A demonstration tsunami catastrophe risk model for the insurance industry

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Catastrophe risk models ("Cat models") are important tools used by the insurance industry to quantify risks associated with a wide variety of insurance and reinsurance products. The market for Cat models is approximately £400m globally. It is growing as the new EU regulatory framework for the insurance industry (Solvency II) requires insurance companies to display a quantitative understanding of the risks resulting from their sales of insurance products, including an understanding of the uncertainties in the Cat models that they use to assess these risks. At present almost all Cat models are commercial-in-confidence products from 3 companies. A need for more diverse Cat models and open model design is reflected in insurance industry support for the Oasis Loss Modelling Framework for open and transparent catastrophe risk modelling. Oasis is designed to combine hazard model and vulnerability model modules, built by external experts, with standard modules for inputting exposure data and carrying out financial calculations, to produce new, well-validated and Solvency-II compliant Cat models. Furthermore, recent tsunami disasters, most notably the Tohoku 2011 tsunami, have highlighted both the large potential losses to which the insurance industry is exposed in important tsunami-prone regions such as Japan and Cascadia (NW United States of America and Pacific Canada), and the lack of available scientifically sound tsunami Cat models.This application builds upon (i) our existing research on tsunami wave physics models, especially on the rigorous quantification of uncertainties in their outputs using statistical emulation methods, and (ii) an existing proof-of-concept investigation of how to produce tsunami hazard maps, compatible with the Oasis framework, from the advanced tsunami wave physics model VOLNA. We will do this by producing a working tsunami hazard model for the Cascadia region, and a simple empirical tsunami vulnerability model for common building types. These will be combined with Oasis' exposure and financial calculation modules to produce a demonstration tsunami Cat model for Cascadia in a form suitable to be used, at least for test and validation purposes, by the Oasis partner companies in the insurance industry.Our Cascadia tsunami hazard model will be the primary product of the project. Its objectives are: 1. To define, using published geological evidence, the range of possible subduction zone earthquake sources (shapes, kinematics of the ruptures) in Cascadia, and their occurrences. 2. To build a tsunami hazard model for Cascadia with runs from the tsunami model VOLNA as well as the computationally efficient statistical representation of VOLNA to cover the ranges of possible outputs that result from the range of possible earthquake sources. These VOLNA runs will be designed using state-of-the-art design of experiments methods.3. To construct vulnerability curves for buildings that reflect published evidence derived from damage surveys after recent major tsunamis.4. To embed these hazard and vulnerability modules into the Catastrophe modelling platform from the Oasis Loss Modelling Framework. To calculate loss exceedance probability curves for synthetic and given portfolios.5. To propagate the uncertainties in 1-3 into the loss calculations in step 4.6. To provide model & user documentations to enable uptake of the model by the Insurance Industry partners of Oasis.