Category Archives: Hurricanes

Superstorm Sandy

By Phil Klotzbach, lead author of the Colorado State University (CSU) hurricane forecasting team, and I.I.I. non-resident scholar.

Five years ago this month (October 29), Superstorm (hurricane until a few hours before landfall) Sandy made landfall along the coast of New Jersey just northeast of Atlantic City.  Sandy was one of the most devastating hurricanes to hit the northeast United States, causing more than 70 fatalities and $50 billion dollars in damage. It was the deadliest Northeast United States hurricane since Agnes (1972) and the 2nd most expensive United States hurricane on record behind Katrina (2005).  While heavy rainfall and strong winds were part of Sandy’s legacy, the primary cause of the massive destruction and damage that occurred was due to high storm surge levels.

Sandy developed in the SW Caribbean on October 22 (Figure 1). This region is a typical hotbed for October Atlantic hurricanes.  The system slowly intensified, eventually reaching hurricane strength before hitting Jamaica as a Category 1 hurricane.  It briefly reached major hurricane strength (Category 3+ on the Saffir-Simpson Wind Scale) before making landfall in Cuba.

Figure 1: Track of Hurricane Sandy from its formation in the SW Caribbean until its dissipation in the northeast United States.  Figure courtesy of National Hurricane Center.

Landfall in Cuba weakened Sandy somewhat, and the system began to undergo structural changes as it interacted with a large upper-level low pressure area.  This upper-level low caused the inner core to lose intensity, but it also caused the storm to grow considerably in size.  Sandy weakened to a tropical storm, but then vertical wind shear (the change in wind direction with height in the atmosphere), began to abate and Sandy was able to re-intensify to hurricane strength.  The storm, however, retained its large, sprawling circulation. (Figure 2).  Tropical storm-force winds extended more than 900 miles away from the center of the circulation as it approached the United States coast, making it the largest Atlantic hurricane on record (since 1988).

Figure 2: Infrared satellite imagery of Hurricane Sandy on October 29 showing the large, sprawling nature of its circulation.  Figure courtesy of NOAA.

A large blocking high to the north of Sandy caused the storm to track to the northwest (Figure 3).  Once Sandy had finished transiting the warm waters of the Gulf Stream and moved over cooler shelf waters near the New Jersey coast, it completed its transition into a post-tropical cyclone several hours before landfall.

Figure 3: Mid-level weather pattern causing the anomalous track that Hurricane Sandy took.  Strong high pressure to the north of Sandy prevented recurvature and caused Sandy to track towards the northwest.  Figure courtesy of National Hurricane Center.

While the maximum intensity at the time of its New Jersey landfall was 80 mph – equivalent to a Category 1 hurricane – the storm’s large size triggered huge amounts of storm surge.  In addition, tides were running higher than normal, due to the lunar cycle; storm tide values shattered records in parts of New York City.  At the Battery, Manhattan’s southernmost tip, the storm tide exceeded 14 feet, which was more than four feet higher than the previous record set during a winter storm in December 1992.   Many other areas along the coast of New Jersey and in New York City reported storm surge levels of 5-8 feet from Sandy which combined with astronomical factors to cause massive inundation.

Sandy’s transition from hurricane to post-tropical cyclone immediately prior to landfall as well as the massive size of the system has helped us to refocus efforts in the five years since the storm to clearly delineate between the Saffir-Simpson Wind Scale category and potential impacts that the storm may generate. Just because a system transitions from a hurricane into a post-tropical system does not mean that its impacts have been ameliorated. While it has now been five years since Sandy’s landfall, it will forever be remembered in the northeast United States as an incredibly damaging storm.

Behind the Numbers: AIR’s Puerto Rico Estimate

Catastrophe modeler AIR shook up the insurance world this week with its insured loss estimate for the Caribbean from Hurricane Maria: $40 billion to $85 billion – which would put it on par with Hurricane Katrina and the 2011 Japan earthquake and tsunami as the worst insured catastrophes in history, according to I.I.I. research.

Concerned mixed with skepticism; RMS has an estimate less than half the size. This from the Artemis reinsurance blog:

The size of AIR’s industry loss estimate has already raised questions among industry analysts, some of whom are questioning the range and believe the eventual industry exposure could be even lower than the bottom end of it.

But AIR’s estimate reflects the enormous damage and disruption that hurricane Maria has caused and with Puerto Rico badly hit the final cost to insurance and reinsurance interests is going to be very high.

Late Thursday, AIR published an explanation of their estimate. They call it “all but the perfect storm for Puerto Rico.” Intense winds enveloped the island; not a corner escaped. And Puerto Rico, unlike most Caribbean islands, has a significant industrial presence – more than $120 billion, and that is where two-thirds of the AIR’s estimate comes from.

The range of the estimate is quite wide. For Puerto Rico by itself, it’s $35 billion to $70 billion. Sources of uncertainty, AIR indicates, are

  • Demand surge.
  • How dwellings will contend with the wind vs. water question.
  • How business interruption and business income losses will unfold, particularly among hotels. Other BI issues include how much excess inventory manufacturers have on hand, how soon infrastructure will resuscitate, and whether insurance settlements will be affected by political pressure.

Update: As were getting ready to post, RMS explained its pick. TL;DR – industrial buildings on the island are sturdily built, so not much damage. And Karen Clark & Co. puts Puerto Rico losses at $28 billion, in about the same range as RMS.

The Week in a Minute, 9/28/17

The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights. 

  • One week after Hurricane Maria struck Puerto Rico, the U.S. territory’s residents are dealing with extensive power outages and a breakdown of the supply chain which brings food and other essentials to the island.
  • The U.S. signed an agreement with the European Union (EU) governing how U.S. insurers and reinsurers are regulated in EU nations.
  • California’s Canyon Fire (Orange/Riverside Counties) and Grass Fire (Alameda County) have generated mandatory evacuations and widespread news coverage.

NFIP reinsurance protection a good thing

From January 1, 2017, FEMA – the Federal Emergency Management Agency – secured increased reinsurance protection to share a meaningful portion of the risk of large and unexpected flooding with private reinsurance markets.

This placement of reinsurance transferred $1.042 billion in risk above a $4 billion deductible to 25 reinsurance companies.

Under this agreement, the reinsurers can cover 26 percent of losses between $4 billion and $8 billion arising from a single flooding event.

As Artemis blog reports here, with flood losses from Hurricanes Harvey and Irma on the rise, estimates suggest that the NFIP reinsurance program will pay out in full with losses from Hurricane Harvey alone.

Per Artemis: “The NFIP reinsurance program is a per-occurrence arrangement, meaning it covers a single loss event.”

Also noted by Artemis at the very end of its blog post, the NFIP reinsurance layer does not have a reinstatement provision.

This means that the NFIP cannot also claim on the program for its losses from Hurricane Irma as a second and separate event.

Nevertheless, it’s a good thing that NFIP secured first event coverage. A reinsurance payment for Hurricane Harvey flood losses will be welcome.

The Week in a Minute, 9/20/17

The I.I.I.’s California representative, Janet Ruiz briefed our membership this week on key insurance related stories. Here are some highlights. 

  • The I.I.I.’s Steven Weisbart was quoted in a Washington Post story on the insurance industry’s financial strength in the wake of Hurricanes Harvey and Irma.
  • A FEMA/State Disaster Recovery Center opened today (September 20) at the Carolyn Sims Center in Boynton Beach (Palm Beach County) for Floridians impacted by Hurricane Irma.
  • Florida’s Department of Financial Services opened Irma-related Insurance Village locales this week in St. Augustine, Jacksonville, Fort Myers, and Naples.
  • The Texas Department of Insurance (TDI) released details on Hurricane Harvey’s Disaster Assistance Mobile Unit Locations.
  • Maria made landfall as a Category 4 storm in southeast Puerto Rico Wednesday. The governor’s spokesperson said ‘this is a total disaster.’  The same evacuation centers used for Irma are filled with thousands of people according to CNN.
  • The LA Times offered these earthquake preparedness tips in the wake of the deadly 7.1 quake that struck Mexico City on Tuesday.
  • Politico posted last week an in-depth story on how Oklahoma’s earthquakes could adversely impact the U.S.’s energy supplies.  It was written by the author of Quakeland: On the Road to America’s Next Devastating Earthquake (Dutton 2017).
  • Dr. David Harkey will succeed Dr. Adrian Lund in January 2018 as president of the Insurance Institute for Highway Safety (IIHS) and the Highway Loss Data Institute (HLDI).

 

Disaster Relief: Preparing for Fraudsters

By I.I.I. staffer Brent Carris

While natural disasters have the unique ability to unify people, it is important to stay cognizant of scams and fraud that follow.

PropertyCasualty360 addressed potential scams in this article, noting that hurricane relief fraudsters are some of the first to appear after a storm. One way to avoid scams is to donate strictly to well-known reputable organizations such as the Red Cross or Direct Relief.  The Insurance Industry Charitable Foundation has a Hurricane Harvey disaster relief fund as well.

Affected homeowners should be wary of who they let into their home for repairs. Regulators in Florida are warning consumers not to sign Assignment of Benefits (AOB) forms to get repair work started.

FEMA has launched this page with information on disaster relief and how affected individuals can prepare for the arising fraudsters.

 

Concurrent Causation and Hurricane Irma claims

The issue of causation, especially when there may be multiple causes of loss, can be a tricky one for both insureds and insurers. It comes down to what caused the loss – and in what order.

Take the example of a major catastrophe, like a hurricane, where there may be property claims arising from both wind and water. Determining the cause of loss is key to determining whether there is coverage under the terms of an insurance policy because there are two policies in play, one for wind damage and one for flood damage.

Some jurisdictions subscribe to the “efficient proximate cause doctrine” while others subscribe to the “concurrent causation doctrine”.

What’s that?

The efficient proximate cause doctrine finds that where there is a concurrence of different perils, the efficient cause – the one that set the other in motion – is the cause to which the loss should be attributed.

Under the concurrent causation doctrine, when multiple perils contribute to a loss, coverage is allowed if at least one cause of the loss is covered by the policy.

In the case of Florida, a recent court decision adopted the concurrent causation doctrine, which will impact Hurricane Irma claims.

Insurance and disaster aid for non-U.S. citizens

Our Communications department has received questions from Canadian news outlets on behalf of Canadian citizens who own homes in areas affected by either Hurricane Harvey or Irma. Here are some of their questions and the answers we found.  Of course, the answers below also apply to other non-citizens who own property in the U.S.

Q: Can Canadians qualify for a Federal Emergency Management Agency (FEMA) grant?

A:  It depends. To be eligible for assistance from FEMA, at least one person in the household must be a U.S. citizen, Qualified Alien or noncitizen national with a U.S. Social Security number.

Q: Can Canadians purchase a FEMA National Flood Insurance Program (NFIP) policy?

A: Yes. Anyone who owns property in the U.S. can buy a FEMA NFIP policy as long as their property is in a participating NFIP community. They should be able to buy excess flood coverage if the event they want policy limits above a beyond what FEMA’s NFIP offers ($250,000 for dwelling protection, and $100,000 for the dwelling’s contents).

Q: Can Canadians purchase a policy from Florida’s Citizens Property Insurance Corp.?

A: Yes, it appears. We found no restrictions on the citizenship of the buyer. To find out more about Florida Citizens’ eligibility requirements click here.

Hurricane Irma Loss Estimates, 9/13/17

We’ve chronicled loss estimates from Harvey. Here we’ll do the same for Irma.

Karen Clark

As of 6 p.m. 9/13, Karen Clark estimates :

  • Total insured loss of $25 billion, being
    • $18 billion in the United States, mainly Florida but also Georgia, South Carolina and Alabama.
    • $7 billion through the Caribbean.

Business Insurance notes:

Estimates include losses to buildings, other insured structures, contents, business interruption and autos, but do not include crops or losses covered by the National Flood Insurance Program.

RMS

As of 2:30 p.m. 9/10, RMS estimates:

  • 10 percent chance that wind losses will exceed $60 billion. (This estimate has been falling the past couple of days, as the storm has tracked away from the Miami/Fort Lauderdale/Palm Beach corridor.)
  • This doesn’t include:
    • Post-event amplification (demand surge), which could add as much as another 15 percent, depending on how the storm plays out.
    • Storm surge, which could add another 30 percent.
AIR

As of 5 p.m. 9/10, via press release:

  • Total US Insured Losses: $20 billion to $40 billion.
  • This estimate did not include any mention of insured losses in the Caribbean, which were estimated between $5 billion to $15 billion, according information in a prior AIR release.
  • Here at I.I.I., we’ll note that a $20 billion loss would make the storm one of the three worst insured catastrophes in U.S. history, even after accounting for inflation.

As of 3 p.m. 9/9, via CNBC:

  • Total Insured Losses: $20 billion to $65 billion.
  • U.S. Insured Losses $15 billion to $50 billion

Understanding Hurricane Deductibles

With Texas still dealing with the remnants of one major hurricane and Florida about to contend with another, Thursday’s Wall Street Journal called considerable attention to hurricane deductibles:

These deductibles were widely put in place after Hurricane Katrina in 2005 and have been standard in many states for years. But they have rarely been triggered on a large scale because few hurricanes have landed in the U.S. over the past decade.

The Journal article called them “little known provisions that allow insurers to shift thousands of dollars of damage costs” onto homeowners. Most industry experts would quickly point out that this reduces premiums – by hundreds of dollars a year in hurricane-prone states like Florida.

A recent poll by the Insurance Research Council found that about a third of coastal residents were unfamiliar with hurricane deductibles. (The flip side, of course, is that two-thirds were familiar with them – less than anyone would like but comparable to what the public understands about other insurance concepts.)

The concept is simple: To limit their exposure to catastrophic losses from hurricanes, insurers in coastal states sell homeowners insurance policies with percentage deductibles for storm damage instead of the traditional dollar deductibles, which are used for other types of losses such as fire damage and theft.

The deductible is a percentage of the insured value of the home.

Here is an example of how a percentage deductible works: if a policyholder has a $5,000 covered loss and a 2 percent deductible and the insured value of the home is $200,000, then the insurance company will pay $1,000. The remaining $4,000 is he amount of the deductible (2% of $200,000 = $4,000).

Beyond the simple concept are many permutations from state to state. The deductible is reviewed by state insurance departments and may be subject to various laws and regulations. The details are spelled out on the declarations page of homeowners policies, generally one of the first pages of the document. (It will be clearly marked near the top.)

Below is a primer on deductibles and specifics for Florida and Texas – two states where the deductibles may become an issue in the coming weeks.

FLORIDA
By Florida law, application of deductible is triggered by windstorm losses resulting only from a hurricane declared by the National Weather Service. Such deductibles apply for damage occurring from the time a hurricane watch or warning is issued for any part of Florida, up to 72 hours after such a watch or warning ends, as well as any time hurricane conditions exist throughout Florida.

Deductibles are set by law and may only apply once during a hurricane season. All insurers must offer deductible of $500, 2 percent, 5 percent and 10 percent of the policy dwelling or structure limits, with percentages based on the home’s total value. Regardless of percentage, the deductible must be stated in the policy as a dollar amount. This is true for both private insurers and the state-run Citizens Property Insurance Corp., which insurers many homes in high-risk areas. See website for details.
Additional resources:

The Florida Insurance Council

Florida Office of Insurance Regulation

 

TEXAS

Texas insurance policies differ from most states because they can offer three types of deductibles: one applied to typical losses like fire; one applied to losses from nonhurricane windstorms and hail; and one applied to hurricane losses.

The hurricane deductible is calculated as percentage of dollar amount of coverage on a dwelling. The trigger varies by insurer, but is generally when the National Weather Service issues a hurricane watch or warning and it remains in effect for a specified amount of time after storm has passed. Intensity of hurricane may also affect the trigger.

Some insurers require a hurricane deductible to be a percentage of the insured value, but by law it must be shown on the insurance policy as a dollar amount.

Beach or FAIR Plan
The Texas Windstorm Insurance Association (TWIA), provides wind and hail coverage when it is not available in the insurance marketplace for 14 counties.  The Texas FAIR plan operates statewide, but cannot provide wind and hail coverage in areas that are eligible for inclusion in the TWIA. TWIA covers only 14 coastal counties and five communities in Harris County [Galveston Bay].
The deductibles can vary by the type of residence:

  • Residential Dwelling or Farm and Ranch Dwelling – Standard deductible is 1 percent (with $100 minimum); Optional deductibles range from $100 to $250 and from 1.5 percent to 5 percent.
  • Mobile Home deductibles are 1 percent (with $250 minimum) – For property located inland of the intracoastal waterway or seaward of the intracoastal waterway and protected by an approved seawall; or 2 percent (with $250 minimum) for property located seaward of the intracoastal waterway and not protected by an approved seawall. See website for details.

Additional Resources:

Texas Department of Insurance

Office of Public Insurance Council