven rain
• Current construction all post-1981
• Building code factor 0.5
• Current loss 3.6 billion
• This may be slightly high as building code
  regulations were introduced in Darwin earlier
  than 1981

20
Normalised Annual Aggregate Losses (July 1 June
30)
21
Top 10
22
Attribution of Loss
23
Annual Australian Bushfire Losses
24
Bushfire loss frequency
Time Series Analysis to 2003
A major event is defined here as more than 25
homes destroyed within a 7 day period.
25
Hurricane Damage if landfall in 2005
26
Population Changes
27
Florida Coastal Population
1900 to 1990
Population (Millions)
15 million today!
Year
28
Implications for Insurers

• Societal factors predominant drivers of increased
  natural disaster losses
• No need to invoke global climate change for
  increasing losses not yet
• Expect this to be the case over the next few
  decades
• Insurers need to worried about what might happen
  in the next twelve months or so

29
Public Policy Implications

• Efforts to reduce societys vulnerability to
  current future extremes
• Improved wind standards best example
• Bushfire restrictions based on distance to
  forest
• Flood limit construction on floodplains
• Risk reduction (adaptation) measures in addition
  to abatement of greenhouse gases

30
Looking X years ahead

• Ability to obtain insurance linked to the actual
  risk
• Premium will be linked to actual risk
• distance from bushland?
• are you on a floodplain?
• distance from the coast?

31
(No Transcript)
32
(No Transcript)