Friday, November 11, 2011

Risk Management Solutions

Risk Management Solutions is a California-based catastrophic risk modeling consulting firm - - earthquakes, hurricanes, terrorism, infectious diseases, etc.  As the "Age of Surprise" rams into the "Era of Adapting Quickly", firms like Risk Management Solutions put the numbers behind risk.  Typically risk losses result from three components - - hazard occurrence, elements of risk, and vulnerability.  Risk modeling is uber-multidisciplinary - - everything from GIS, statistical analysis, engineering, construction, safety, economics, and computer science to sociology.

It is also a little history.  Risk Management Solutions Chief Research Officer, Robert Mur-Wood, was recently quoted in the Financial Times (November 9, 2011, Progress in understanding frequency of earthquakes) regarding earthquakes.  Mur-Wood pointed out that between 1950 and 1965, there were seven earthquakes worldwide greater than magnitude 8.5, three of which were bigger than magnitude 9.  There were no such earthquakes in the 25 years before 1950, nor for almost 40 years after 1965.  Since 2004, there have been five magnitude 8.5 earthquakes or bigger and two at or above magnitude.  This "clustering in time" relates to the episodic global physical process triggering these episodes, but the precise mechanism remains unknown.

Why is risk modeling becoming increasingly important?  The same paper (The key is to ensure you have back-up) points this out:

"What is more, according to natural hazard experts, as companies increasingly look to invest in Asia and set up more industrial sites in or near main growth markets of the world, they are often driven towards building in some of the areas most exposed to flooding or seismic activity, usually of a lack of choice.

In the near term, the biggest concern about this is the chance of further tremors hitting the country [Japan].  Earthquake prediction is a notoriously uncertain science, but seismologist are broadly agreed that one result of the Tohoku quake in March has been an increase in the stress levels on faults both north and to the south of Tokyo.

Since March, reinsurance rates for earthquake cover in Japan have shot up by 50 per cent or more.  However, for some, even this is not enough to compensate for the heightened risk."

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