Risk Frontiers turns 25!

by Russell Blong

Last year Risk Frontiers turned 25 demonstrating the success of what may be Australia’s longest-running insurance industry research collaboration. In this, our 73rd newsletter, Professor Russell Blong, the founder of Risk Frontiers, shares his memories of the early years.

An image in the Natural Hazards Observer (University of Colorado) announcing the start of the NHRC.

In 1988 I was awarded an Australian Research Council Grant to investigate natural hazards in Australia. I thought we could leverage insurance industry involvement to expand the scope of the project, but it soon became clear that the industry really wasn’t interested. I chatted to Gerhard Berz, global head of Geohazards at Munich Re, who agreed the industry should be engaged and urged me to persist.

I decided to spend the first half of 1989 at Munich Re in Sydney. A few days before I was due to start the Newcastle Earthquake (26th December 1989) occurred (see article by Paul Somerville in this issue) making natural hazards research in Australia much more interesting for the insurance industry.

The ARCG team at Macquarie University – Kylie Andrews, Clare Byrnes, De Radford and Lucinda Coates – had already begun work on a natural perils database (now PerilAUS) spanning the period since 1900, when a severe hailstorm on 18th March 1990 caused damage in 130 postcodes in Sydney. Overnight, the Australian insurance industry, which at the time really had no hazards research capacity at all, became interested in academic research. We examined hundreds of residential claims from the 1990 hailstorm and prepared a database of Sydney hailstorms back to 1788 – analyses that years later would become important components of HailAUS.

We also built a scenario-based Sydney residential property earthquake model in a spreadsheet for NRMA. While crude by today’s standards, this was the first Australian earthquake loss model that wasn’t based entirely on hand waving and selective heuristics (i.e., guessing).

In early 1992 I came across a copy of a letter written to all Australian universities by Ray Carless and Rob de Souza from Greig Fester, reinsurance brokers, seeking expressions of interest in developing an earthquake loss model for Australian capital cities. Although the deadline for responses had long passed, I rang up and we eventually produced earthquake loss models for insured residential property in Sydney and Melbourne. This study was published by Greig Fester, with most of the modelling work, including the switch from spreadsheet to Fortran, undertaken by Laraine Hunter.

The NHRC moved to a demountable classroom on the edge of the Macquarie campus (a site now occupied by Macquarie Hospital). We did some research work for our insurance supporters on a range of topics, for Geoscience Australia on landslide and tsunami databases, for Department of Foreign Affairs and Trade on natural disasters in the Solomon Islands, on crop hail damage, on lightning fatalities, the volcanic eruption in Rabaul in 1994, integrated natural peril hazard assessments in Vanuatu and Fiji, and an evaluation of the Australian International Decade for Natural Disaster Reduction program.

While we had been confident that the NHRC would be self-funding by the time the three years were up, all too soon we were talking to our industry partners about another three years, and then another … Meanwhile our insurance industry engagement grew and with it the number of industry sponsors, eventually reaching 10 by 2001 – QBE, Benfield Greig, Swiss Re, Guy Carpenter, NRMA, Aon Re, Employers Re, CGU Insurance, Gerling Global Group, and Royal Sun Alliance – a superb cross-section of the Australian and global insurance industry.

In the early years it would be fair to say the university administration was cautious and could have been more supportive of the NHRC and there was some internal opposition to it being a separate research centre. This, no doubt, stemmed from the uniqueness of the NHRC business model within a university, with perhaps few, if any, similar models in place around the world at the time. We were helped through all of this by Peter Curson, then Head of the School of Earth Sciences. Eventually we were able to show the university administration that NHRC was a profit centre rather than a cost centre, as we were bringing in substantial funds external to the university system in addition to engaging industry.

We also moved out of the ‘tin shed’ and back to the main Earth Sciences building at the University. Luckily this failed to put a dent in the number of lunches and other special occasions we celebrated.

In 1996 NHRC commenced work on flood vulnerability. This work took more years than we intended and even more years to reach valuable agreements with the industry. In the meantime, we commenced a range of flood-related research and evaluation for the NSW Department of Land and Water Conservation and undertook a major effort to understand flood damage to residential and other buildings – all of this at a time when flood insurance in Australia was rare. At the same time, we began the development of HailAUS with additional financial support from Benfield Greig and Hannover Re.

Graduate students including Heather McMaster, Stephen Yeo, Keping Chen, Christina Magill, Sandra Schuster, Andrew Gissing and Ben Miliauskas completed theses on hail damage to crops, flooding in Fiji, geospatial approaches to natural hazards and risk assessment, volcanic risk in Auckland, hail identification and losses in Sydney, commercial flood damage and micro tremors in Newcastle.

In 2001, at the suggestion of Ian Watson, a colleague who had been on the staff of Physical Geography at Macquarie University, the Natural Hazards Research Centre changed its name to Risk Frontiers and a new era began. The insurance industry had changed from an almost entirely analyst-free zone in the early 1990s to workplaces where researchers, analysts and actuaries were thinking about catastrophic events and insurance implications. John McAneney joined Risk Frontiers as Deputy Director and in 2003, shortly after Risk Frontiers-NHRC’s ninth birthday. Russell Blong, worn down by endless strategising and long lunches, called it a day and John took over as Director.

Now, 25 years on, Risk Frontiers is Australia’s leading catastrophe loss modelling and research company, demonstrating the success and impact of industry collaboration. We have swapped spreadsheets for Machine Learning and now provide services globally to a diverse range of clients.

To be continued.

Happy birthday everyone and all the best in the new year!

Farewell to the ‘tin shed’ – from left Russell Blong, Laraine Hunter, De Radford, Carol Robertson, Frank Siciliano, Roy Leigh, Ivan Kuhnel, Stephen Yeo, and Keping Chen. Lucinda Coates – the one person to have survived the whole 25 years of NHRC-Risk Frontiers (and even she failed to turn up for some years) – took the photo in 1999. Sadly, both Laraine and Roy have left this earth – visit https://riskfrontiers.com/people/tributes/ to learn just how important they were to the early years of NHRC-Risk Frontiers and how much we valued them.