Eqecat Set to Release 3 Revised Catastrophe Models

By | June 29, 2011

Catastrophe risk modeler Eqecat has scheduled July 15 as the date to release three significant revisions to its Worldcatenterprise 3.16 platform. The updates cover Eqecat’s North Atlantic hurricane model, its Canada earthquake model and its Asia typhoon model.

These updates by Eqecat are the latest in a series of revisions by the cat modeling industry to the models the insurance industry uses to calculate the risks involved in the areas covered by the models. They are essential for predicting the occurrence, strength and potential impact of catastrophic events.

North Atlantic Hurricane Model

Eqecat’s North Atlantic hurricane model covers the U.S. coast from Texas to Maine, as well as Bermuda and the Caribbean. David Smith, senior vice president of Model Development, described the changes as a “high-resolution, detailed time-stepping wind-field model.” It more accurately measures “how hurricanes interact with the land when they come ashore — a more refined measurement of the sea to land transition.”

Smith said that the exposure database provides detailed information on the type of land exposed to hurricanes, the structures built on the land, i.e. how it’s used and how vulnerable specific areas are to hurricanes.

The update has also recalculated event probabilities based on historic records. “It fills in the gaps,” Smith said. As an example, a category 4 hurricane may not have come ashore in a specific location, but “that doesn’t mean that it can’t happen, even if it hasn’t yet.”

The model also takes into account more recent events, focusing on high risk locations, which includes most of Florida, New Orleans and the Galveston area in Texas. “The update for New Orleans takes into account both flood surge and flood defenses,” said Smith. “Our engineers concluded that the defenses are now more robust than they were when Katrina hit, which means that the flood risk is somewhat reduced. It’s also been reduced around Galveston.”

In Florida tougher building codes in high risk areas have somewhat reduced the potential impact from a hurricane. “Newer codes, with decent levels of enforcement, does result in safer buildings,” said Smith.

Another addition to Eqecat’s model analyzes “demand surge,” the increase in the cost of building materials and labor that frequently occur after a storm hits a certain area. Smith noted that “mid-level damage” constitutes the majority impacted by a storm, as the repairs required can’t be made by individuals.

There is some good news as well contained in the model. Smith said that the potential impact from a hurricane in many areas was “slightly less” than previously calculated. He said this is a result of greater understanding of how wind, rain and storm surges may impact a given location, as well as the measures local and federal authorities have taken to decrease the vulnerability of structures located in areas at risk.

While a new and more accurate hurricane model will help property/casualty insurers calculate their exposures, it doesn’t include loss estimates. “The insurance industry runs its own estimates,” said Smith. The exposure databases for each company may vary widely from area to area, depending on the where and what coverage the company may have written in areas exposed to hurricanes. “It’s a distinct model, but in some cases there may be lower [damage and loss] estimates,” said Smith.

The Canada Earthquake Model

Eqecat said its updated Canada earthquake model will incorporate the Canadian Geological Survey’s fourth-generation hazard model. It will also feature a “diverse set of historical and hypothetical events for ‘what-if’ benchmarking.”

An updated insured exposure database will also be released, including policies for earthquake and fire-following perils.

Eqecat updated its U.S. model last year. The update for Canada now means that both countries have a model that is consistent throughout North America. As a major earthquake doesn’t respect borders, both countries face the same level of risk, specifically in the Pacific Northwest, where the San Andreas Fault runs through California and continues north from Cape Mendocino into Canada. The area in the northwestern U.S. and southwestern Canada, known as the “Cascadia subduction zone” is particularly vulnerable to earthquakes.

“The updated model has three main components,” said Smith. The first is the “seismic tectonic,” which describes the faults, the maximum magnitude potentially generated by a major earthquake and the frequency.

The second measures the “attenuation,” or the distance from the center of the earthquake to potentially exposed areas, the depth, the type of quake, and most importantly what the “ground motion” looks like.

The third uses the first two to assess how a given area might be affected by a quake, which Smith said is highly important in calculating the level of the risk. The potential for damage differs greatly between hard rock and soil, according to the Eqecat executive, who said that “it’s urgent to analyze local soil conditions, as buildings are usually located on soil not rock.” The new Eqecat baseline is much closer to where buildings are actually built, he said.

The Asia Typhoon Model

Eqecat’s updated Asia typhoon model covers eight countries from Japan to Malaysia that are exposed to the Pacific version of a hurricane – the typhoon. The area covered is “basin wide,” according to Smith, who noted that a single event frequently impacts more than one country, as a typhoon may move from Japan to Korea or from Taiwan to China.

The model also provides wind-only analysis, as well as wind-and-rainfall-induced flooding, and measurements of storm surge. “It’s the first time it’s been addressed regionally,” said Smith. Eqecat released new models for the region last year, and this update completes that process.

Smith said that losses in the region are caused by both wind and flood, sometimes in tandem. Most property/casualty insurance policies written for the Pacific basin therefore cover both perils. “The new release provides more functionality,” he said, as it “gives further transparency for exposures to both wind and flood.”

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