ASTM Recognizes Seismic Risk Screening

ASTM Recognizes Seismic Risk Screening

The American Society of Testing Materials (ASTM) has recognized Level 0 seismic risk screening reports as offered by PropertyRisk^TM in its recently adopted "Standard Guide for the Estimation of Building Damageability in Earthquakes" (E2026).

The stated purpose of the new ASTM guide "defines and establishes good commercial, customary practice, and standard-of-care in the United States for conducting a probabilistic study of expected loss to buildings from damage associated with earthquakes and for the preparation of a narrative report containing the results of the study." The ASTM guide, which includes input from ABS Consulting engineers, was created in an effort to introduce consistency and efficiency to earthquake loss estimation.

ABS Consulting pioneered earthquake loss assessment for real estate transactions 20 years ago. Since that first assessment, most lenders have adopted various loan acceptance criteria using seismic risk. Such criteria are generally based on a Probable Maximum Loss (PML) limit, beyond which a loan will not be issued. When PML's exceed the acceptable limits, some lenders provide additional acceptance guidelines such as loss reduction via retrofit or risk transfer through insurance.

As earthquake loss assessment evolved, it became apparent that the process lacked uniformity and clarity in many important aspects. While most lenders have tended to adopt a 20% PML limit, the criteria from which the PML was calculated were generally not clearly stated or were absent all together. This is a significant oversight to consider, because a PML depends on the assumed hazard level. For example, a PML that corresponds to an earthquake with an exceedence probability of 10% in 50 years is higher than the PML corresponding to an earthquake with an exceedence probability of 50% in 50 years. Without identifying which hazard level the PML is produced for, a comparison between inconsistent values is inappropriate.

Other variables exist that can significantly affect the overall estimated loss. How these variables are considered must be clearly stated with the estimated loss and should include:

Assessment methodology -- Hazard assessments are conducted using either a "deterministic" or a "probabilistic" model. Deterministic models assume that a specific earthquake will occur on a given fault. Probabilistic models consider the likelihood of earthquake occurrences from multiple faults affecting either a single property or a portfolio. Variation in the assessment methodology can result in different loss predictions -- particularly in regions where earthquake sources may not be associated with specific, well-defined faults.
Phenomena considered -- Most assessments only consider losses due to ground shaking. However, other ground failures such as slope instability, liquefaction, compaction etc. may significantly affect the estimated losses but are not included in the model.
Level of investigation -- Loss estimation can be conducted at various levels of detail. Level 0 or "screening" represents the least detailed effort that is most readily available and the least costly. ABS Consulting's PropertyRisk Seismic Risk Screening Report^TM offers level 0 screening "on-line." PropertyRisk^TM reports are based on proprietary modeling that incorporates ABS Consulting's extensive first-hand experience of observing loss from over 80 earthquakes worldwide over many years. ABS Consulting is also able to provide more detailed level I to level III loss estimates based on investigations involving site visits, drawing review, calculation review, independent calculations, etc., consistent with the guidelines established by ASTM for these levels of reports. While the loss estimates in PropertyRisk's Seismic Risk Screening Report^TM are often accurate, higher level investigations will refine results.
Contents and business interruption -- Loss estimates may or may not include losses of contents such as architectural components and systems. Clearly, the inclusion or exclusion of contents may have a significant effect on the estimated losses. Loss estimates performed in conjunction with real estate transactions typically don't include considerations of business interruption. However, such considerations may greatly affect the estimated losses.
Estimator qualifications -- Despite recent advances in engineering technology, earthquake loss estimation is highly dependent upon the skills and qualifications of the individuals performing the service. The skill and experience of the individual performing the evaluation can significantly affect the accuracy of the estimated losses.

As an industry leader in this area, ABS Consulting is looking forward to the adaptation of the new ASTM guide by the real estate industry at large. For the end users of PML reports, the consistency in standards this new guide brings will be a great help in comparing and understanding PMLs.