Quake Models to Reduce Loss Estimates

Newark, Calif.-based insurance and risk modeling firm Risk Management Solutions (RMS) has unveiled its next-generation models for North America earthquake risks, covering the United States and Alaska, Canada and Mexico. The new models are likely to lead to a reduction in U.S. earthquake insured loss estimates of 10 percent to 25 percent for the average insurer across all lines of business, with more modest changes in loss estimates for commercial business lines and larger reductions for residential lines, the company said.

The new models incorporate advancements to help companies differentiate the risk between individual properties more precisely and gain greater insight into the factors affecting uncertainty in model results, according to RMS.

The company said that the most significant changes in North America will be in California, where modeled loss estimates will reduce by approximately 5 percent to 15 percent for most commercial portfolios and 25 percent to 35 percent for the majority of residential portfolios. Results will vary by company based on the geographic distribution of their portfolios as well as the building characteristics of the insured properties and policy conditions.

“Our new model reveals that the landscape of earthquake risk is changing in California,” commented Paul VanderMarck, chief products officer at RMS.

“With modeled loss estimates decreasing more in the San Francisco peninsula than in Los Angeles, where earthquake risk was previously estimated to be lower, the relative risk in the two cities is now much more similar. Given the amount of property exposure in Los Angeles, insurers could now see it accounting for as much as 60 percent of their overall California risk.”

While overall modeled loss estimates are expected to decrease moderately across most of the United States and Eastern Canada, losses in some areas of the Pacific Northwest, Southeast, and Western Canada will increase, RMS said.