Impact of Uncertainty on Loss Estimates for a Repeat of the 1908 Messina-Reggio Calabria Earthquake in Southern Italy

Increasing sophistication in the insurance and reinsurance market is stimulating the move towards catastrophe models that offer a greater degree of flexibility in the definition of model parameters and model assumptions. This study explores the impact of uncertainty in the input parameters on the loss estimates by departing from the exclusive usage of mean values to establish the earthquake event mechanism, the ground motion fields, or the damageability of the building stock. Here the potential losses due to a repeat of the 1908 Messina-Reggio Calabria event are calculated using different plausible alternatives found in the literature that encompass 12 event scenarios, 2 different ground motion prediction equations, and 16 combinations of damage functions for the building stock, a total of 384 loss scenarios. These results constitute the basis for a sensitivity analysis of the different assumptions on the loss estimates that allows the model user to estimate the impact of the uncertainty on input parameters and the potential spread of the model results. For the event under scrutiny, average losses would amount today to about 9.000 to 10.000 million Euros. The uncertainty in the model parameters is reflected in the high coefficient of variation of this loss, reaching approximately 45%. The choice of ground motion prediction equations and vulnerability functions of the building stock contribute the most to the uncertainty in loss estimates. This indicates that the application of non-local-specific information has a great impact on the spread of potential catastrophic losses. In order to close this uncertainty gap, more exhaustive documentation practices in insurance portfolios will have to go hand in hand with greater flexibility in the model input parameters.