From Physical Damage to Economic and Social Dislocation

 

Many of the greatest costs of extreme events come not come from the natural hazards themselves but from their secondary effects and long lasting social and economic consequences. Many of these risks are insured, some are covered by public agencies but their nature renders them difficult to model and predict. Governments, insurers and corporations require more robust ways of evaluating, managing and financing these risks.

 

This WRN programme is led by the Universities of Colorado and Kyoto with inputs from across the Network including EUCENTRE, Pavia and Durham. Areas of focus include:

 

Business Interruption

 

• Business Interruption. Insurance for business interruption allows firms to protect themselves against loss of profits due to delays caused directly by defined loss events such as natural disasters. Contingent business extends the concept to protect firms against loss of profits due to secondary factors, such as a natural disaster disabling a key supplier in another continent.

 

• Critical infrastructures, lifelines and business network modelling. Infrastructure such as water supply and wastewater, energy, transportation and communications are vital for the functioning of modern urban regions. Recent disasters, such as the 2008 Wenchuan earthquake ( China ) and 2007 UK floods have demonstrated the vulnerability of infrastructure, both individually and collectively. A key aspect of infrastructure vulnerability is its interconnectedness – the fact that water supply depends on power, which depends itself on water supply as well as gas, which depends on transportation.

 

• Urban Systems Modelling. To address this, the WRN is conducting research led by Kyoto University into the modelling of these infrastructure systems, accounting for interconnectedness at varying spatial and temporal scales, and taking account of key insurance issues, including the impacts of interdependent economic networks on business interruption assessment. 

 

Demand Surge

• Demand Surge. Refers to the inflated costs of repairs and remediation after a major loss event, factors which lead to systematic underestimation of potential losses in risk models. These trends are amplified in the largest events, known as super-catastrophes, where extreme social and economic dislocation leads to further increases over norms. Post-event inflation is critical to loss estimates yet poorly documented and addressed in relatively unsophisticated ways in current catastrophe models currently.
• Towards a Model of Demand Surge. In response, work on demand surge is led by the University of Colorado with the objective to develop refined models for demand surge evaluation. The WRN’s research is focusing on an improved quantitative understanding of demand surge which will enable insurers and others to better plan for or reduce its affects.
• Modelling Data. The WRN is undertaking groundbreaking research in post-event data survey and acquisition to develop robust data to underpin a demand surge methodology.
• Modelling Frameworks . A model of demand surge requires the socioeconomic and engineering factors that drive post-disaster costs to be better represented. The network is developing methods to assess the underlying mechanisms of demand surge, including relevant issues such as the availability and substitution of materials, labour, and equipment; and changes in insurance claims-adjustment practice.