New Zealand Model Shows 50% Overall Increase of Quake Risk

In its first update in a decade, New Zealand’s quake model may have significant consequences for the insurance market.

New Zealand Model Shows 50% Overall Increase of Quake Risk
Photo by Nareeta Martin / Unsplash

An update to New Zealand’s National Seismic Hazard Model reveals an increased likelihood of future earthquake shaking throughout most of the country, representing an average 50% increase in shake risk when compared to its previous model.

“There is no single result, but the hazard in general increased across the country from approximately no change to more than doubling ,” said Dr. Matt Gerstenberger, seismologist with New Zealand-based model developer GNS Science, Te Pū Ao, during a presentation on the model’s roll out last week.

This is the first update to New Zealand’s earthquake model in over a decade.

There is no timeline to incorporate the update into insurers’ risk and loss modeling , said Dr. Jo Horrocks, Chief Resilience & Research Officer for New Zealand’s Earthquake Commission, Toka Tū Ake (EQC).

“Insurers and reinsurers, along with the EQC, will take some time to consider the results and whether it will affect premium pricing,” Horrocks explained, adding there is no “one to one” relationship between premiums and the model update. Other factor , including a property’s design, resilience and location will need to be absorbed.

“The hazard is just one factor that affects the risk,” Horrocks said. “It will take some time and it will be the decision of individual insurers as to what they do with that.”

The changes are considered the most significant updates to the earthquake model in 20 years and its first major revision since the 2010-2011 Christchurch and Canterbury earthquakes that killed hundreds and caused billions in economic and insured losses.

Gerstenberger said that critical updates to the new earthquake model and the previous version includes more realistic hazard estimates, inclusion of more “high impact, low probability earthquakes” and better ways of incorporating modeling uncertainty into its result, according to the presentation.

But what insurers will do with pricing, and what limits reinsurers will place on capacity, because of the model changes is still to be determined, Horrocks said.

“There is no directly translation from shaking to impact,” she said. “Because of the complexity of the model, it's not a straightforward thing to slot it straight into pricing”

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