Willis Research Warns of Costly Consequences of Volcanic Eruptions

The world’s attention has been focused on the plumes of ash that continue to rise into the sky from the Eyjafjallajökull volcano in Iceland. The microscopic grit in the ash cloud poses an ongoing threat to aircraft, and has caused thousands of flight cancellations and airport closures [See IJ web site – https://www.insurancejournal.com/news/international/2010/05/11/109714.htm].

However, some of the world’s other volcanoes pose even greater threats, according to research by the Willis Research Network (WRN), as published on the Lloyd’s of London web site (www.lloyds.com ). The cost of the eruption in Iceland “would be tiny compared to the bill were Italy’s Mount Vesuvius to start spewing lava again,” said the WRN’s report. “A serious eruption could kill or injure 21,000 people and cost more than $24 billion.”

The WRN study found that, together, “the ten most dangerous volcanoes in Europe could affect almost 2.1 million people with a combined exposed residential property value of $85 billion. Eyjafjallajökull doesn’t even make the top ten list, although Iceland’s most active volcano, Hekla, is ranked ninth.”

Dr. Rashmin Gunasekera, a catastrophe risk analyst at Willis Re, pointed out that “there are significant numbers of highly active volcanoes in the wider European region.”

The most highly ranked volcano on the scale is Italy’s Vesuvius, “because it poses the greatest risk to life and property, with 1.7 million people and $66.1 billion worth of residential property vulnerable to its eruption. The volcanic threat to Naples is high, as the city nestles between Vesuvius and Campi Flegrei – listed as Europe’s second most dangerous volcano by WRN. Italy features heavily on the list, as Etna is also ranked fourth.”

WRN also noted that, while “volcanic eruption is not such a big worry for insurers as hurricanes or earthquakes, because they occur much less frequently, the threat they pose should not be overlooked, experts warn.”

Professor Robin Spence, an academic at the University of Cambridge and an author of the WRN study, explained: “Large explosive volcanic eruptions are rare events, but when they do occur, they have the potential to cause huge economic and human losses. In 2002, for example, rain combined with ash fall alone caused economic losses of around US $960 million after the eruption of Mount Etna in Sicily.”

Major cities in the US and Australasia are also vulnerable to volcanic activity. In a report last year, risk modeling expert Risk Management Solutions stated that “volcanic risk poses a potentially catastrophic loss to major cities including Seattle, Portland, Naples, Tokyo, and Auckland”.

Studies, such as this one from the WRN, are bringing the potential threats from volcanic eruptions to the attention of the public and the insurance industry. But as the study points out, “there are no computer models currently available to assess the insurance risk from volcanoes. That’s because it is so difficult to predict volcanic eruptions, as it’s impossible to predict how long they will last, how big they will be or when they will reach their climax – all of which are vitally important to insurers when deciding whether to provide cover and at what price.”

“Unlike an earthquake or hurricane, which may be over in hours, volcanic eruptions can last for years, even decades. But great strides have been made in predicting a range of possible scenarios should an eruption occur, which can help organizations to manage the risks,” according to RMS.

WRN said that the “volcano risk ranking it has developed, grading active European volcanoes that could affect over 10,000 people if they were to erupt, could be used as the basis for creating the first detailed insurance risk model for volcanoes situated in Europe and the overseas territories of European countries.”

Source: Willis Research network, as published by Lloyd’s of London

Topics Catastrophe Europe Risk Management