BOSTON, July 16, 2012 — Catastrophe risk modeling firm AIR Worldwide (AIR) announced today that it has released a cyclone model for India. The new peer-reviewed model, which was developed out of AIR’s Hyderabad office, captures the effects of wind and precipitation-induced flooding on insured properties in India, enabling companies to assess cyclone risk in the region more fully and accurately.
“As India’s economy grows and global markets become increasingly interdependent, the insurance industry is turning its attention to the potential for large losses in the region,” said Dr. Praveen Sandri, senior vice president and managing director of AIR Worldwide’s India operations. “We’re confident that AIR’s model will provide clients with the most complete view of cyclone risk in India and that it will become the industry standard for managing the potential losses caused by these high-impact events.”
The magnitude of the risk came to wide attention as a result of Orissa, the 1999 super cyclone, which caused damage in excess of USD 2.5 billion and at least 10,000 fatalities. “While the insured losses from the Orissa cyclone were a fraction of the total damage, the situation is changing as insurance penetration in India grows,” said Dr. Sandri.
Cyclones are four times more likely to form in the warmer Bay of Bengal than over the colder waters of the Arabian Sea. However, the western coast of India is highly industrialized, and insurance penetration is higher there. “On the west coast, the 1998 Gujarat cyclone caused damage of about USD 500 million and insured losses exceeding USD 200 million,” continued Dr. Sandri. “The exposure throughout this region is far more concentrated today, which can result in higher losses, even with fewer storms.”
The AIR India cyclone model covers the entire Indian Ocean basin and includes more than 35,000 loss-causing storms, both landfalling and bypassing. To represent surface winds from cyclones realistically, the model uses the latest high-resolution land use/land cover data to capture the effects of surface friction on wind speed.
Unlike cyclone winds, which generally decrease as storms move inland, precipitation intensity and its related flood hazard can increase. As a result, precipitation-induced flooding can be a significant driver of damage over large areas. The AIR model calculates total precipitation and then reroutes the rainfall distribution based on soil type, land use/land cover, and slope — all of which determines what fraction of precipitation is absorbed and what fraction accumulates to produce localized flooding.
“A relatively weak but wet and slow-moving cyclone coming ashore near the city of Mumbai could dump more than 16 inches of precipitation and produce insured losses in excess of USD 600 million,” explained Dr. Jayanta Guin, senior vice president of research and modeling at AIR Worldwide. “Such an event could produce a flood footprint similar to the devastating 2005 Mumbai floods, which illustrates that any model that attempts to accurately measure India’s cyclone risk must capture the full range of possible outcomes, including high-impact flood events. Even bypassing storms can cause significant damage as they move up the coast, delivering damaging winds to coastal exposures and causing flooding hundreds of kilometers inland.”
As part of the model release, AIR collaborated with local sources to develop a high-resolution industry exposure database (IED) for India that contains counts of all insurable commercial, residential, and industrial properties and their respective replacement values, along with information about occupancy and the physical characteristics of the structures, such as construction type and height classifications. The detailed IED provides a foundation for the model’s industry loss estimates and can be leveraged by companies that lack access to location-specific exposure data to achieve a more accurate representation of their risk.
Separate wind and flood damage functions (how the intensity of the hazard affects different structures) have been developed for a wide range of occupancies and construction types, as well as for buildings under construction — an important line given India’s continuing rapid growth. Damage functions are also available for a wide variety of complex industrial facilities. The model, which accounts for policy conditions specific to India, has been extensively validated against historical hazard and loss data and has undergone peer review.
The AIR Cyclone Model for India is currently available in Version 14.0 of the CLASIC/2TM and CATRADER® catastrophe risk management systems.
About AIR Worldwide
AIR Worldwide (AIR) is the scientific leader and most respected provider of risk modeling software and consulting services. AIR founded the catastrophe modeling industry in 1987 and today models the risk from natural catastrophes and terrorism in more than 90 countries. More than 400 insurance, reinsurance, financial, corporate, and government clients rely on AIR software and services for catastrophe risk management, insurance-linked securities, detailed site-specific wind and seismic engineering analyses, and agricultural risk management. AIR is a member of the Verisk Insurance Solutions group at Verisk Analytics (Nasdaq:VRSK) and is headquartered in Boston with additional offices in North America, Europe, and Asia. For more information, please visit www.air-worldwide.com.