instruments to measure the detailed ground motions have been available. Every event represents a learning curve for the industry but something of this size, especially so. All the data we had before was based on smaller events—now we can see how accurate our extrapolations were for events of this size and, where necessary, refine our models accordingly.”


“ That is how Robert Muir-Wood, chief research officer at Risk


Management Solutions (RMS), describes his view on the importance the risk modelling and reinsurance industry must attribute to the recent catastrophe in Japan. “We will collect some very detailed data from this terrible event and there are a lot of areas we can learn from,” he says.


The March 11 earthquake, which measured 8.9 on the Richter scale, was


the biggest to hit the country since modern seismology was introduced. It ranks as the fourth or fifth-biggest quake to be recorded anywhere since 1900, depending on who you ask. But it also surprised many for its location was not close to Tokyo—where the most dangerous fault zone is generally acknowledged to be—but farther north, in the southern part of the Japan Trench, formed by the collision of the Pacific and Okhotsk plates.


This area has produced big quakes in the past, but nothing on this scale.


To put it in context, the recent earthquake was also powerful enough to have permanently moved Japan by about eight feet, according to the US Geological Survey.


“The earthquake was caused by the sudden release of stresses built up


over many centuries due to the westward movement of the Pacific plate beneath northern Honshu,” explains Anselm Smolka, head of geo risks in the corporate underwriting unit at Munich Re. “The earthquake was not only the strongest ever recorded in Japan, it was also the fourth most severe ever measured anywhere in the world.”


Some of the modelling agencies accept that such a big event in this


region was a surprise. “The models did not account for an earthquake of this size in this location,” says Tom Larsen, senior vice president and product architect at risk modelling firm Eqecat. “This is a very infrequent event. The main risk is clearly closer to the Tokyo region.” But Larsen adds that the event does not change the risk profile of Japan as a country.


An earthquake of this magnitude has not occurred since modern


As well as taking lessons from its location, Muir-Wood adds that the quake had other characteristics the industry can learn from. “There was a very long duration of strong slow ground motion,” he says. “Yet the buildings actually fared better than had been expected. The earthquake also represents a big opportunity to learn more about mega-tsunamis and the extraordinary height the tsunami reached locally.”


That the industry must learn more about tsunamis and their consequences


and better factor this into risk models has been a reoccurring theme since the devastating events in Japan. It is a relatively new area of science for the risk modelling industry and something that reinsurers rarely factor into their own risk analysis anywhere in the world.


This was starting to change and the Japan tsunami will speed up this


process. “Tsunami models are available—we have done one for southern California, for example,” says Muir-Wood. “But the insurance industry has not pushed to make this a standard part of risk modelling so far. This event could start to change all that.”


Muir-Wood notes that, 10 years ago, flood catastrophe modelling was a


new science. Yet such models are now widely used by the industry. A key challenge in flood models is the treatment of local flood defences—as in New Orleans with Hurricane Katrina. Coastline defences in Japan—built to withstand the tsunami—proved woefully inadequate in the face of the 50-foot high walls of water that smashed onto land.


“They were fine to withstand a one-in-100-year event but not a one-in- 1,000-year event, which is what this was. In the scheme of things, I don’t think the industry believed a tsunami would contribute that big a portion of the loss. But it did and that will cause the industry to reassess things. I think that, on the relevant plate boundary coastlines, tsunami will become a standard part of earthquake risk models.”


Muir-Wood says that he believes reinsurers, rating agencies and


regulators must now work together to make this a reality—and he says the Japanese event will provide the necessary incentive. “It takes a really big loss of this nature to hammer the argument home. It is like flood risk—it was considered a minority issue until 10 years ago.”


Summer 2011 | INTELLIGENT INSURER | 17


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64