Resilience is Everyone’s Responsibility

(Veronica Scotti, President & CEO, Swiss Re Canada)

The insurance industry is fully capable of meeting its obligations in the wake of the Fort McMurray fire, yet the assets lost are a sobering reminder of the ferocity of nature’s perils and our vulnerability. 

Replaying the scenes of the devastation in my mind, I’ve been thinking about how resilient we really are – both physically and financially. Are Canada and its citizens equal to the challenge of extreme events like Fort McMurray? What about other events such as earthquake and flood? I think there's work that can and should be done. 

My colleague, Christoph Oehy, former Head Treaty Underwriting, and I share a passion of wanting to raise the odds of Canada's preparedness for when the next flood strikes. Over the past year, we've discussed, at length, what we think is needed for that to happen, and how we can help. Those conversations are now compiled in a report Christoph co-authored with our flood peril specialist, Caspar Honneger. The road to flood resilience in Canada explores the consequences of a 200-year event and recommends steps to close the protection gap – the difference between economic and insured losses. 

Our research estimates that Canada’s property protection gap is CAD$2.9 billion – the 11th highest in the world. It’s a sad fact that few homeowners have flood insurance. One major event could result in damages that far outstrip the level of insurance available in the market. We only need to look back a couple of years for a vivid illustration of this problem. In 2013, insurance only covered about one-third of the economic losses from the southern Alberta floods and CAD$1 billion of the nearly CAD$1.5 billion in total losses from the Toronto flood.

So what’s causing this protection gap? There are many reasons, but let’s look at two very important factors. First, there’s a general misunderstanding (or assumption) that the government will step in and pay for extensive repairs and replacement, which leads to complacency about the need for insurance. Second, insurers have been hesitant to take on flood risk due in part to inadequate modelling skills and no clear actions to continuously mitigate exposures, which homeowners and municipalities are in charge of.

Ignorance and maintaining the status quo are no defense against the very real threat of a 200-year flood. Consider the following river flood projections based on a model developed by our catastrophe peril experts:

- A 200-year flood in Ontario is likely to be triggered by heavy precipitation and inadequate urban drainage, resulting in total losses approaching CAD$5.3 billion -- CAD$4 billion of that is uninsured at the moment.

- A 200-year flood in Alberta could destroy CAD$3.6 billion in property -- CAD$2.6 billion of that uninsured -- caused by excessive snowmelt on the Bow and Elbow Rivers which converge at Calgary.

- In British Columbia, development along the Fraser River would exacerbate already tenuous flood conditions in the event of a heavy snowmelt, triggering CAD$4.6 billion in losses of which CAD$2.8 billion isn't covered by insurance.

Those are just a few examples. As you can see, the culprit varies depending on geography, topography, climate, population, development and local infrastructure. 

Canada's the only G7 country today that leaves homeowners largely unprotected from the financial losses caused by floods, and still relies on post-event measures, which are sincere but ineffective and certainly unsustainable. So what will it take to change the multi-party conversation on the flood file and close the flood protection gap through planned actions? You’ll find our recommendations in the report, but here’s the general idea: It will take partnership between the public and private sectors to satisfactorily address the need for physical resilience, social resilience and economic resilience (all three are important). Insurance can lead the way to higher economic resilience through improved modelling, product innovation and application of behavioural economics toward better understanding consumer attitudes and motivations when it comes to the perceived value of insurance. A clear appreciation for the value of insurance is directly linked to 1) a well-informed choice when selecting coverage and 2) in assuming responsibility through very simple and inexpensive risk mitigation measures that can save thousands of dollars in losses as well as emotional distress. 

I encourage you to read this report – while it's scientifically sound it's also an easy read. And you can always reach out to us through this blog if you have questions or tips on how to make the dialogue richer and the actions more compelling. I'm convinced we can make a difference if we all take responsibility.

And if you’re having some of these same discussions with colleagues, please let us know. That's how it all started for Christoph and myself a year ago in our Toronto office.

This article was originally posted on Swiss Re's Open Minds Platform.

Swiss Re Canada is a proud sponsor of CatIQ's Canadian Catastrophe Conference (C4 2017) that is taking place February 1-3 at the Allstream Centre located in Toronto. Balz Grollimud, Head Treaty of Underwriting at Swiss Re will be speaking during the Geomagnetic Storms - The Next Black Swan session at the conference.

Model Flood Risk Without Historical Data – An Innovative Solution!

(Carl Lambert, Vice-President of Business Intelligence at The Co-operators)

In June 2013, Canada suffered one of its most severe floods in recorded history. 32 towns in southern Alberta were flooded for total damages exceeding C$5 billion. At the time, the insurance industry did not offer flood insurance.  Sewer backup losses were covered and the total cost for the industry was C$1.7 billion. Yet, in early 2015, Canada remained the only G7 country where residential flood insurance coverage was not available.

At Co-operators, we were already working on launching a flood product.  Those events reinforced the demand for residential flood coverage and put more pressure on the industry to develop a solution.

The Co-operators was the first in Canada to launch such a new coverage. Significant effort was required across the organization to ensure we implemented the proper solution that would answer an unmet need, while focusing on making Canadian communities more resilient to flooding. This blog will focus on only one piece of the work, the development of the risk assessment and the pricing. The BI-Research team and Actuarial pricing team collaborated on a non-traditional pricing solution. 

The Approach - Research

Learn & Partner with Canadian Universities

We started by reaching out to our network of partners in Canadian universities. This helped us better understand important concepts around flood hazards, flood plains, and damage functions. Our Statisticians and Actuaries have learned to work with Hydrologists, Geologists, Hydraulic Engineers and Civil Engineers.

Seek out Third Party Vendors

We then started a long process of seeking out and assessing existing flood models and data sources. We learned to speak with modeling firms, and gradually built enough expertise internally to be able to assess the credibility and value of third party vendors.

Leverage Open data & Big Data

We then sought out external available data.  There is a lot of information available and the challenge was to identify the ones that are usable for that purpose.  By usability of information, we mean reliability, predictability and frequency of updates.  

We have tested dozens of external sources and a significant number of them have been used.  For example, we used elevation data at every 5 meters Canada Wide.  (30 meters in rural areas).  We also used the Soil type across Canada to better model water dispersion and evaluate how long the flood will last.  We also used Historical River flows, with numerous lecture points of all rivers in Canada, available every minute, for at least 50 years.  We even used a database showing historical Tectonic Plates movements.

Assessment of the Risk

There were three sources of flood risk to model: Fluvial flood, pluvial flood and coastal flood. Each of them has their own specificities and therefore have different models.

It was important for us to provide adequate and flexible coverage for all Canadians, whether they are in a high risk zone or not, at a price that accurately reflects the true risk. For that reason, we needed a model that was accurate, precise, and consistent.

Our model is customized to use different sources of insight that complement each other. Vendor models will sometimes fail our quality standards and, most of them also ignore a significant amount of local flood defense structures such as dikes and reservoirs. On the other side, our internal models were not always based on enough data to be fully credible. 

With extensive R&D efforts, we were able to leverage the large amount of data available in Canada to bridge that gap and create a national flood risk model that meets our standards.

Assessing the risk means developing models for the following 3 phenomena:

Model Flood Water amounts

Hydrological models are used to determine the probability that a water body will flood. 

Model Water Dispersion

Hydraulic models are used to determine how those water volumes flood the landscape. 

Model the « submersion depth »

Submersion depth models use the results of water dispersions and combine them with other sources of information to determine models for submersion. Furthermore, the required use of rooftop geocoding of the exact location of the insured building complicated the availability of information since many possible sources did not have the geocode.

Convert the « submersion depth » into building & content damage

Many factors impact the amount of damages:  the submersion depth, the type of building, the expected duration of the flood, the temperature of the water and many more. In order to build both content and building predictive models, we have used text mining on notes coming from past sewer backups claims and integrated that with external probabilistic models. 

Pricing Policies

Flood models estimate the flood risk but they don’t calculate an insurance premium. For example, third party damage curves work well at estimating flood damage but cannot be directly applied to insurance claims, because the latter includes elements of client behavior as well as the effect of limits and deductibles. Furthermore, our comprehensive water insurance product offers our clients unprecedented flexibility regarding their water coverage, which also provided pricing challenges. In times when the “buzz word” in technology and science is Minimal Viable Product, in the case of flood insurance the bar for a viable product is very high.

In the end, a key to our success is to take a scientific approach to modeling the flood risk, for each and every house, farm, and building. It is what allows us to provide insurance at the right price, for everyone. It is that analytical mindset, combined with a lot of determination and innovation, that is and will continue to be the Co-operators’ advantage. 

This blog post has been written by Carl Lambert, who is vice-president of Business Intelligence at The Co-operators. Carl completed a Master's degree in Actuarial in 1994. He joined The Co-operators in 2009, where he launched a Research team that now consists of over 65 professionals in Mathematics, Statistics, IT and Actuarial. The team is responsible for the development of Analytics throughout the organization.

Carl Lambert is a panelist at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the How to Create an Inventory of Canadian Hazard Data session during the conference.

Looking at Natural Ecosystems for Disaster Risk Reduction

(Dr. Liette Vasseur, UNESCO Chair in Community Sustainability: from Local to Global

Brock University)

Disaster risk reduction includes diverse practices that aim to reduce impacts on social-ecological systems. These practices are not only linked to reducing the risks of natural hazards occurring but they also focus on planning and acting on social and ecological systems in order for societies to withstand hazards. The current unsustainable planning and development in many systems have led to degraded ecosystems that have increased vulnerabilities of communities across the world. At stated in the Millennium Ecosystem Assessment report (2005, p. 46): “Changes to ecosystems have contributed to a significant rise in the number of floods and major wild fires on all continents since the 1940s”. Canada is no exception. Developed and developing countries are all vulnerable when ecosystems are too degraded to contribute to protection against natural disasters.

It is increasingly recognized that the protection of natural ecosystems with appropriate ecosystem-based management can greatly contribute to reducing disaster risks. Indeed, the 2009 and 2011 Global Assessment Reports on Disaster Reduction (UNISDR) state that one of the major drivers of risk is the degradation of natural ecosystems. In their reports and furthermore in the IPCC Special Report on Extreme Events (IPCC 2012), they call for enhancing protection of natural ecosystems to improve ecosystems regulating services. 

In a coupled human-environment system, concepts of vulnerability, resilience, and adaptation are closely linked to how the ecosystem is working in terms of functions and services. This is also true for DRR where healthy ecosystems can improve the capacity of a community to respond and recover from a disaster in a short period of time (Zhou et al. 2010). What it implies is that a system where resilience is improved and vulnerability reduced, communities are also more resilient to disasters.  

The International Union for Conservation of Nature (IUCN) has been promoting the use of ecosystem-based DRR (Eco-DRR) and this approach can be coupled with ecosystem-based adaptation (EbA). Both approaches have been useful to provide increased sustainable ecosystem services through the use of appropriate ecosystem management. Such strategies have been the promotion of protected areas (from national parks to small urban parks) to help reduce risks.  Both Eco-DRR and EbA have been shown to reduce vulnerability of communities and enhance resilience (Colls et al. 2009). Japan, for example, has learned from the 2011 earthquake and tsunami by initiating the Sanriku Fukko Reconstruction Park where existing national parks along the Pacific coast where the tsunami occurred are being linked (Ministry of Environment, Japan 2014) as a strategy to protect for future similar events.

Many examples can be found where protection of natural ecosystems has been effective Eco-DRR and EbA. In Southern Ontario, projections are the droughts may become more frequent. A combined approach to this natural disaster and an adaptation to conditions that farmers will have to increasingly experience has been the restoration of pasture land into tall grass prairies. The Alternative Land Use Services (ALUS) is a group that has been promoting such a strategy. It is a community-based, farmer-delivered program that enhances ecosystem services that in turn ensures clean water, erosion, and flood control among others. Such approaches demonstrate the need for communities to better understand their natural ecosystems and define which ecosystem management strategies can contribute to Eco-DRR and EbA. They are generally less costly than engineered solutions and more sustainable in the long term.

References

Colls, N. Ash, and N. Ikkala (2009) Ecosystem-based Adaptation: a natural response to climate change. Gland, Switzerland: IUCN. 16 pp.

IPCC (2012) Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation. A Special Report of Working Groups I and II of the Intergovernmental Panel on Climate Change [Field, C., Barros, V., Stocker T., Qin, D., Dokken, D., Ebi, K. Mastrandrea, M., Mach, K., Plattner G-K., Allen, S., Tignor, M and Midgley, P (eds)], Cambridge University Press, Cambridge, UK, and New York, 582 pp.

Millenium Ecosystem Assessment. (2005) Ecosystems and Human Well-being: Synthesis. Island Press, Washington DC. 155 pp.

Ministry of Environment, Japan (2014)  http://www.iucn.org/knowledge/focus/asiaparkscongress/?13969/

New-park-rises-from-the-ashes-of-the-Great-Eastern-Japan-Earthquake-and-tsunami

UNISDR (2009) – Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: United Nations International Strategy for Disaster Reduction. http://www.preventionweb.net/english/hyogo/gar/report/index.php?id=9413

UNISDR (2011) - Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland: United Nations International Strategy for Disaster Reduction. http://www.preventionweb.net/english/hyogo/gar/2011/en/home/index.html

Zhou H, Wang J, Wan J et al (2010) Resilience to natural hazards: a geographic perspective. Nat Hazards 53: 21–41.

This blog post has been written by Dr. Liette Vasseur, who holds the UNESCO Chair in Community Sustainability: from Local to Global at Brock University. She currently leads the thematic group on Climate Change Adaptation of the Commission for Ecosystem Management of the International Union for Conservationof Nature.

Dr. Liette Vasseur is a panelist at CatIQ’s Canadian Catastrophe Conference (C4 2017) on the Societal Impacts session during the conference.

National Strategy for Disaster Resilience- Australia

Jim Abraham (Halifax, NS)

I just spent a three-week vacation in Australia and New Zealand.  Much of that time was visiting friends and colleagues from the Bureau of Meteorology and the New Zealand MetService, discussing the challenges and opportunities of ensuring the work that we do is relevant to the needs of society.

Extreme weather events are quite frequent in Australia; a topic frequented by my weather colleagues down there. During our visit, there were several severe weather outbreaks, accompanied by tornadoes and flash floods.  An anomalously warm spell in early October had resulted in earlier than normal moisture deficits, and the bushfire season was already underway. 

No surprise, that Australia to be extremely vulnerable to climate change and associated extreme weather events.  For example:

•          A substantial proportion of the population resides in relatively few urban areas.  Cities like Melbourne and Sydney continue to grow rapidly
•          Much of this same urban population is located relatively near the coast
•          A substantial amount of their water resources and associated agricultural lands are within one large river basin (Murray-Darling)

During my conversations, I was particularly interested in any national coordination initiatives underway to help reduce these vulnerabilities.  Certainly the Bureau of Meteorology is examining a strategy that will allow it to address these challenges in a cost-effective way.  However, I was very interested in the fact that the Australian and New Zealand governments are cooperating on a National Strategy for Disaster Resilience: 

I was particularly pleased that this recognizes that all sectors of society need to work together, including business, all levels of government, NGO’s, academia and individuals.  The identified priority areas of action are areas that I feel are essential for us in Canada, especially establishment of partnerships and community engagement.  Furthermore, in Australia-New Zealand, there is a recognition that the importance of infrastructure investments.  Certainly, given our recently elected government’s priority on infrastructure, it would be nice to see appropriate investment that contributes to sustainability and resilience.  A recent report on the progress in implementing the strategy includes a number of case studies:  http://www.ag.gov.au/EmergencyManagement/About-us-emergency-management/Documents/NSDR-Progress-to-date.PDF 

I’ll be keeping in touch with folks to benefit from their learning and progress. I would like to see Canada take advantage of the efforts undertaken by our colleagues “Down-Under”, and develop our own Canadian National Disaster Resiliency Strategy.

This blog post has been written by Jim Abraham, Director, Canadian Climate Forum & former Director General of Weather Environmental Monitoring, Meteorological Service of Canada, Environment Canada. Jim is on CatIQ's Canadian Catastrophe Conference's 2016 Advisory Committee and will be speaking at two sessions during the conference.

 @YHZweatherguy