Chapter 12 - Volcanic Risks and Insurance

Abstract

The volcanic eruption of Eyjafjallajökull in spring 2010 has shown the potential consequences of volcanic eruptions in a globalized world. However, insured losses were insignificant. Nevertheless, volcanic eruptions might pose an underestimated threat to the insurance industry that requires measures to keep the insurance risk under control. In principle, the same risk evaluation processes apply as for other natural perils, where risk is a function of hazard, the vulnerability of the exposed objects, and the exposed values. Probabilistic computer models have been developed for the proper assessment of risks since the late 1980s, but are in their infancy for volcanic risk. Here, the instruments developed in the insurance industry to evaluate volcanic risk are described as they form the basis for controlling and financing future losses. Due to the variety of volcanic products and the large range of possible event sizes, volcanic risk presents a particular challenge for risk management. Two types of volcanic threats have to be considered: (1) city scenarios of local or regional extent and (2) rare extreme events with global consequences that even require a discussion on insurability as such. An urgent need exists to improve our knowledge in order to reduce the high uncertainty in actual risk evaluation to an acceptable level. For the industry, it is particularly important to achieve full transparency regarding covered and noncovered risks and to define the limits of insurability for megadisasters in a systematic manner. The Global Volcano Model makes a number of efforts in this direction.