White Island Risk Mitigation: A Role for Insurance
Gordon WooDecember 20, 2019
Safety from volcanic eruptions is heavily influenced by economic factors. Those who earn their livelihood from farming around a volcano may be reluctant to evacuate, and those who operate tourist excursions may be reluctant to suspend them. This may have been the case with White Island Tours which holds an exclusive license to land tourists on the privately-owned island in New Zealand’s Bay of Plenty, named White Island by Captain James Cook. Tourists averse to sea sickness have also been able to arrive on the island via helicopter through Volcanic Air.
With around 10,000 customers per year, paying up to several hundred New Zealand dollars (US$0.66 per NZ dollar) for a tour, White Island Tours has been a substantial business. But one whose financial viability would have required that as few trips as possible were cancelled because of the volcano risk.
After 22 years of business operation, the volcano erupted on December 9, 2019. There were 47 tourists on White Island; most were killed or seriously injured. 38 of the tourists were from the cruise liner Ovation of the Seas, operated by Royal Caribbean Cruises Ltd., which denies any responsibility for their excursions, which were advertised with the statement that White Island is one of the most active volcanoes in the world. The terms and conditions of cruise tickets require that any lawsuit be filed in Miami. The U.S. courts will thus decide what liability Royal Caribbean Cruises Ltd. had in vetting White Island Tours.
Whakaari – White Island volcano, picture taken in 2006. Image credit: Wikimedia
On November 18, three weeks before the tragic eruption of December 9, the Volcanic Alert Level was raised from level 1 to level 2. According to the official monitoring organization, GNS, volcano alert level 2 is mostly associated with unrest hazards on the volcano and could include eruptions of steam, gas, mud and rocks. Despite the potential casualty threat, White Island Tours had previously taken visitors to White Island when the volcano had been at level 2, which remained within their operational guidelines.
At level 3 through to the highest level 5, White Island Tours liaised more directly with GNS: “White Island Tours operates through the varying alert levels but passengers should be aware that there is always the risk of eruptive activity regardless of the alert level.” According to GNS, on December 2, the daily eruption likelihood was between 0.3 percent and 0.5 percent.
On that day, GNS staff were only permitted to access the crater with an appropriate work plan and permissions. A volcano observatory has a moral and legal duty to minimize occupational risk for its staff, and risk quantification is needed for this[1]. The situation is different for tourists who voluntarily access the active volcano for several hours for purely recreational purposes. Regarding the general public, GNS has no ability to restrict access to the island. It simply provides advice from which people make their own risk assessment. In any case, the island owner’s agreement is needed to restrict entry.
For a tourist visiting White Island for two hours in early December, the chance of serious injury or fatality would have been between 1/4000 and 1/2500. By comparison of dangerous recreational risks, this is much lower than two hours of cliff diving, but much higher than sky diving.
New Zealand is a country where adventure tourism is encouraged. Medical care for injuries caused by an accident in New Zealand is covered under a scheme called Accident Compensation Cover. But this provides rather modest death benefits. The White Island tragedy opens the discussion as to how the interests of the risk averse and the risk seekers can both be accommodated in future.
If White Island is to remain open to tourists, a more rigorous process of informed consent has been suggested, requiring clear communication of elevated risk levels on the day of the visit, as well as changing risk levels in the days prior to the scheduled visit. Participation should only proceed after informed consent is secured.
However, given the non-trivial fatality risk at volcano alert level 2, even diligent application of the informed consent process may be insufficient for adequate public safety. Tourists, including some non-native English-speakers, may not read through the consent form much more carefully than the usual ticket small print of terms and conditions. A financial nudge[2] is desirable to focus tourist attention on the fatality risk. Insurance can provide this nudge to bolster the informed consent process.
As and when the volcano alert level reaches 2, White Island might be automatically closed to tourists. To support an alternative open policy, a mandatory accidental death insurance charge of 15 percent of the ticket cost could be levied on those intrepid risk-informed tourists seeking the adrenaline rush of visiting the crater, despite the heightened casualty risk.
Assuming an individual visitor mortality rate of around 1/5,000, the insurance levy might provide about NZ$100,000 death benefit for adults. In the event of accidental death on the volcano, this kind of amount would be needed anyway to augment the payout from the Accident Compensation Cover scheme.
The levy of a modest accidental death insurance charge would be a nudge ensuring that each individual was fully aware that a crater visit put their lives at risk. More than signing a consent form, the purchase of death benefit insurance would concentrate the minds of tourists to consider carefully whether the excursion was really worth the personal risk.
From a cost-benefit perspective, only those tourists who put a particularly high value on the crater visit experience should risk their lives when the volcano alert level is 2 or more. A substantial reduction in the number of tourists landing on White Island would ease the risk exposure of professional tour guides, who should be encouraged to reduce their daily time on White Island at volcano alert level 2.
[1] Thaler R., Sunstein C. Yale University Press, 2008.
Gordon is a catastrophe-risk expert, with 30 years’ experience in catastrophe science, covering both natural and man-made hazards. Gordon is the chief architect of Moody's RMS terrorism risk model, which he started work on a year after joining RMS in December 2000. For his thought leadership in terrorism risk modeling, he was named by Treasury & Risk magazine as one of the 100 most influential people in finance in 2004. He has since lectured on terrorism at the NATO Center of Excellence for the Defense against Terrorism and testified before the U.S. Congress on terrorism-risk modeling.
As an acknowledged, international expert on catastrophes, Gordon is the author of two acclaimed books: “The Mathematics of Natural Catastrophes” (1999) and “Calculating Catastrophe” (2011). Dr. Woo graduated as the best mathematician of his year at Cambridge University and he completed his doctorate at MIT as a Kennedy Scholar and was a member of the Harvard Society of Fellows. He also has a Master of Science in computer science from Cambridge University.
