Cities around the globe aim to quantify their disaster risks

by Artemis on September 24, 2014

An interesting initiative which could result in an increased understanding of disaster exposures and need for risk transfer as a result, is a partnership between risk modeller RMS and 100 Resilient Cities — Pioneered by The Rockefeller Foundation (100RC).

The partnership was announced today and will see RMS enable cities in the 100RC Network to access the RMS(one) exposure and risk management platform, as well as its catastrophe models, to empower them to make well-informed decisions about managing and mitigating natural hazard risk.

100RC aims to help 100 cities around the world build resilience to shocks such as catastrophic natural disaster events and weather extremes, as well as chronic stresses including climate change. 100RC is providing cities with funding to hire a chief resilience officer, assistance in establishing and implementing a resilience strategy and helping with access to technology and expertise from a select platform of partners.

“We’re excited to welcome RMS as the newest partner to the 100 Resilient Cities program,” commented Michael Berkowitz, president of 100 Resilient Cities. “Natural catastrophes are a major driver of risk for many of the cities we are working with, and RMS’ models and technology will enable them to better understand that risk as the foundation for achieving resilience.”

San Francisco is the first city in the 100 Resilient Cities program to take advantage of RMS catastrophe risk models and technology.

“In San Francisco, we have already made a significant investment in modeling expected losses from future earthquake scenarios, which has informed multiple public policy decisions. These include innovative legislation passed in 2013 to mandate the retrofit of soft-story wood frame structures, which modeling identified as one of the greatest sources of potential loss of life as well as potential loss of housing units in a future event,” stated Patrick Otellini, chief resilience officer for San Francisco. “RMS’s science and technology will enable us to use modeling more dynamically to improve our understanding of risk, to analyze the benefits of potential mitigation investments and to respond effectively to actual events.”

RMS’s risk models and technology platform can be used by cities in a variety of ways to increase their resilience, such as:

  • Develop high quality data on exposures: Cities can use the RMS(one) platform to establish a system of record for all data on property, people and infrastructure exposed to natural hazards, enabling consistent assumptions and availability of data for all risk assessment projects as well as systematic improvement of the data over time.
  • Improve understanding of risk: By building and running catastrophe models to simulate expected damage and other impacts from plausible future events, cities can identify key drivers of risk, whether by geography, type of building, or other factors.
  • Prioritize mitigation investments: Cities can test hypothetical scenarios to quantify the impact of potential investments in changing building codes, implementing retrofit programs, or improving infrastructure.
  • Communicate risk: Armed with data and analysis, cities can more effectively share information on exposures and risks to motivate communities to prepare for natural hazards.
  • Measure progress: With consistent and easily updateable information on all exposures, cities can regularly refresh their risk assessments to reflect achievements in improving the building stock as well as growth in overall exposures to measure progress over time.
  • Analyse risk-financing schemes: Assessing the expected frequency of various levels of financial loss to public buildings and infrastructure enables cities to evaluate potential mechanisms to finance disaster response and rebuilding costs from future events.
  • Respond to disasters: By capturing all exposure information and modelling assumptions in the RMS(one) platform, cities can rapidly quantify expected damage after a catastrophe and prioritize allocation of resources.

“Enabling societal resilience is at the core of RMS’s business,” said Paul VanderMarck, RMS’ chief products officer. “By providing our models and technology to cities in the 100 Resilient Cities program, we can help them better understand their catastrophe risk and increase their resilience. As a company headquartered in the San Francisco Bay Area, we are pleased that San Francisco will be the first city to use our models and technology and we are looking forward to working with other cities around the world, including those who are at an earlier stage in their efforts to quantify their risk and take steps to prepare for future events.”

What’s most interesting about this development is the potential for cities to become knowledgeable about their disaster, catastrophe and weather risks with the ability to quantify the exposure as a first step towards proactively managing, mitigating and transferring risks where necessary.

As cities around the world gain an understanding of their financial exposure to disaster, climate and weather risks, the use of risk transfer techniques will no doubt gain in importance to them. With catastrophe bonds already having played a role in a number of sovereign type risk transfer facilities, it is possible that we could see city-level governments looking to how the capital markets can be tapped as a source of disaster risk financing in the future.

The push to enable cities, corporations and countries to understand, measure, manage and eventually mitigate their disaster, climate and weather risk through resilience and risk financing or transfer is gaining pace. The role for the insurance-linked securities (ILS) and re/insurance market is clear and structures such as cat bonds could find themselves gaining new users as these developments progress.

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