Volcanic ash fall risk higher than perceived, warns Swiss Re’s Patrice Tscherring
The risks associated with a volcanic eruption have received insufficient attention in the past, particularly with regards to ash fall, said Swiss Re’s head of earthquake Patrice Tscherring.
“We all remember being surprised at the impact the Iceland eruption and ash cloud had on the airline industry several years ago and the time it took to resolve. The effects on global business were impactful,” Tscherring said during the 8th Annual European Conference of the International Association of Claim Professionals in Madrid.
Tscherring discussed the work that he and his team have done to create a viable probabilistic volcanic cat model, the first of its kind in the insurance industry, despite the lack of frequency or widespread data.
Assessing risk of over 500 active volcanoes, Swiss Re’s global volcano model calculated that large cities face total economic losses of as much as $30 billion.
One in seven of the world's largest urban areas are located within a 150km radius of an active volcano and 1 billion people live in this at-risk area, according to Swiss Re’s new volcano model. The 10 most exposed cities include Tokyo, Naples, Manila, Managua, Jakarta and San José.
“San José is closely surrounded by five volcanoes. As San José is Costa Rica's economic centre, damages to the city pose a great risk to the economy of the whole country.” Tscherring said.
Currently, only Iceland has compulsory volcano insurance; elsewhere, losses from volcanic eruptions are largely uninsured, creating a huge protection gap.
“The largest loss potential is for property,” Tscherring noted. “We focus on ash fall because this hazard has the largest geographical potential.”
“The damaging effect of dry ash increases as the ash thickens, more so if rain occurs after the eruption. Roofs collapse, power lines are impacted, crops and drinking water is contaminated,” he said.
The cities most at risk from large losses caused by volcanic ash fall are in developing and emerging countries.
“Indonesia is the country with 50 percent of its population living near a volcano; 95 percent of the local economy remains financially unprotected.”
“Currently 80 to 95 percent of the ten most likely losses [from volcanic eruptions] in large cities are uninsured. Certain markets like Japan are now trying to address this by creating specific volcano products that cover business interruptions and extra expenses caused by evacuations. This insurance protection will help small and medium-sized businesses. Quantifying the volcanic risks will help close the protection gap and strengthen urban resilience”.
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