Australia Earthquake Model
EQECAT's Australia Earthquake Model is the first catastrophe risk model to implement the 2012 hazard model update from Geosciences Australia. The model was developed especially for Australia's unique mid-plate tectonic setting. It features region-specific innovations in both hazard and vulnerability and is part of EQECAT's RQE™ (Risk Quantification & Engineering).
Earthquake Risk in Australia
Earthquake risk in Australia is characterized by infrequent, moderate events and highly-variable losses due to the nearest plate boundary location hundreds of kilometres away. Earthquake risk accounts for the largest portion of insured loss potential in Australia. As evidenced by the 2011 Christchurch event, even moderate earthquakes can be catastrophic.
The rarity of earthquakes in Australia makes EQECAT's unique approach to uncertainty especially relevant. RQE's robust methodology, which retains the full breadth of uncertainty through each step of the model calculation and reports multiple loss outcomes for any one event, allows insurers and reinsurers to:
- Gain confidence in decisions related to low probability events that have significant financial consequences
- Avoid surprises
- Set rational expectations about risk
Country-Wide Earthquake Risk
The map of historical earthquakes below shows the Geoscience Australia (GA) mainshock earthquake catalog for 1836-2010. Earthquake symbols are scaled in size by magnitude according to GA’s preferred moment magnitude (Mw) assignments. (See legend below.) The locations of 17 cities for which hazard curves were calculated for EQECAT's Australia Earthquake Model are depicted by blue stars.
Historical Earthquakes Across Australia
Key Features of the Model
Key aspects of the Australia Earthquake Model include the following features:
EQECAT's model is the first in the market to fully implement Geosciences Australia's 2012 hazard update. Data on seismic sources, earthquake catalogues, and earthquake frequency originate from GA with adjustments to suit a modelling context. Of GA's three seismic source models, EQECAT incorporates the regional model and a modified background model, reflecting the latest scientific agreement on the seismotectonics of stable continental regions and eliminating conservatism related to use of a hazard model whose primary purpose is to define loading standards in the building code. Maximum magnitudes are consistent with GA hazard.
Distant Subduction Sources
EQECAT's model for Australia goes above and beyond Geosciences Australia to include events from distant plate boundaries in Indonesia and Papua New Guinea. Inclusion of these sources is yet another example of EQECAT's robust calculation of tail risk, since rare, large-magnitude earthquakes on subduction zones could cause losses on the north and northeast coasts. Since only the largest subduction events will affect Australia, magnitudes for events from these sources range from Mw7.0 to over 9.0.
Stochastic Event Sets and Simulation
Comprehensive stochastic event sets were constructed by sampling earthquakes and associated frequencies across the full range of possible magnitudes for each source type. A sufficiently long simulation horizon is essential to avoid underestimating tail risk driven by infrequent events, particularly relevant for Australia. Comprehensive probabilistic event sets include 300,000 years of simulated losses.
EQECAT uses ground motion prediction equations that represent the unique shaking characteristics of stable continental regions. The attenuation relations used for cratonic western Australia are differentiated from those in the geologically-younger eastern Australia. For each tectonic setting, EQECAT weights the four Ground Motion Prediction Equations (GMPE) adopted by Geosciences Australia together with global sets of GMPEs, many of which derive from ongoing Next-Generation Attenuation (NGA) research. Global sets of source-specific GMPEs are used for distant subduction sources.
Soil-Based Attenuation (SBA)
EQECAT goes one step beyond NGA by using soil-based attenuation (SBA) - a functional form of NGA equations which assumes that the seismic waves propagate through soil. EQECAT's SBA approach more closely represents the vast majority of insured exposure located on soil sites and reduces the modelling uncertainty introduced by applying soil amplification factors to the more conventional rock-based equations. The use of SBA by RQE retains the improved confidence of the NGAs by requiring far less adjustment for site conditions.
Modelled vulnerability curves are specific to Australian construction practices and building code development. Vulnerability insight is well-honed from thousands of seismic studies conducted by EQECAT and ABS Consulting during the last 30 years, as well as first-hand observations of 90 earthquakes worldwide, including the 1989 Newcastle event.
Validation has been carried out to test the robustness of each model component and is described in detail in the technical documentation. Model validations include:
- Frequency and magnitude of events generated by the stochastic model were compared with those of historical seismicity.
- Probabilistic ground-shaking intensities were compared with the latest available research.
- Historical earthquakes were modelled and the output compared against recorded economic damage.
- Probabilistic losses were calculated based on the analysis of national exposure data.
- Probabilistic return periods were studied, and where possible, insurance industry burning costs over the last century were compared to modelled losses.
- Modelled results from historical events were compared to specific client portfolio losses.
Lines of Business
Lines of business include residential, commercial, industrial, agricultural, and automobile.
The Australia Earthquake Model calculates damage to structures (building damage), contents, and time element (business interruption and additional living expenses). Separate vulnerability functions are used for building and contents damage. Time-element vulnerability functions are a function of both structural and contents damage.
Model specifications include:
The earthquake model covers all eight states and territories in Australia.
Exposure data is accepted at resolutions of lat/long, postal code, city, and state. When input data is available only at aggregate levels, the model adds refinement to loss results by disaggregating exposure to a resolution consistent with the hazard generation. The disaggregation scheme is weighted by daytime and nighttime distributions of population.
Hazard Analysis and Soil Data Resolution
Variable resolutions are based on population density and range between 0.01 and 0.1 degrees. Soil condition mapping, one of the most sensitive components of earthquake modelling, is discretized at a resolution of:
- 0.001 degrees (about 100m) in greater Melbourne, Sydney, and Perth
- 0.01 degrees (about 1km) elsewhere
Structure Types and Occupancies
The model differentiates risk across hundreds of combinations with a full suite of representative structure types and occupancy categories, and allows only realistic pairings of occupancy and construction. For consistency of import, a common set of structure types and occupancies is available worldwide.
Risk metrics include:
- OEP and AEP loss exceedance curves
- Simulations of historical events
RQE's Year Loss Table (YLT) uniquely features three-dimensional output including:
- Simulation year
- Sample outcomes
Instead of reporting mean losses with standard deviations, each loss in the YLT represents one possible outcome for the associated event. This allows users to retain the full distribution of uncertainty when using model output in dynamic financial analysis and capital modelling. Conventional event loss results and other risk metrics can be derived from the YLT with arithmetic or simple database queries.
YLT and event loss results are supported at the portfolio level. Other risk metrics are supported at multiple levels of refinement: from total aggregate portfolio results to detailed output by policy and site.
All major insurance policy structures and reinsurance treaty types are modelled.
Request Australia Earthquake Model information which addresses Australia earthquake exposure, developed especially for Australia's unique mid-plate tectonic setting.