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Probable maximum loss (PML) is a term used in the insurance industry as well as commercial real estate. Although the definition is not consistent across the insurance industry. [1] It is generally defined as the value of the largest loss that could result from a disaster, assuming the normal functioning of passive protective features (e.g. firewalls, nonflammable materials, flood defences etc.) and proper functioning of most (perhaps not all) active suppression systems (e.g. sprinklers). This loss estimate is always less than (or in rare cases, equal to) the maximum foreseeable loss, which assumes the failure of all active protective features. Underwriting decisions can be influenced by PML evaluations, and the amount of reinsurance ceded on a risk can be predicated on the PML valuation.
PML estimation is also used to determine the extent of losses in Chemical & Petrochemical Industries. Insurers and Reinsurers across the world use PML to estimate loss during events such as vapour cloud explosions (VCE) or high pressure rupture (HPR).
Engineering studies on existing buildings originally only addressed the potential risk to life-safety (i.e. collapse) as the buildings were compared to current building code requirements. [2] However, due to the need for understanding the potential losses associated with a building, crude loss estimation techniques were developed in the 1970s. Additional methods for estimating seismic losses were developed in the 1980s (ATC-13) and continue to be developed and refined today.
Along the way, the term probable maximum loss (or PML) came into use, but had many different definitions based on the risk tolerance of various lenders and owners. Other entities, recognizing the need to limit seismic risk while remaining competitive also adopted “PML” policies which were less defined. The lack of a precise definition has resulted in confusion in the industry and lack of any “standards”.
In 1999, ASTM E2026 was produced in order to “standardize” the nomenclature for seismic loss estimation, as well as establish some guidelines as to the level of review and qualifications of the reviewer. The document was updated in 2016. The ASTM document recommends the discontinued use of PML, and the use of new nomenclature: Scenario Expected Loss (SEL), Scenario Upper Loss (SUL), and Probable Loss (PL).
The ASTM guidelines specify four "levels" of investigation (called review), designated as Level 0 through 3. [3]
Level 0 is a desktop review, where the reviewer may not even visit the site, while Level 3 is in-depth. Requirements for the scope of work and qualifications of reviewer are provided within the document. The guidelines also require two major items to be addressed; loss estimation and building stability. In current practice, most Level 0 reports provide loss estimation values, but do not address building stability (i.e. collapse potential).
In the arena of commercial real estate due diligence, seismic PMLs can performed according to the scope published by the American Society of Testing Materials (ASTM) Standard E 2026–07. [4] Most seismic PMLs are conducted by registered structural engineers (SE) and include on-site inspection or building plan review, although some lower level reviews are performed by non-registered engineers or professional engineers (PE) with general due-diligence experience. [5] [6]
Safety engineering is an engineering discipline which assures that engineered systems provide acceptable levels of safety. It is strongly related to industrial engineering/systems engineering, and the subset system safety engineering. Safety engineering assures that a life-critical system behaves as needed, even when components fail.
A seismic hazard is the probability that an earthquake will occur in a given geographic area, within a given window of time, and with ground motion intensity exceeding a given threshold. With a hazard thus estimated, risk can be assessed and included in such areas as building codes for standard buildings, designing larger buildings and infrastructure projects, land use planning and determining insurance rates. The seismic hazard studies also may generate two standard measures of anticipated ground motion, both confusingly abbreviated MCE; the simpler probabilistic Maximum Considered Earthquake, used in standard building codes, and the more detailed and deterministic Maximum Credible Earthquake incorporated in the design of larger buildings and civil infrastructure like dams or bridges. It is important to clarify which MCE is being discussed.
Seismic risk or earthquake risk is the potential impact on the built environment and on people's well-being due to future earthquakes. Seismic risk has been defined, for most management purposes, as the potential economic, social and environmental consequences of hazardous events that may occur in a specified period of time. A building located in a region of high seismic hazard is at lower risk if it is built to sound seismic engineering principles. On the other hand, a building located in a region with a history of minor seismicity, in a brick building located on fill subject to liquefaction can be as high or higher risk.
Structural engineers analyze, design, plan, and research structural components and structural systems to achieve design goals and ensure the safety and comfort of users or occupants. Their work takes account mainly of safety, technical, economic, and environmental concerns, but they may also consider aesthetic and social factors.
Hydrocarbon exploration is the search by petroleum geologists and geophysicists for deposits of hydrocarbons, particularly petroleum and natural gas, in the Earth's crust using petroleum geology.
Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insurance liabilities to the other insurance company. The company that purchases the reinsurance policy is referred to as the "ceding company" or "cedent". The company issuing the reinsurance policy is referred to as the "reinsurer". In the classic case, reinsurance allows insurance companies to remain solvent after major claims events, such as major disasters like hurricanes or wildfires. In addition to its basic role in risk management, reinsurance is sometimes used to reduce the ceding company's capital requirements, or for tax mitigation or other purposes.
Peak ground acceleration (PGA) is equal to the maximum ground acceleration that occurred during earthquake shaking at a location. PGA is equal to the amplitude of the largest absolute acceleration recorded on an accelerogram at a site during a particular earthquake. Earthquake shaking generally occurs in all three directions. Therefore, PGA is often split into the horizontal and vertical components. Horizontal PGAs are generally larger than those in the vertical direction but this is not always true, especially close to large earthquakes. PGA is an important parameter for earthquake engineering, The design basis earthquake ground motion (DBEGM) is often defined in terms of PGA.
Induced seismicity is typically earthquakes and tremors that are caused by human activity that alters the stresses and strains on Earth's crust. Most induced seismicity is of a low magnitude. A few sites regularly have larger quakes, such as The Geysers geothermal plant in California which averaged two M4 events and 15 M3 events every year from 2004 to 2009. The Human-Induced Earthquake Database (HiQuake) documents all reported cases of induced seismicity proposed on scientific grounds and is the most complete compilation of its kind.
A medical device is any device intended to be used for medical purposes. Significant potential for hazards are inherent when using a device for medical purposes and thus medical devices must be proved safe and effective with reasonable assurance before regulating governments allow marketing of the device in their country. As a general rule, as the associated risk of the device increases the amount of testing required to establish safety and efficacy also increases. Further, as associated risk increases the potential benefit to the patient must also increase.
Catastrophe modeling is the process of using computer-assisted calculations to estimate the losses that could be sustained due to a catastrophic event such as a hurricane or earthquake. Cat modeling is especially applicable to analyzing risks in the insurance industry and is at the confluence of actuarial science, engineering, meteorology, and seismology.
Earthquake engineering is an interdisciplinary branch of engineering that designs and analyzes structures, such as buildings and bridges, with earthquakes in mind. Its overall goal is to make such structures more resistant to earthquakes. An earthquake engineer aims to construct structures that will not be damaged in minor shaking and will avoid serious damage or collapse in a major earthquake. A properly engineered structure does not necessarily have to be extremely strong or expensive. It has to be properly designed to withstand the seismic effects while sustaining an acceptable level of damage.
A hazard analysis is one of many methods that may be used to assess risk. At its core, the process entails describing a system object that intends to conduct some activity. During the performance of that activity, an adverse event may be encountered that could cause or contribute to an occurrence. Finally, that occurrence will result in some outcome that may be measured in terms of the degree of loss or harm. This outcome may be measured on a continuous scale, such as an amount of monetary loss, or the outcomes may be categorized into various levels of severity.
One use of the concept of biocontainment is related to laboratory biosafety and pertains to microbiology laboratories in which the physical containment of pathogenic organisms or agents is required, usually by isolation in environmentally and biologically secure cabinets or rooms, to prevent accidental infection of workers or release into the surrounding community during scientific research.
In the United States, an environmental site assessment is a report prepared for a real estate holding that identifies potential or existing environmental contamination liabilities. The analysis, often called an ESA, typically addresses both the underlying land as well as physical improvements to the property. A proportion of contaminated sites are "brownfield sites." In severe cases, brownfield sites may be added to the National Priorities List where they will be subject to the U.S. Environmental Protection Agency's Superfund program.
CRESTA (Catastrophe Risk Evaluation and Standardizing Target Accumulations) is a global natural hazard risk categorization system for insurance and re-insurance companies.
A hazard is a potential source of harm. Substances, events, or circumstances can constitute hazards when their nature would potentially allow them to cause damage to health, life, property, or any other interest of value. The probability of that harm being realized in a specific incident, combined with the magnitude of potential harm, make up its risk. This term is often used synonymously in colloquial speech.
ISO 26262, titled "Road vehicles – Functional safety", is an international standard for functional safety of electrical and/or electronic systems that are installed in serial production road vehicles, defined by the International Organization for Standardization (ISO) in 2011, and revised in 2018.
Recent advances are improving the speed and accuracy of loss estimates immediately after earthquakes so that injured people may be rescued more efficiently. "Casualties" are defined as fatalities and injured people, which are due to damage to occupied buildings. After major and large earthquakes, rescue agencies and civil defense managers rapidly need quantitative estimates of the extent of the potential disaster, at a time when information from the affected area may not yet have reached the outside world. For the injured below the rubble every minute counts. To rapidly provide estimates of the extent of an earthquake disaster is much less of a problem in industrialized than in developing countries. This article focuses on how one can estimate earthquake losses in developing countries in real time.
Oil and gas reserves denote discovered quantities of crude oil and natural gas that can be profitably produced/recovered from an approved development. Oil and gas reserves tied to approved operational plans filed on the day of reserves reporting are also sensitive to fluctuating global market pricing. The remaining resource estimates are likely sub-commercial and may still be under appraisal with the potential to be technically recoverable once commercially established. Natural gas is frequently associated with oil directly and gas reserves are commonly quoted in barrels of oil equivalent (BOE). Consequently, both oil and gas reserves, as well as resource estimates, follow the same reporting guidelines, and are referred to collectively hereinafter as oil & gas.
Omar-Darío Cardona Arboleda is a civil engineer, academic, and author. He is a Titular Professor of integrated disaster risk management and climate change adaptation in the Institute of Environment Studies at the National University of Colombia, Co-founder, and CEO of Ingeniar: Risk Intelligence.
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