AIR Worldwide launches earthquake risk model for India

International catastrophe modelling firm AIR Worldwide has released an earthquake risk model for India, which it hopes will provide a comprehensive tool that enables insurance, reinsurance, and ILS players to attain a better view of the exposure in the region.

The AIR Earthquake Model for India is the culmination of extensive research conducted by AIR throughout the region, as the risk modeller sought to provide companies with a greater understanding of earthquake exposures in the region.

Exclusive to the model is methodology that incorporates liquefaction (process which generates a liquid from either a solid or a gas), with AIR underlining that liquefaction needs to be viewed as an important part of earthquake risk assessment.

AIR developed a liquefaction module that includes major exposure concentrations in New Delhi, Kolkata, and Mumbai, which utilises high-resolution data on both soil and ground water from various geological studies.

“We’ve employed several innovative methodologies to achieve a complete view of India’s complex seismicity and the vulnerability of its building stock. By covering earthquake-triggered perils such as liquefaction, in addition to ground shaking, AIR’s new Earthquake Model for India raises the bar in terms of comprehensiveness,” said Praveen Sandri, Executive Vice President and Managing Director of AIR’s India division.

The innovative new model incorporates more than two centuries worth of earthquake datasets and activity across the country and surrounding areas, including the magnitude 7.8 earthquake that hit Nepal in 2015, and the magnitude 8.8 quake that hit Chittagong in 1762, explains AIR.

The majority of earthquakes in the region occur along the Himalayas, where the Indian and Eurasian plates collide, however, AIR explains that seismic hazard is broad in India and as such the model includes seismicity analysis for region’s with activity that could impact India, such a Pakistan, Nepal, Bhutan, and Bangladesh.

“The AIR team has excellently captured the regional seismicity and structural vulnerability of building portfolios in the India earthquake model. A comprehensive tracking of seismic code evolution and subsequent vulnerability evaluation procedure should render confidence to the user in predicting seismic losses,” said Assistant Professor at Indian Institute of Technology, Bombay, Dr. Jayadipta Ghosh.

In recent months, the Insurance Regulatory and Development Authority of India (IRDAI) has issued revised guidelines and frameworks that enables greater participation from foreign reinsurance firms in the region, a move that has already resulted in some reinsurers starting the process of establishing a branch in India.

As a result of the market becoming more open to foreign companies and with India being vulnerable to a range of perils, it’s possible that insurance and reinsurance demand in the region will grow in the coming months and years. Demand is of course also expected to grow as economic development expands.

Better modelling capabilities in the region will support market growth as insurers and reinsurers will better understand the exposures, and therefore feel more comfortable writing earthquake-related business in the region.

Furthermore, improved modelling and increased insurance and reinsurance penetration could also result in the beginnings of an inflow of ILS capital into India, providing the ILS market with an opportunity to expand into new peril regions as the risk is better understood, and ultimately priced.

Vice President of Model Development at AIR Worldwide, Suryanarayana Raju Datla commented on the new models methodology; “Damage functions for the AIR Earthquake Model for India were developed using nonlinear dynamic analysis (NDA) and component-level fragility curves.

“The methodology incorporates the latest research on the stiffness and stress-strain characteristics of buildings of different construction classes, heights, and code levels. This methodology estimates a building`s structural response to various simulated ground motion intensities. The damage functions were validated against local and worldwide studies, including claims data and an extensive study of the evolution of building codes in India.”

The new model provides loss estimates for residential, commercial, and small industrial buildings, and also automobiles, says AIR. Tailored to the country’s unique construction practices and code requirements, the model aims to provide risk managers across the industry with a comprehensive view of earthquake exposure in India.