7.1 Damageability Models for Buildings, Contents and Business Interruption
7.1.1 Types of Damageability in Seismic Risk Assessments
Users are referred to ASTM E2026 and E2557 for the recommended scope of seismic due-diligence studies for individual properties at the time of acquisition. The following types of investigation are defined in ASTM E2026 and E2557 (see Chapter 2), for seismic risk assessment for individual properties, and are relevant to portfolio seismic risk assessments.
Building Damageability (BD)—Assessment of the economic consequences associated with damage to the building(s) resulting from earthquake ground shaking and other seismic hazards. Where liquefaction hazards exist at a specific site within a portfolio, additional information (e.g., type of foundation) may be needed to define incremental damage resulting from liquefaction hazards.
Contents Damageability (CD)—Assessment of the economic consequences associated with damage to building contents resulting from earthquake ground motions and other seismic hazards.
Business Interruption (BI)—Assessment of the economic consequences associated with partial or full loss of use of the building due to earthquake damage to the building, or to contents, or from offsite factors (e.g., loss of power or other utilities, or loss of access).
Other types of investigation that are not typically conducted in portfolio seismic risk assessment include:
Building Stability (BS)—Assessment of whether the building will maintain vertical load-carrying capacity in whole or in part during considered earthquake ground motions.
Site Stability (SS)—Assessment of the likelihood that the site will remain stable in earthquakes and is not subject to failure through faulting, soil liquefaction, landslide, or other site response that can threaten the building’s stability or cause damage.
Portfolio risk managers typically engage consultants for seismic risk assessments for individual properties (i.e., "PML studies") at the time of acquisition, and such studies include assessment of building stability and site stability (BS, SS) when they conform to ASTM E2026 Level 1 or higher. Hence, where recommended seismic due-diligence has been exercised in acquisition, the portfolio may have identified and excluded unstable sites and buildings with significant potential for collapse, for the earthquake hazard levels defined in the PML studies.
7.2 Building Damageability
Costs for repair to damage to the buildings are normally considered, unless otherwise specified by the User. Each catastrophe software system has its own methods and categories for modeling building damage, and these may differ from methods used in seismic risk assessment for individual buildings (i.e., ASTM E2026), requiring judgment and interpretation on the part of the Service Provider. The User and Service Provider are referred to the specific catastrophe software system and Catastrophe Risk Model Provider for more details.
7.3 Contents Damageability
Where requested by the User, costs from damage to contents within the buildings may be considered. Each catastrophe software system has its own methods and categories for modeling contents damage. The User and Service Provider are referred to the specific catastrophe software system and Catastrophe Risk Model Provider for more details.
7.4 Business Interruption
Business Interruption (BI) losses or costs from loss of use due to earthquake damage typically include costs from lost rents and other consequences from the period of vacancy required for repair, restoration of access and function. BI losses are generally related to the duration of the interruption or vacancy, and exposure values must specify the time period assumed (e.g., cost per month or cost per year). Loss of use due to site access restrictions or other off-site factors may or may not be considered, depending on User needs and the capabilities of the catastrophe model. Higher-order disruption costs (e.g., costs from disruption of supply chains for manufacturers) may require system or network models. Each catastrophe software system has its own methods and categories for modeling business interruption and its economic consequences. The User and Provider are referred to the specific catastrophe software system and Catastrophe Risk Model Provider for more details.
7.5 Service Provider Efforts to Improve Damage Modeling
Proprietary damage models provided as a part of commercial catastrophe models may be statistical, empirical, or engineering-based. Catastrophe risk model Providers may have access to loss experience data from their insurance clients, and this data may provide validation and calibration for their models. Service Providers and Users are encouraged to work with their selected catastrophe risk model Provider to gain thorough understanding of the details of the selected model, and the procedures to utilize detailed information on significant buildings (i.e., “secondary modifiers”), and site hazards that the Service Providers and Users may possess. Similarly, Service Providers are encouraged to understand the catastrophe models and options available for modeling contents and business interruption impacts, where these are relevant.
In scoping efforts to improve the quality of portfolio modeling, an important consideration is portfolio size. Most portfolios have an assortment of properties with varying values-at-risk (i.e. building replacement values + contents values + business interruption cost over a stated time-span). As portfolio size increases (i.e., as the number of properties increases), it becomes increasingly costly to improve the modeling for each property, so efforts are generally limited and prioritized. For large portfolios (i.e., with more than 50 properties having significant value), the scope of Provider efforts may be limited to a general review of the damage models for suitability to the properties in the portfolio. For portfolios of high value, but with a smaller number of properties, the importance for data enhancement through engineering review increases.
An effective way to prioritize Provider efforts to improve modeling is to perform preliminary analysis based on available information, and then to focus on the high-risk sites identified (e.g., sorting in order of decreasing Average Annual Losses, in dollars). For the purpose of scoping efforts to improve modeling, each seismically active region with significant exposures may be examined separately. Portfolio properties may be geographically dispersed, or there may be clusters, i.e., local concentrations of exposure. High-value clusters near large active faults tend to have significant impact on portfolio-wide loss, and on the uncertainty of loss estimates, and may warrant greater scrutiny.
Provider efforts to improve the quality of the portfolio risk assessment for properties that signficantly to portfolio-wide risks may include the following steps:
- Review of geologic conditions assigned by the geologic maps embedded within the selected catastrophe model at sites that contribute significantly to aggregate losses, or at sites indicated as important by the User. Where needed, over-ride can be made to ensure appropriate assignment of Site Class, liquefaction susceptibility and other local conditions affecting losses.
- Assignment of damage relationships based on structural engineering characteristics (materials, framing system, height, year built), where possible, rather than building usage or occupancy.
- Specification of ‘secondary modifiers,’ to the extent known.
- Specification of foundation type (e.g., spread footings, structural mats, or piles), where a potential for ground failure may be present.
Such efforts are not required but may be included within Desktop portfolio SRAs. Such efforts shall be included in Engineered portfolio SRAs for a set of properties to be decided by the User in discussion with the Provider, subject to limitations of available information, and within the budget and schedule available.
Use of Past Seismic Risk Reports — The Provider may make use of past PML reports that they deem to be credible – that is where the original design documents or other engineering design details were determined by qualified individuals. The Provider may also conduct new investigations as needed, in concurrence with the User. See Chapter 5 (e.g., Section 5.1.2.6).
Commentary: Most single-site seismic risk assessment reports (“PML reports”) are based on 475-year ground shaking hazards from the U.S. Geological Survey (or other authoritative source), adjusted for Site Class. Most PML reports describe site conditions (e.g., Site Class and liquefaction susceptibility) and describe the structural systems of the building(s), but may not address contents or business interruption. For properties deemed signficant to portfolio-wide risks, to facilitate comparison with past PML reports, the User needs the ability to run the catastrophe model for each such property and extract a 475-year Probable Loss (PL) for the property, for comparison with the risks given in the PML report, typically Scenario Expected Loss (SEL) or Scenario Upper Loss (SUL) for the 475-year shaking hazards. Such comparisons may be limited to specific hazards (e.g., shaking only), and without the effects of “loss amplification” or “demand surge,” or fire-following earthquake, to match the scope of typical PML reports. Often SEL ≤ PL ≤ SUL for single-site assessments, so the PL from the Cat model may be compared accordingly. Such comparisons afford an important opportunity to “ground truth” the modeling for significant real estate properties, and may indicate the need for adjustment of the parameters of the catastrophe model, or for further investigation to explain the observed differences.
Commentary: Custom Modeling of Critical and High-Value Properties – At the most advanced level, the Engineer Provider may be able to specify relationships between Intensity Measure(s) available in the catastrophe model and the modeled consequences (damage state, repair cost, downtime and other effects). Each catastrophe model handles custom modeling in different ways, and to varying degrees. Service Providers are referred to catastrophe model Providers for more details. Such custom modeling may be cost-justified under special circumstances for critical, high-value properties.