Following news from RMS that APAC is at risk of numerous 1-in-100-year events, StrategicRISK went to the market to see how this might impact your business.

Following news last week from modelling and analytics company RMS that the Asia-Pacific region is at risk from several “one in 100 year” major catastrophes, StrategicRISK went out to the market to get some views on just how this will impact their businesses. 

RMS believes the region is vulnerable following several disasters this year, such as the Palu earthquake in Indonesia and Typhoon Jebi hitting Japan. The company puts a 1% probability on a “major” destructive event occurring each year, and says Asia is particularly vulnerable due to a lack of insurance coverage.

RMS has pinpointed its top 10 major catastrophe risks across the region. It believes the Pacific Ring of Fire, Indian Ocean - Asia Plate Collision zone, and high concentration of tropical cyclones pose a unique threat.

The firm believes New Zealand is at risk from an M7.5 Wellington earthquake that could cause liquefaction in its roads and harbour reclaimed from the sea.

RMS suggests South Korea is at risk from stalled depressions and major flooding in Seoul. While China’s risks include an M7.8 quake in Hebei province capable of causing tens of thousands of casualties.

RMS believes the Philippines is exposed to a severe tropical typhoon, while Indonesia is at risk from a volcanic eruption at Lombok, potentially registering up to 6 on the Volcanic Eruption Intensity Scale.

The modelling company believes Australia is potentially at risk from a transitioning cyclone comparable with the 1938 hurricane in the northeastern United States, which killed between 600-800 people.

The firm estimates Japan could be hit by an M6.9 earthquake, while Mumbai, India could be decimated by a category 4 cyclone. It says Taiwan is at risk from an M6.7 quake, and the city of Bangkok, Thailand, could be completely flooded by a cyclone taking an unusual path.

Frashad Shah, Head of Risk Management at Malaysian highway concessions company Prolintas, described the list as “pretty bleak”, but said a second opinion might be required: “For example, the probability of earthquakes occurring and doing serious damage is much higher in Indonesia than in New Zealand. To compare, Indonesia has had ten major earthquakes in 2018 with only one measuring below 5Mw.”

Shah said there was “not much” risk managers could do to guard against major natural disasters, and added risk mitigation “goes out the window” for unusually severe events: “I don’t think there can be any control mechanism put in place at this point in time to mitigate the risk of volcanic eruption and/or earthquake,” he added.

Robert Muir-Wood, Chief Research Officer at RMS, described the list of potential major events as “credible” and “not so extreme as to be beyond the concerns of the insurance sector”.

Muir-Wood told StrategicRisk the threat to Asia was a particular concern due to the region having “significantly less” insurance coverage. He said: “In terms of the economic consequences of disasters, the most expensive earthquakes have occurred in Asia-Pac along with (since 1800), the most catastrophic eruptions. The floods in Thailand in 2011 were also some of the most costly worldwide.”

Muir-Wood said risk managers could take effective action by “ensuring buildings and equipment are protected against shaking or floods”, and having the right insurance coverage. He said companies should create “a resilience culture that recognises how actions taken before an event can dramatically reduce the consequences”.

Muir-Wood added risk managers should formulate a disaster risk reduction strategy: “Using potential disaster scenarios can be helpful for planning for alternative suppliers or ensuring there are well-protected warehouses with stock of key components. We never know exactly which catastrophe will happen next, so we need to ensure our planning considers a range of potential disasters.”