Insurance News

Modeling Firm Now Sees Less Risk From Quakes

Posted on: August 16, 2009

Risk Management Solutions said its newest catastrophe models for earthquake risks in the United States will likely cut insured loss estimates 10 to 25 percent.

RMS in Newark, Calif., said the changes would be most felt in California and the reduction applied to 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 firm said on Monday it presented its new models, which include Canada, Mexico and Alaska to several hundred insurers and reinsurers globally.

RMS said its latest models incorporate major scientific advancements ?to help companies differentiate the risk between individual properties more precisely and gain greater insight into the factors affecting uncertainty in model results.?

The release also includes a suite of upgraded earthquake models for Central and South America ?to provide an integrated and seamless basis for managing earthquake risk across the entire Americas region,? RMS said.

In California, RMS said modeled loss estimates will reduce by approximately 5 to 15 percent for most commercial portfolios and 25 to 35 percent for the majority of residential portfolios.

Results, it was noted, 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,? Mr. VanderMarck explained.

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, the firm said.

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