RMS Projects $54 B Monster CATs Killing 200,000
NU Online News Service, May 3, 12:59 p.m. EDT?The United States could suffer catastrophes that, compared with the World Trade Center attack, would kill thousands more with an insured cost billions of dollars higher, according to a study of possible natural and terrorist events.[@@]
Among the possibilities is a $54 billion loss from a terrorist anthrax attack, according to research by the Newark, Calif.-based risk-modeling firm Risk Management Solutions RMS.
The firm estimated the cost of a Chicago earthquake could hit $2 billion with 2,100 lives lost. An influenza pandemic could kill 200,000, the firm projected.
The RMS study also examined casualty risks from industrial accident and contagious disease?by analyzing seven "extreme but plausible" scenarios. And for each scenario, the study added up estimated losses from various insurance lines that included workers' compensation, individual life, group life, accidental death and dismemberment, and health insurance.
In the most costly scenario examined?a major anthrax attack?the $54 billion in estimated insured losses were made up of $32 billion of losses in workers' comp, $9 billion in group life, $7 billion in individual life, $4 billion in death and dismemberment, and $2 billion in health insurance.
The reason for adding up these various lines, the study pointed out, is that in extreme catastrophic events, insured losses are highly correlated across lines of business?meaning that CAT risks must be managed across multiple lines simultaneously.
The study also noted that the number of deaths or injuries by themselves can't completely predict costs to insurers or lines of business because there are other important factors to consider?including the usage of insurance products among people affected, the severity of their injuries, and even the time of day the event occurs.
"Our hope is that this study will improve the industry's understanding of the potential level of risk from human casualty and lead to the reduction of casualties from major catastrophic events in the future through increased awareness, preparedness and risk mitigation," said RMS Chief Executive Hemant Shah.
The RMS report shows, Mr. Shah said, that there are possibilities for catastrophes in the United States that can cause hundreds of thousands of fatalities, but he added that their financial impact can be quantified and managed by an improved understanding of the magnitude, likelihood and location of risk.
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