Volcanic risk management and insurance in New Zealand

New Zealand volcanologists, emergency managers, and insurers watched the unfolding eruption in La Palma, Canary Islands, this year with interest, well aware such a scenario could happen in this country. 

New Zealand hasn’t experienced a damage-causing eruption like that seen in La Palma over the last few weeks. Nor has it experienced events like the lava flows from Kilauea, Hawaii, in 2018, the volcanogenic tsunami caused by Anak Krakatoa, Indonesia, in 2018, or the widespread ashfall seen at Taal Volcano, Philippines, in 2020, and Calbuco volcano, Chile, in 2015. But we know it could happen, and we are actively preparing for that eventuality.

In this article we discuss recent experience with volcanic events in New Zealand, the state of volcano science and understanding, and multi-agency preparedness for such events. We cover New Zealand’s public-private model of insurance, including insurance coverage of volcanic events; we discuss a recent review of operational policy, seeking to ensure the lessons learned from the Canterbury Earthquake Sequence claims management experience are applied to other hazards. Finally, we look at New Zealand’s risk and loss modelling capability, including how we are trying to quantify likely losses from future volcanic events. 

The Earthquake Commission is New Zealand’s public insurer. As well as providing 'first-loss’ insurance cover for natural disasters, we also invest in natural hazard research, including how to reduce the impact of hazards, build resilience, and protect the wellbeing and prosperity of New Zealanders.

While we haven’t experienced property damage resulting from a volcanic eruption for many years, New Zealand has not been without its volcanic crises and tragedies. On 9 December 2019, Whakaari/White Island, an offshore volcano in the Bay of Plenty region (Figure 1) erupted, killing 22 tourists. The eruption generated an ash plume and pyroclastic surge (super-hot, fast-moving ash cloud) that affected the entire crater area. Two tour parties were caught in the blast. As well as the fatalities, 25 more suffered serious injuries, and the eruption required a weeks’ long response and recovery effort. The tragedy re-started a national conversation on volcanic risk management and communication, and it renewed authorities’ planning and preparedness efforts.

In reality, New Zealand is relatively well-served by volcano science, risk assessment, planning, preparedness, and education, having had frequent small-scale reminders of the power of volcanoes over recent decades. 

The eruption of Mt Ruapehu in central North Island in 1995-96 was a particular wake-up call. Several explosive eruptions over two years caused ballistics, lahars, tens of kilometres-high ash plumes, and extensive ashfall across several regions. The eruption didn’t cause substantial damage, but was enough of a reminder about what could happen, and it initiated a wave of research, planning, and preparedness by a range of agencies.

New Zealand’s relative advantage when it comes to its natural hazard risk, is our long history of investment in science and research, in particular the geological, marine, and hydro-meteorological sciences. This investment in science means we know a lot about our natural environment, the ground beneath us, and the natural processes that can affect us. It means we have a robust evidence base on which to inform our natural hazard risk management policy and practice. It also means we have an authoritative, evidence-based voice in international markets, in particular, in the international reinsurance market.

At the core of almost all geoscience research is scientific observations of the earth. For the last twenty years, these observations have been provided in real-time by GeoNet, New Zealand’s geohazards monitoring system. The GeoNet Programme was established in 2001 by the Earthquake Commission, GNS Science, and Land Information New Zealand (LINZ). It resulted from the recognition that the risk to New Zealand’s population and economy from geological hazards is significant, and that a robust evidence base is needed to understand and manage these hazards. GeoNet now comprises a network of more than 700 sensors nationwide, as well as the 24/7 National Geohazards Monitoring Centre, automated software applications, a data management and storage centre, and skilled technical and scientific staff. The programme detects, interprets, and archives key geophysical data about New Zealand, and provides real-time, open source, public data and information about the hazards around us.

For New Zealand volcanoes this monitoring incorporates several strands of observation and measurement, including:
 

• Visual observations – a network of remotely-operated cameras to supplement in-person observations and observation flights.
   
• Seismic monitoring – provided by the core national seismic network, supplemented by regional networks for specific volcanoes.
   
• Chemical analyses – airborne and ground-based gas monitoring, and groundwater, fumarole, crater lake, and thermal spring water chemistry to detect changes in the behaviour of the volcanoes and their associated geothermal systems.
   
• Ground deformation – geodetic levelling, continuous Global Positioning System (GPS), and Interferometric Synthetic Aperture Radar (INSAR) satellite monitoring to measure changes to the land surface that may be the result of magma, hydrothermal, and/or magmatic fluids in the volcanic system.

In addition to this continuous monitoring capability, a number of volcanic risk management and resilience research platforms are currently in operation across the country (Figure 2). These platforms aim to deliver end-to-end volcanic crisis research; from understanding volcanic processes, assessing hazards, impacts, and risks, readiness and response processes, through to community resilience. 
 

Figure 2.  Major volcanic hazard, impact and risk research platforms New Zealand. 
Source: Fitzgerald et al., 2021.

A key feature of the platforms, especially at the regional (volcanic centre) level, is the multi-disciplinary and multi-stakeholder nature of the programme of activity. Even the platforms with a primary science/research purpose tend to include a range of stakeholders, from central and local government, emergency management authorities, risk managers and communicators, representatives from infrastructure, business, and local tangata whenua (indigenous people). The overriding purpose is collaboration and coordination on matters of volcanic risk management, and co-creation of research objectives and knowledge needs. The platforms allow a common understanding of the volcanic hazard and risk, common planning scenarios and frameworks, and coordinated risk communication and education. 

At a national level, the New Zealand Volcano Science Advisory Panel is a mechanism for ensuring the provision of authoritative science advice when volcanic activity is affecting New Zealand, through trans-disciplinary and multi-institution collaboration. The Advisory Panel was established in 2008 with representatives of each research institution and hosted by the National Emergency Management Agency. It has played a role in recent volcanic crisis such as Whakaari (2019) and Te Maari (2012) to ensure consistent communication to decision-makers, stakeholders and the public, and coordinate post-event research. 

While a range of Government agencies and private sector organisations work to reduce volcanic risk and plan and prepare for volcanic activity, New Zealand is fortunate to also have very high insurance coverage for volcanic impacts. 

New Zealand has two major public insurance schemes: the Accident Compensation Corporation (ACC) which insures anyone in New Zealand (regardless of residency or citizenship status) with 'no-fault’ personal injury cover, and the Earthquake Commission (EQC) which provides cover for residential property (homes and residential land) against natural disaster damage (including volcanic eruption). In addition to the Government-run schemes, vehicle, commercial, and agricultural interests are covered through the private insurance market. 

EQC was initially established as the Earthquake and War Damages Commission in 1944 in response to the economic recovery (or lack thereof) of communities affected by the seismically-active period that occurred in New Zealand between 1929 and 1942. The Earthquake and War Damages Commission provided insurance on an indemnity basis for any property in New Zealand with fire insurance. In 1956 the scope of the legislation was expanded to include landslip and volcanic eruption. Cover for residential land, including structures essential for maintaining access to and utility of the land (e.g. retaining walls, bridges, and culverts) was added in the 1970s. 

In 1993 the Earthquake and War Damages Commission Act was re-established as the Earthquake Commission Act 1993 ('EQC Act'), covering damage resulting from earthquake, natural landslip, volcanic eruption, hydrothermal activity, tsunami, and natural disaster fire occurring as a consequence of the above. EQC also covers damage caused by storms or floods to residential land (only).

The maximum amount of insurance available under the EQC scheme is NZD150,000 (1) per residential dwelling (i.e. a  single home). EQC covers the first NZD150,000 of damage; if claimants have natural disaster damage that exceeds this amount, their private policy may respond and 'top up’ their insurance cover. Damaged residential land is covered for its market value and damaged retaining walls, bridges and culverts are covered for their indemnity value.

• as a direct result of natural disaster; and
• physical, i.e. has actually occurred; or
• expected to happen in the near future (as considered by EQC) – referred to as 'imminent damage’.

• multiple damage-causing events, including four 'major’ earthquakes, and thousands of smaller aftershocks, making it hard for EQC and insurers to pinpoint exactly when damage occurred to a property;
• damage that went 'undiscovered’ for some period of time (for example, subsurface damage to drainage infrastructure);
• damage that only eventuated over longer timeframes (for example, caused by land 'settling’ from liquefaction processes);
• a two-tier system of assessment where EQC first quantified the loss, and then the private insurer quantified theirs. At times these assessments did not always align, and gaps in insurance cover were identified between EQC and private insurance cover; 
• a system of 'managed repair’ where homeowners had limited control and which presented unique liability and operational concerns for EQC;
• several areas of the city where entry was prohibited for a prolonged period of time, resulting in delays to damage identification or making damage assessments difficult;
• the capability and capacity needed for EQC to scale up from ~4,000 claims per year, to 450,000 claims over 16 months; and
• many judicial decisions, resulting in an evolving understanding of EQC’s coverage.

EQC’s most meaningful interaction with volcanic eruption claims was the 1995-96 eruption of Mt Ruapehu. 203 claims were made to EQC. All were for damage relating to ashfall; almost 90% of the claims related to the claimants’ roofs, with 28 related to corrosion of metal roof surfaces.

The EQC Act sets the same baseline cover regardless of the natural hazard faced. This means that EQC can utilise the EQC Act to set out the response process. However, it must undertake careful operational planning to ensure that the features of a particular natural hazard interact with the insurance available under the EQC Act effectively.

EQC worked closely with the New Zealand Volcanic Science Advice Panel to review these settings and add clarity, where needed. The review of the volcanic eruption policy included:
 

• heat damage from proximity to lava flow;
• impact damage from ballistics;
• degradation of finishes due to prolonged exposure to chemically reactive volcanic ash, aerosol, acid rain or gas;
• roof or gutter deformation or collapse due to ash inundation;
• compromised effluent disposal fields due to ash inundation;
• total loss of the building due to destruction from a volcanic eruption.

• policy and processes for assessors working in potentially dangerous areas;
• approach to managing claims in exclusion zones;
• technology that could enable smarter assessment;
• approach to, and coverage of clean-up costs, including preventative clean-up;
• coordination and collaboration with partner agencies and key science experts;
• how EQC can better support customers and communities in their response to and recovery from volcanic crises;
• risk communication and public education; and
• EQC’s role in reducing risk from volcanic activity.

Like other insurers, EQC utilises deterministic and probabilistic loss modelling to quantify likely losses from hazards. New Zealand has had a mature probabilistic hazard model for earthquakes (National Seismic Hazard Model, NSHM) for many years, with four iterations completed over the last 30 years (Smith and Berryman, 1986; Stirling et al., 1998, 2002, 2012), and a major revision currently in progress (Gerstenberger et al., 2020). However, modelling for other hazards, including volcanic hazard, is not as well advanced. 

Development of a national probabilistic volcanic hazard model is a priority for EQC, both for its use in loss modelling (for insurance and reinsurance purposes), and for informing disaster risk reduction and resilience initiatives. A national model would sit alongside other national hazard models – currently in various stages of development – to allow robust comparison between perils and inform national hazard risk management and governance.

Quantifying probabilistic volcanic hazard has been discussed and conceptualised by New Zealand scientists for many years (e.g., Stirling et al., 2017). Single-hazard models have been created, such as the national volcanic ashfall model (Hurst and Smith, 2010) but a nationwide, multi-hazard model (i.e., including other volcanic hazards such as lava flows, lahars, pyroclastic density currents, ballistics, or debris avalanches) has yet to be developed. 

There are many challenges associated with the development of a national probabilistic model. These include: characterisation of the eruption magnitude and frequency of all actual and realistic volcanic sources (including probabilistic determination of sources in the case of the Field volcanoes; Bebbington, 2013a) preferably in a time-varying model (Bebbington, 2013b); determination of the statistical dependence between hazards, given many of the volcanic hazards are linked within the volcanic system; the need for uniform definition and metrics for all sources, hazards, and return periods; determining the utility and outputs of such a model, especially for building standards; consideration of communication issues, including the information needs of decision-makers, propagation of model outputs into other decision-making tools, and management and communication of uncertainties; and, the funding required to progress the wide variety of research needed to make the model a reality. However, the consensus of the scientific community in New Zealand is that the time is right to make a determined effort towards this goal, given the rare opportunity presented by the number of volcanic hazard and risk focussed research platforms currently underway (Figure 2).

1. development of a preliminary suite of hazard models and associated hazard intensity measures for those volcanic perils expected in Auckland (edifice formation, lava flow, pyroclastic density currents, ballistics, tephra, and gas); 
2. amalgamation and curation of digitally-available asset data for Auckland buildings, infrastructure and people (previously this data could best described as ad hoc and key datasets tended to be split across different institutions);
3. development of a suite of Auckland-specific fragility models for assessment of direct impacts to the Auckland built environment (with a focus on buildings) for tephra fall, ballistics, pyroclastic density currents, and lava flows; and
4. testing of tephra fall, ballistics, pyroclastic density currents, and lava flow fragility models for a future AVF eruption scenario through a novel (deterministic) multi-volcanic-hazard impact assessment.

The results from the study showed loss estimates from the eight AVF eruption scenarios for buildings and associated clean-up costs ranged from NZD1.5B (eruption vent location on Rangitoto Island) to NZD63B (eruption vent in dense inner city suburb and heavy tephra fall across 90% of city) (Figure 4, Figure 5; Wilson et al., 2021). Building losses for all scenarios were dominated by pyroclastic density currents near the eruption vent, and tephra fall (when present) more generally. There is considerable variability in losses from the different scenarios, controlled mostly by location of eruption (exposure) and the type and size of particular volcanic hazards (namely pyroclastic density currents). Clean-up costs were shown to be high, which may be something that insurers haven’t considered, if this is part of their mandate.

Figure 5.  Modelled losses by AVF scenario.
Source: (Wilson et al., 2021.

The Auckland multi-volcanic-hazard loss model represents a considerable advance for the field. It demonstrates the feasibility of a multi-hazard model, and the utility of such a model for volcanic hazard risk management, including in the cost-benefit analysis of mitigation options (for example, the mitigation of tephra fall impacts where roof cleaning and/or bracing may provide damage control). There is clear benefit to considering dynamic multi-hazard impacts, due to the compounding nature of the impact. The model is already of substantial use to local government and emergency management authorities in the Auckland region, where more than a quarter of New Zealand’s population lives on a volcanic field. 

Figure 6.  AVF scenario 'D’.
Source: Hayes et al., 2018.

1. developing the framework, including methodology, for moving the existing deterministic multi-hazard (AVF) model, to a probabilistic multi-hazard model;
2. scoping the application of probabilistic loss models to Taranaki, Ruapehu, and Tongariro (stratovolcanoes) and Taupō Volcanic Zone (caldera volcanoes); and
3. developing the framework for a New Zealand Volcanic Hazard Risk Model (NZVHRM) and successfully incorporating it into New Zealand’s probabilistic loss modelling platform (RiskScape).

An alternative approach to volcanic risk and impact assessment, potentially bridging the gap between the two dominant approaches (deterministic and probabilistic modelling; Marzocchi and Bebbington, 2012), is also being advanced in a New Zealand context. Ang et al. (2020) developed a hybrid, pseudo-probabilistic hazard model for the AVF, derived from a range of dynamic eruption scenarios. Weir et al. (in press, 2021) present a modular framework for stakeholder co-creation of multi-hazard, multi-phase eruption scenarios that incorporate spatial and temporal dependencies between hazards. The dynamic, hybrid approaches are thought to mitigate some of the limitations of both deterministic approaches (limited in the characterisation of multi-phase, multi-hazard risk, and uncertainty) and probabilistic (complex in development, use, and interpretation). The hybrid approach provides scientifically-credible scenarios that incorporate multi-phase complexity and uncertainty, but still provide a clear, effective knowledge-sharing mechanism for end users, particularly risk and emergency managers (Weir et al., in press, 2021). While potentially too nuanced for use in insurance and reinsurance calculations, these methods hold great potential for better hazard risk management and major event preparedness.

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