Filed Under:Risk Management, Weather Risk

Lloyd's presents prestigious Science of Risk Prize to Wharton's Michel-Kerjan for his work on climate change

Dr. Erwann Michel-Kerjan, executive director of the Wharton Risk Center, Philadelphia, and Dr. Juliet Biggs, professor at the University of Bristol, England, , received the 2014 Lloyd’s Science of Risk Prize in London last week.

The award recognizes Michel-Kerjan’s work on Evaluating Flood Resilience Strategies for Coastal Megacities, published this year in Science, which was jointly undertaken with Jeroen Aerts, Wouter Botzen, Hans de Moel (VU University, Amsterdam), Kerry Emanuel (MIT) and Ning Lin (Princeton University).

Each year, the Lloyd’s Science of Risk prize is awarded to esteemed academics and Ph.D. candidates who, through their scientific work, further the understanding of risk and insurance. In its fifth year, the prize is offered in two broad categories: climate change and natural hazards.

“The research submitted gave us valuable insights into new and emerging risks and how to assess them, which is the essence of our Science of Risk prize,” says Lloyd’s director of performance management, Tom Bolt, who presented the awards.

Michel-Kerjan and his colleagues, who took home the top honor in the climate change category, performed a full cost-benefit analysis of resilience strategies to protect large coastal megacities against storm surge, today and in the future, and applied their methodology to New York City.

Considering the impact of Superstorm Sandy on New York City, Michel-Kerjan and his colleagues proposed four resilience strategies to cope with future storm surges and the likely impact of sea level rises. Similarly, the difficulty in financing such resilience strategies involving large-scale infrastructure projects, including barrier islands, was considered by the paper.

One solution was to issue a multi-year “Resiliency Bond” to spread out the upfront cost over time, while another was to impose a “Resiliency Fee” on visiting tourists.

"As we discussed in the Science paper, it can take 10 or 15 years (from design to construction) to build the necessary protective infrastructure. This is why several of the strategies we evaluated for New York City, which will be cost-effective under future climate, should be started now,” says Michel-Kerjan.

"If one waits for another $70 billion loss to act, we would have lost time and money," he added. "Similar discussion should occur in the U.K. and actions be taken." iscussed in the Science paper, it can take 10 or 15 years (from design to construction) to build the necessary protective infrastructure. This is why several of the strategies we evaluated for New York City, which will be cost-effective under future climate, should be started now,” says Michel-Kerjan.

Michel-Kerjan asserts that the insurance industry should play a key role in building stronger communities that are able to withstand natural disasters.

"When insurance is risk-based it can provide a powerful signal of the level of exposure those at risk actually face," he explained. "It can also reward good behavior: if a family or a business invests in risk reducing measures the cost of insurance is lower."

"The challenge though is that for political reasons, flood insurance is rarely risk-based," he added. "This is a big challenge in many countries around the world."

The jury recognized the innovative and multidisciplinary approach of the team, as well as the research’s applicability to building resilience and measuring return on investment, which could be deployed globally.

Dr. Juliet Biggs: Natural Hazards prize

Winning submissions incorporated research papers from a diverse range of fields and sources, employing satellite data, catastrophe modeling, engineering innovation and economic analysis. Dr. Juliet Biggs, professor of Earth Sciences at the University of Bristol, and her team received the award in the natural hazards category, for their work, “Global link between deformation and volcanic eruption quantified by satellite imagery.”

"The idea is that as magma moves beneath a volcano it might cause the ground to uplift or subside by a few centimeters, or even meters. It’s as if there was a balloon of magma inflating and deflating underneath the volcano. The small displacements can be measured from satellite observations," says Biggs.

The use of satellite imagery has been around for decades, but Bigg’s research marks the first time volcanoes have been monitored on a global scale. 

“Lloyd’s welcomes this innovative use of satellite data to provide early warning information to investigate risk around the world," says Lloyd's head of exposure management and reinsurance, Trevor Maynard.

While the research was taking place, 34 volcanoes were erupting around the world, including Bardarbunga in Iceland, and Hawaii’s Kilauea. 

"We've used a large archive to satellite data to look probabilistically at the link between displacement and eruption so we can put a number on the proportion of volcanoes that have deformed or have had an eruption," Biggs explains, "so we can start to turn these things into probabilistic hazard analyses, just like you might do with a meta-analysis of medical trial data."

The recent launch of Sentinel-1 by the European Space Agency is set to boost the monitoring of volcanoes yet further. Sentinel 1A, which was launched in April, provides all-weather, day and night radar imaging for land and ocean services.

"We're currently building a processing system which should allow us to analyze displacement data from all the world's volcanoes and post them freely available online in near real time," Biggs says. "That's our medium-term goal. We hope to make this information available to the general public, volcano observatories that are responsible for the threat levels of individual volcanoes and also to the insurance industry."

Biggs says that she hopes the Science of Risk prize will open the dialogue between scientists and the insurance industry.

“It might be particularly useful for the insurance industry because by looking at a large dataset, we can use probabilistic tools. We now have statistics that can be applied to volcanoes that have little ground-based observation infrastructure,” she says. "I'm very excited about winning this because it gives me the opportunity to interact more closely with the insurance industry to understand how they work and how this research might be useful for them.”

Upon the announcement of this year’s winners, Dougal Goodman, chair of the prize committee, praised Lloyd’s for their efforts to raise awareness, as well as broadening the scope of knowledge and research associated with climate change and natural hazards, and furthermore, promoting its value to the reinsurance market.

 “It’s fair to say that the papers looked at how to lighten the suffering and improve the resilience of communities right across the world,” Goodman says.

 

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