EQECAT Releases First Probabilistic US Wildfire and Flood Models for the Property Insurance Industry
Oakland, CA
November 3, 2004
EQECAT, Inc., the leading authority on extreme risk modeling, today released the first probabilistic models for managing property risk due to wildfire and flood in the United States.
EQECAT now offers more catastrophe models for U.S. perils than any other company, including models for earthquake, hurricane, tornado, hail, terrorism, flood and wildfire, as well as for natural hazards in 87 other countries.
Wildfire, Flood Models Offered in Response to Market Demand
"Industry losses due to wildfires and flood are growing and annually exceed $1 billion," said Thomas Larsen, Senior Vice-President, Product Management at EQECAT. "Managing exposure to these perils is an industry-wide concern, and EQECAT's probabilistic modeling tool will enable insurers to better understand and predict the losses inherent in wildfires and floods."
"The release of the new US Wildfire and Flood models is in response to the growing market demand for tools to manage these perils," said Larsen.
"EQECAT is in a unique position to be able to provide these tools because of its experience in helping in the development of the US flood model for the US Federal Emergency Management Agency (FEMA) and modeling wildfire loss potential for the Fair Access to Insurance Requirements (FAIR)," said Larsen.
Growing Concern for Increased Losses Due to Wildfires, Floods
There is growing concern in the insurance industry because of a recent trend toward increased losses from wildfires and floods. Increased exposure reflects population growth, forcing new development adjacent to wild lands and flood prone areas. These factors, coupled with changes in weather patterns and rainfall, have heightened loss potential.
The insured loss from last year's fires in California alone was $2 billion. More than seven million homes in California are in areas categorized in the three highest fire-risk levels. Insurers are also exposed to increasing flood losses for commercial and industrial properties.
US Wildfire Model Takes Into Account Numerous Key Factors
The US Wildfire licensed model is based upon EQECAT's previous wildfire consulting platform , which has been used in the insurance industry since 1999 for insurer consulting studies to estimate potential portfolio property losses.
EQECAT's new Wildfire model takes into account key factors such as fuel load — type of fuel and density — windspeed and direction, humidity, and terrain features to determine fire ignition probabilities and the rate of fire growth. Fire suppression capability is based upon known water supplies, air tankers, site access for firefighters and equipment and overall fire fighting resources in each area. The new model also takes into account differences in the vulnerability of structure types, such as homes with a wood-shake versus fire-retardant roof, as well as distance from brush-clearing setbacks.
The EQECAT model produces a fully probabilistic loss non exceedance distribution, per occurrence and annual aggregate, along with an expected annual loss. Policies can be analyzed at the street address level of detail and results viewed by policy-site, by geographic area, such as ZIP code, county or state, or the insurer's overall portfolio.
US Flood Model Covers Continental United States
The EQECAT US Flood model is a single-location, probabilistic analysis model covering the continental United States for areas adjacent to rivers and similar water bodies, and those subject to coastal flooding. EQECAT has long been recognized for its flood model expertise.
EQECAT's flood analysis is based on the development of a probabilistic flood hazard map for the US using historical data, including flood height, river discharge and frequency distributions for flood-peak discharge, collected from rivers equipped with measuring instruments, known as gauged rivers. Data from ungauged rivers have been developed using information transferred from gauged sites by relating flood characteristics to watershed and climatic conditions through correlation techniques.
The newly released model takes into account all the relevant risk factors such as river drainage area, main channel slope, mean annual precipitation in the basin, rainfall, land use and land cover, basin shape, and porosity of the soil.
The probabilistic analysis also utilizes the FEMA Q3 Flood Zones, updated to account for more recent local studies. The EQECAT US Flood model uses the latest Digital Elevation Maps (DEM) from the US Geological Survey (USGS) among other sources, as well as USGS-Environmental Protection Agency (EPA) stream database seasonal river flows. The model also uses vulnerability curves based on claims data, and research performed by several institutes such as the Federal Insurance Administration, the US Army Corps of Engineers, and the Institute for Water Resources. These vulnerability curves differentiate the loss potential by occupancy, such as residential, commercial, industrial, as well as with several subcategories, and coverage type, such as building, contents. EQECAT's US Flood model enables underwriters to graphically see the proximity of a site to flood zones, a cross-section of surrounding terrain, and provides probabilistic damage and loss estimates for each site.
EQECAT, Inc. provides state-of-the-art products and services to the global property and casualty insurance, reinsurance and financial markets. EQECAT is the technical leader and innovator of catastrophe risk management models that quantify exposure to a range of natural and man-made catastrophic risks.
Through its modeling software platform, WORLDCATenterprise, EQECAT enables clients to quantify and manage the potential financial impact of natural hazards. WORLDCATenterprise includes 181 natural hazard software models for 95 countries spanning six continents. These models are based upon innovative applications of the latest science, engineering expertise, claims and exposure data and advanced mathematics.
EQECAT, a subsidiary of ABSG Consulting Inc., was founded in 1994 and is headquartered in Oakland, California.
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