Estimates for Insured Losses Range from $2 Billion to $54 Billion
Across Series of Catastrophe Scenarios
NEWARK, Calif., April 29 /PRNewswire/ -- Risk Management Solutions, Inc.
(RMS), the world's leading provider of products and services for catastrophe
risk management, today released the findings of an in-depth study that
provides workers compensation, life, and health insurers with key benchmarks
for the potential risk of human casualties from catastrophic events.
Among other findings, the study demonstrates that while many in the
insurance industry view the World Trade Center attack as a worst-case event,
there are numerous natural and man-made events that could cause significantly
higher casualties and associated insured losses.
The RMS study, "Catastrophe, Injury, and Insurance: The Impact of
Catastrophes on Workers Compensation, Life, and Health Insurance," is the most
extensive analysis to date of potential catastrophic risk for these segments
of the insurance industry. It was conducted with the support and involvement
of leading industry experts including representatives of ACE Tempest Re,
Endurance, Guy Carpenter, Holborn Corporation, ING Re, John P. Woods, Swiss
Re, and Willis. The complete report is available at http://www.rms.com.
"Our hope is that this study will improve the industry's understanding of
the potential level of risk from human casualty, and lead to the reduction of
casualties from major catastrophic events in the future through increased
awareness, preparedness, and risk mitigation," noted Hemant Shah, RMS
president and CEO. The report shows that events capable of causing up to
hundreds of thousands of fatalities are possible in the U.S., and that their
financial impact can be quantified and managed by an improved understanding of
the magnitude, likelihood, and location of risk.
To this point, the modeling of catastrophic events has primarily focused
on the risk to property and business interruption. A key goal of the study is
to support better decision making about catastrophe risk underwriting and risk
transfer for life and health insurers, a segment of the insurance industry for
which catastrophe risk assessment is a relatively new exercise. "Following
September 11, the price of catastrophe reinsurance skyrocketed. At the time,
most life and health insurance writers had no way of assessing the frequency
and severity of their catastrophe risk, and thus were unable to make informed
decisions about the cost/benefit tradeoffs of proposed reinsurance
structures," said Andrew Coburn, vice president of catastrophe research at
RMS. "As a result, many chose not to buy reinsurance rather than pay a
significant price for an unquantified risk -- thus potentially leaving their
companies exposed."
The RMS study considers the risk of mass casualties due to terrorism,
earthquake, industrial accident, and contagious disease illustrated through a
detailed analysis of seven extreme but plausible scenarios. For each
scenario, the study estimates losses for workers compensation, individual
life, group life, accidental death and dismemberment (AD&D), and health
insurance.
The seven scenarios examined are a magnitude 7.1 earthquake in Los
Angeles, a magnitude 6.0 earthquake in Chicago, a terrorist attack using
three simultaneous truck bombs, terrorism-related anthrax attacks (major and
medium-sized), an industrial rail accident and chemical spill, and a
nationwide flu pandemic. The scenarios are not "worst case" events -- in each
case, losses could be significantly higher depending on such factors as event
magnitude and location.
For the seven scenarios, estimates for total insured losses range from
$2 billion for the Chicago earthquake to more than $54 billion for the major
anthrax attack; estimates for loss of life range from 2,100 for the Chicago
earthquake to 200,000 for the influenza pandemic.
The attacks of September 11 demonstrated that in extreme events, losses
are highly correlated across lines of business -- meaning that catastrophe
risk must be managed across multiple lines simultaneously. Illustrating this
loss correlation, the report indicates that in the most costly scenario
analyzed -- the major anthrax attack -- total insured losses of $54 billion
would comprise losses of $32 billion in workers compensation, $9 billion in
group life, $7 billion in individual life, $4 billion in AD&D, and $2 billion
in health insurance.
The scenarios also show that the total number of deaths or injuries from
an event does not completely predict the costs to the insurance company or
lines of business -- other important factors include the penetration of
insurance products among people affected, the severity of their injuries, and
the time of day the event occurs.
The study shows that the threat of catastrophic events to workers
compensation, life, and health lines is substantive but manageable. "For
members of the life and health industry, the challenge is analogous to the one
faced by the property insurance industry in the mid-1990s, following Hurricane
Andrew and the Northridge Earthquake," the report notes. "These events made
it painfully clear that companies had to manage catastrophic risk proactively
in order to succeed."
For all insurers exposed to catastrophe risk, the report highlights the
importance of capturing detailed portfolio information and using catastrophe
risk management tools as standard operating procedure. "Investments in systems
for data capture and risk quantification will readily pay dividends in the
form of improved risk management decision making," the report notes.
About RMS
Risk Management Solutions is the world's leading provider of products and
services for catastrophe risk management. More than 400 leading insurers,
reinsurers, trading companies, and other financial institutions rely on RMS
models to quantify, manage, and transfer risk. Founded at Stanford University
in 1988, RMS serves clients today from offices in the U.S., Europe, and Japan.
For more information, visit our web site at http://www.rms.com.
RMS is a registered trademark, and the RMS logo is a trademark of Risk
Management Solutions, Inc. All other trademarks are property of their
respective owners.
SOURCE Risk Management Solutions, Inc.
 back to top
Related links:
http://www.rms.com
CONTACT:
Jim Marren of TorranceCo, New York,
+1-212-786-6133, jmarren@torranceco.com, for Risk Management
Solutions, Inc.; or Sarah Goodall of Risk Management Solutions,
London, +44-0-20-7256-3815, sarah.goodall@rms.com
|
