A. Amendola

Recent paradigms for risk informed decision making

Abstract Any project aimed at technical harmonisation of risk assessment procedures should not ignore recent theories and policy recommendations on risk governance. For this reason, it is opportune to review the shift of paradigms for risk based decision making, which seem now to inform policy discussion on both sides of the Atlantic. Early deliberations on risk advocated a three-stage approach: establish the probability and magnitude of the hazards respecting the inherent scientific uncertainties (a technical process), evaluate the benefits and costs (a social process), and set priorities in such a way that the greatest social benefits are achieved at the lowest cost. In this perspective, the risk assessment phase was strictly separated from the management. Recent paradigms call for a participatory procedure, in which the different stakeholders are involved early in the risk analysis process to “characterise” risks, even before they are given a formal assessment. This does not diminish the role of modelling and quantification, but is aimed at eliciting the “values” and the perspectives of the community involved so that the multiple dimensions of risk can be taken into account early on in the assessment. Furthermore, the implications on risk assessment of the precautionary principle, on which the EU health and environmental policy is based, are briefly discussed.

A system approach to management of catastrophic risks

There are two main strategies in dealing with rare and dependent catastrophic risks: the use of risk reduction measures (preparedness programs, land use regulations, etc.) and the use of risk spreading mechanisms, such as insurance and financial markets. These strategies are not separable. The risk reduction measures increase the insurability of risks. On the other hand, the insurance policies on premiums may enforce risk reduction measures. The role of system approaches, models and accompanying decision support systems becomes of critical importance for managing catastrophic risks. The paper discusses some methodological challenges concerning the design of such models and decision support systems.

A Systems Approach to Modeling Catastrophic Risk and Insurability

This paper describes a spatial-dynamic,stochastic optimization model that takes account ofthe complexities and dependencies of catastrophicrisks. Following a description of the general model,the paper briefly discusses a case study of earthquakerisk in the Irkutsk region of Russia. For this purposethe risk management model is customized to explicitlyincorporate the geological characteristics of theregion, as well as the seismic hazards and thevulnerability of the built environment. In its generalform, the model can analyze the interplay betweeninvestment in mitigation and risk-sharing measures. Inthe application described in this paper, the modelgenerates insurance strategies that are lessvulnerable to insolvency.

Global change, natural disasters and loss-sharing: Issues of efficiency and equity

Global change in the form of climate warming, demographic developments, land use and capital movements to vulnerable regions will likely contribute to the already increasing human and economic losses from natural disasters. As countries in both the developing and developed world contemplate increasing losses from natural disasters, and as the victims relate these losses to human culpability, questions of burden-sharing for preventing and absorbing human and financial losses are becoming increasingly topical. This paper provides an overview of two forms of state and market burden-sharing at the local and global levels: collective loss-sharing after a major disaster by the state or the international community and the pre-disaster transfer of risk through insurance and other hedging instruments. With the recent attention given to the role of the private sector for apportioning and preventing disaster losses, we examine the efficiency and equity arguments for both collective loss-sharing and private risk transfer. We give special attention to the potential for governments of poor countries to transfer their natural disaster risks to the insurance and reinsurance markets, and to the international capital markets with newly developing hedging instruments, such as catastrophe bonds. We suggest that, under certain conditions, subsidized risk transfer can be an efficient and equitable way for industrialized countries to assume partial responsibility for the increasing disaster losses in poor countries, in addition to their role in aiding the economies of these countries.

Introduction to Special Issue on Flood Risks in Europe

Cod Gadus morhua population in the Barents Sea was found to be spatially structured with regard to length-at-age. Results were based on data collected during research surveys in the Barents Sea between 1982 and 1997. The identified spatial structure was most pronounced for age groups 24 years and decreased for the older age groups with higher potential for migration. A positive linear correlation between mean length-at-age and mean geographical temperature was established for age groups 24 years. This correlation was shown to be strongest when based on mean temperatures during 3 year periods ending with the year of capture. The spatial structure in length-at-age was shown to follow the temperature gradient of the Barents Sea. A large part of the observed area effects could be explained by temperature variation between areas. Evidence is also presented which indicates that the predictability and sensitivity of the dependence of length-at-age on temperature increases under extreme environmental conditions, i.e. in the northern and eastern areas of the Barents Sea.

Disaster risk management: Pro-active financing to reduce vulnerability

Recent events, like the Indian Ocean tsunami, catastrophic flooding in Guatemala, the Kashmir earthquake and Hurricane Katrina, have had staggering human, economic and environmental consequences, and contributed to the alarming upward trend in disaster losses. Over the period 1984–2003, more than 4 billion people were affected by natural disasters, and between 1990 and 1999 the costs of disasters (in constant dollars) were more than 15 times higher than during the period 1950–59 (World Bank, 2006). The dominant factors behind rising losses are changes in land use and increasing concentration of people and capital in high-risk areas, for example, in coastal regions exposed to windstorms, in fertile river basins exposed to floods, and in urban areas exposed to earthquakes (Miletti, 1999). Although the rise in disaster losses today is largely driven by socio-economic factors, there is mounting evidence of a significant climate-change signal in disaster events (Schönwiese et al., 2003; Emanuel, 2005). The United Nations Intergovernmental Panel on Climate Change recently reported observations of long-term and widespread changes in wind patterns and aspects of extreme weather including droughts, heavy precipitation, heat waves and the intensity of tropical cyclones (IPCC, 2007). The focus of this volume is on natural disasters as they affect the poor and vulnerable in developing countries, who disproportionately bear the human and economic burdens. In the past quarter century over 95% of disaster deaths occurred in developing countries, and direct economic losses as a share of national income were more than double in low-income versus high-income countries (Arnold and Kreimer, 2004). There are many reasons for this. Economic circumstances force many to live and work in high-risk areas, and regulations on land use and construction are lax and often not enforced. Early warning often does not reach the most vulnerable, who may ignore warnings in fear of deserting livestock and other possessions. Moreover, the statistics do not record the longer-term losses in lives and livelihoods due to the inability of developing country governments and their citizens to finance the recovery process. Disasters exacerbate poverty as victims take out highinterest loans, sell assets and livestock, or engage in low-risk,

Integrated Catastrophe Risk Modeling: Supporting Policy Processes

Efficient and equitable policies for managing disaster risks and adapting to global environmental change are critically dependent on development of robust options supported by integrated modeling. The book is based on research and state-of-the art models developed at IIASA (International Institute for Applied Systems Analysis) and within its cooperation network. It addresses the methodological complexities of assessing disaster risks, which call for stochastic simulation, optimization methods and economic modeling. Furthermore, it describes policy frameworks for integrated disaster risk management, including stakeholder participation facilitated by user-interactive decision-support tools. Applications and results are presented for a number of case studies at different problem scales and in different socio-economic contexts, and their implications for loss sharing policies and economic development are discussed. Among others, the book presents studies for insurance policies for earthquakes in the Tuscany region in Italy and flood risk in the Tisza river basin in Hungary. Further, it investigates the economic impact of natural disasters on development and possible financial coping strategies; and applications are shown for selected South Asian countries. The book is addressed both to researchers and to organizations involved with catastrophe risk management and risk mitigation policies.

Catastrophe Risk Management

The catastrophe risk management process has all the characteristics of a complex systems problem: multiple conflicting objectives and strategies, a diverse range of views on fairness, multiple stakeholders and interests, and many different policy variables. The purpose of research at IIASA is to develop and test an integrated systems approach that can potentially provide insights on the complex issues and trade-offs involved. The approach also includes development of tools. These are designed to take into account the complexities and spatial — temporal dependencies of catastrophic risks, and to investigate multiple policy options (i.e. interplay between investment in mitigation and risk-sharing measures). Case studies have been demonstrating how these tools can aid a decision process that involves the public and stakeholders from the very beginning.

Catastrophe Models for Informing Risk Management Policy: An Introduction

Catastrophe models that combine data on past occurrences with future simulations of the hazard, exposure and vulnerability, and that take account of the dynamic environment as well as correlated loss distributions, are becoming increasingly important for assessing the risks of extreme events. This volume demonstrates innovative ways for adapting catastrophe models to aid risk management policy processes via a number of wide ranging applications. These are grouped into three parts, according to whether they inform local or regional risk management policy (Part I); the management of country-wide catastrophe risk and its implication on development (Part II); and the participatory design of a national insurance program (Part III). After discussion of the rational for the proposed approaches, which integrate across multiple disciplines and take into account the diverse values and preferences of stakeholders, this chapter introduces Part I of the volume, including cases on the management of flash flood risk in Vienna, Austria, an earthquake insurance program for the Tuscany region in Italy, balancing stakeholder concerns in establishing flood risk management strategies in northern Vietnam, and the choice of appropriate discounting factors in the design of infrastructures under consideration of catastrophe risk.

Modeling Risk and Uncertainty: Managing Flash Flood Risk in Vienna

In this chapter, different concepts of risk and uncertainty are applied to the analysis and management of the risk of flooding along the Vienna River in Vienna, Austria. The methodology illustrates how, by the use of catastrophe models, it is possible to extend traditional engineering-based approaches to flood risk management to integrate loss spreading techniques (such as the purchase of flood insurance or the maintenance of a catastrophe fund) with traditional loss-reduction techniques (such as the construction of levees, floodwalls, or detention basins) and to give a full account of uncertainty. The results show that the greatest risk from flash flooding is to the Vienna city subway system, and suggest that combining available measures in an overall mitigation strategy results in decreasing total costs and reducing the likelihood and uncertainties of catastrophic financial loss.