Regulators have approved the Colombian earthquake model of Silicon Valley-based catastrophe modeling firm RMS. The announcement, which comes just days after a rival model from AIR Worldwide was also approved by the Superintendencia Financiera de Colombia, adds intelligence and choice for insurers that underwrite disaster risk in the Andean nation.
The approval was a necessary step forward because insurance companies operating in the high-risk nation can only use approved models when determining their probable maximum loss and average annual loss as well as in managing their capital reserves, according to RMS. “Colombia has one of the highest seismic hazards in South America, with significant exposure concentrations on active faults,” said Victor Roldán, regional head for Latin America at RMS.
Roldán added that few companies have earthquake insurance even though they are threatened by a high exposure. This risk is further magnified by the fact that Colombia’s three major cities — Bogotá, Medellín, and Cali — each sit on a different one of the three ranges of the Andes Mountains present in the country. The threat is even greater for the many large companies that have a presence in all three metropolises. “Despite the country’s steadily increasing economic growth, insurance penetration is still low,” said Roldán.
He believes that RMS adding greater scientific understanding will help insurers and reinsurers better price their coverage and assess their exposure. And increased knowledge by those underwriting the policies will bring a greater resilience to disaster for the country as a whole, while the carriers can be more secure in their portfolios and capital reserves.
RMS collaborated with various South American seismology and engineering experts, including the Bogotá-based Universidad de Los Andes, to craft its Colombian model. With such localized knowledge, the firm was able to add greater nuance about real-world conditions to its model.
“Based on a single region-wide catalog of crustal and subduction zone seismic sources and including more than 134,000 stochastic events across South America, the models also capture the influence of local soil conditions on earthquake shaking and incorporate local design and construction practices into assessments of building vulnerability,” said the company in a statement.
Its Colombian earthquake model is one of eight that RMS has crafted for South America. It also has models for Argentina, Bolivia, Brazil, Chile, Peru, Ecuador, and Venezuela.