Risk modelling

from The Marine Insurer. June 2021. Issue 6

A market in flux

Location is all

Sam Lucas, who focuses on specialty lines within the Product Management team at catastrophe modelling company RMS, explains how knowledge of the exact location of a cargo in storage is fundamental to producing an accurate understanding of the exposure

The first step to understanding risk to a given item of cargo from a natural disaster is to know where that product is and thus which perils that product could be exposed to. Understanding the peril is key, as damage mechanisms that could affect a product depends both on the storage method, and critically the peril. For instance, automobiles in an open lot are much more susceptible to hail than to ground shaking caused by earthquakes.

The RMS marine cargo and specie model allows users to consider losses from earthquake, windstorms, storm surge, inland flood and the perils collectively referred to as severe weather (tornado, hail straight-line wind).

RMS has since expanded the model to be included in the China inland flood and the Southeast Asia inland flood HD models. Considering the damage mechanisms for the peril of inland flood, we find that even for what might be considered a similar peril, the damage mechanisms are variable.

WATER-BASED PERILS

Storm surge and inland flooding, are both water-based perils, potentially inundating the cargo. While certain product types, such as electronics, will be severely damaged by water no matter the salinity, saltwater storm surge has higher potential to damage certain cargo types, as salt is more likely to cause issues such as corrosion. Hence the importance of understanding what your exposure is.

The location of product storage is another important consideration.

For instance, compare the damage caused by earthquake to that of flood. For a product such as auto stored in an open lot there is minimal damage potential from earthquakes because cars are designed to handle vibrations/ movements. Whereas, for flood waters all vehicles within the inundation area will be impacted.

Compare this to autos stored in a stack of containers, that are elevated above ground level. In this case, we can expect the opposite. Flood waters do not reach the higher contains, limiting the damage, while in earthquakes we can expect movement of the containers resulting in damage to the autos stored inside.

The way the cargo is stored will have a significant impact type on the possible damage mechanisms from the various natural hazards.

The interplay of different damage mechanisms is important to consider when assessing the risk posed to the various product and storage mechanisms found within cargo and specie exposures. It is critical to know where and what your exposure is to understand the risk faced. RMS continues to expand the marine cargo and specie model to additional peril regions, providing clients with a complete view of catastrophe loss potential.

Legal Advice Enabling You to Arrive Safely in Port

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Risk modelling

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This article is from:

The Marine Insurer. June 2021. Issue 6