Category Archives: Hurricanes

Coastal resilience, or putting an insurance policy on nature

Our earlier post Working with nature to build resilience to hurricanes discussed how insurers look to natural infrastructure like coastal wetlands and mangrove swamps to mitigate storm losses.

The Mesoamerican Reef, which runs south for some 700 miles from the tip of the Yucatán Peninsula protects coastal communities and property by reducing  the force of storms, but its corals require continued repairs.

For every meter of height the reef loses, the potential economic damage from a major hurricane triples, according to The Nature Conservancy (TNC).

Now thanks to TNC and Swiss Re, the reef is about to get its own insurance policy.

From Bloomberg:

“After Hurricane Wilma struck in 2005, causing $7.5 billion of damage in Mexico, beachfront hotel owners began paying extra taxes to the state government to handle beach restoration and protect the reef.”

TNC has proposed a different approach:

“The extra money paid by the hotel owners to the government could be converted into premium payments to Swiss Re to cover the reef. The policy would be what’s called parametric insurance, in which a large hurricane would trigger near-immediate payouts. By having the money arrive quickly, reef repairs could begin sooner.”

From Artemis blog, via TNC:

“One of the most promising new developments to maximize the value of nature is the possibility of putting an insurance policy on habitats like reefs and beaches. By combining insurance and new science, we can protect and improving the health of reefs and beaches so they can continue to protect us.”

 

Too few understand hurricane deductibles

What are hurricane deductibles and how do they work?

Homeowners in New Jersey, North Carolina, South Carolina, Florida and Texas were asked this question in an online survey conducted on behalf of the Insurance Research Council (IRC).

Not only did one-third of respondents say they had never heard of these deductibles or were not sure what they were, one quarter of them lacked an understanding of deductibles in general, the IRC poll found.

From the Insurance Information Institute: “Deductibles have been an essential part of the insurance contract for many years and represent a sharing of the risk between the insurance company and the policyholder. When repairing your home or replacing personal possessions, the amount of the deductible would come out of your own pocket.”

Hurricane deductibles demystified by the InsuringFlorida blog here: “You have two deductibles on your homeowners insurance: one is for hurricanes and the other is for everything else. The “everything else” deductible is for things like a fire, lightning strike or water damage, to name a few. It is usually a flat dollar amount, such as $1,000. The hurricane deductible is, obviously, for hurricanes – and for homes valued over $100,000, it starts at 2 percent of what the home is insured for, which is what it would cost to rebuild it. So, if the house is insured for $250,000, a 2 percent deductible would be $5,000.”

More on hurricane and named storm deductibles from the National Association of Insurance Commissioners (NAIC) website.

Storm surge and flooding top of minds this hurricane season

Nearly 6.9 million homes along the Gulf and Atlantic coasts have the potential for storm surge damage with a total estimated reconstruction cost value (RCV) of more than $1.5 trillion.

But it’s the location of future storms that will be integral to understanding the potential for catastrophic damage, according to CoreLogic’s 2017 storm surge analysis.

That’s because some 67.3 percent of the 6.9 million at-risk homes and 68.6 percent of the more than $1.5 trillion total RCV is located within 15 major metropolitan areas.

“A low intensity storm in a population dense, residential urban area has the ability to do significantly more damage than a higher intensity hurricane along a sparsely inhabited coastline.”

The metro area that includes Miami, Fort Lauderdale and West Palm Beach continues to have the greatest number of at-risk homes (784,000) and an RCV of $143 billion.

On the other hand, the New York metro area has slightly fewer homes at risk (723,000), but a much higher RCV of $264 billion due to high construction costs and home values in this area.

CoreLogic’s analysis also shows local areas along the coasts are susceptible to potential damage that could exceed $1 billion for a single event.

Storm surge and other flooding is on the minds of many in 2017 as Congress considers reauthorization of the National Flood Insurance Program (NFIP), CoreLogic says.

Working with nature to build resilience to hurricanes

Strong buildings, levees and seawalls play an essential role in increasing resilience to floods and hurricanes, but insurers are also looking to natural infrastructure to mitigate storm losses.

As the 2017 Atlantic hurricane season officially begins, an ongoing effort by insurers, risk modelers, environmental groups and academics is focused on understanding how natural defenses like coastal wetlands and mangrove swamps can reduce the impact of storms.

A 2016 study led by researchers at the University of California, Santa Cruz, the Nature Conservancy and the Wildlife Conservation Society, found that more than $625 million in property losses were prevented during Hurricane Sandy by coastal habitats in the Northeast.

Where wetlands remain, the average damage reduction from Sandy was greater than 10 percent. Researchers expect analysis of the effects of Hurricane Matthew will demonstrate the value of similar protections.

The study was conducted in association with Risk Management Solutions and Guy Carpenter, with funding from the Lloyd’s Tercentenary Research Foundation and additional support from the Science for Nature and People Partnership.

Business Insurance has more on this story here.

This is just one example of how reinsurers and insurers collaborate with different sectors to build resilience and mitigate storm damage.

For example, Swiss Re is working with the Nature Conservancy to explore the economics of nature-based coastal defenses.

I.I.I. CEO Sean Kevelighan writes about how the insurance industry collaborates with different groups to build resilience to natural disasters in this article on PC360.

Check out I.I.I. issues update Climate Change: Insurance Issues.

Prepare The Same For Every Hurricane Season

Early 2017 Atlantic hurricane forecasts are predicting fewer storms, but here’s why coastal residents shouldn’t let their guard down.

Colorado State University’s (CSU) Tropical Meteorology Project: “Coastal residents are reminded that it only takes one hurricane making landfall to make it an active season for them, and they need to prepare the same for every season, regardless of how much activity is predicted.”

London’s TSR (Tropical Storm Risk): The precision of hurricane outlooks issued in April is low and large uncertainties remain for the 2017 hurricane season.

Forecasters believe development of potential El Niño conditions in the coming months will suppress storm activity.

What are the numbers?

CSU: 11 named storms, with 4 hurricanes and 2 major (Category 3-4-5) hurricanes. The median between 1981 and 2000 was 12 named storms, 6.5 hurricanes and two major hurricanes. U.S. major hurricane landfall is estimated at 80 percent of the long-period average.

TSR: 11 named storms, with 4 hurricanes and 2 major hurricanes. 2017 Atlantic hurricane activity will be 30 percent below 1950-2016 long-term average.

I.I.I. hurricane facts and statistics here, plus information on flood insurance here.

Following Insuring Florida blog for more on hurricane preparedness.

Atlantic Hurricane Season: The Long View

As the 2016 Atlantic hurricane season officially draws to a close just days after Hurricane Otto became the latest calendar year Atlantic hurricane on record to make landfall, the question on everyone’s lips is: are the seasons growing longer?

For if Otto, which struck southern Nicaragua as a Category 2 over Thanksgiving, is the last hurricane of the 2016 season, it will mark the end to the longest hurricane season on record the Atlantic Ocean has seen, according to NOAA.

The 2016 season had an early beginning—well ahead of its June 1 official start—when Hurricane Alex became the first Atlantic hurricane in January since Hurricane Alice in 1955.

At 75 knots, Alex was also the second strongest Atlantic hurricane on record in January, after 1955’s Alice at 80 knots, according to the 2016 season summary by Phil Klotzbach, head of Colorado State University’s Tropical Meteorology Project.

Regardless of whether this points to any long-term trend, it does appear that residents in hurricane-prone areas should keep an eye on the tropics year-round, not just in the June 1-November 30 window.

In the end, the 2016 Atlantic hurricane season was somewhat above average. As CSU’s summary outlines:

“The season was characterized by somewhat above-average named storms and major hurricanes, with slightly above-average hurricane numbers.”

The final tally was 15 named storms, including seven hurricanes, of which three were major hurricanes.

Three tropical storms (Bonnie, Colin and Julia) and two hurricanes (Hermine and Matthew) made U.S. landfall this year, according to NOAA.

There were a number of key takeaways, according to CSU, not least that a total of 78.25 named storm days and 26.25 hurricane days occurred in 2016—the most in an individual Atlantic hurricane season since 2012.

The 9.75 major hurricane days that occurred in 2016 are also the most in a single Atlantic hurricane season since 2010.

Florida’s record-long hurricane drought at 3,966 days ended when Hermine made landfall in the Big Bend of Florida on September 2.

Meanwhile, Matthew became the first Category 5 hurricane in the Atlantic basin since Felix (2007).

No major hurricanes made United States landfall in 2016, although Hurricane Matthew came within about 50 miles of breaking this streak, CSU notes:

“The last major hurricane to make U.S. landfall was Wilma (2005), so the U.S. has now gone 11 years without a major hurricane landfall. The U.S. has never had another 11-year period without a major hurricane landfall since records began in 1851.”

Check out I.I.I. facts and statistics on hurricanes here.

Hurricane Season Not Over Yet

Tropical storm Otto, earlier on record as the seventh hurricane of the 2016 Atlantic hurricane season, continues to head across the Caribbean toward Nicaragua and Costa Rica for an expected landfall on Thanksgiving Day, possibly as a hurricane.

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The National Hurricane Center has warned that Otto could bring life-threatening flash floods and mudslides to parts of Central America.

Total rainfall of 6 to 12 inches, with isolated amounts of 15 to 20 inches, can be expected across northern Costa Rica and southern Nicaragua through Thursday.

The combination of a dangerous storm surge and large and destructive waves could raise water levels by as much as 2 to 4 feet above normal tide levels in areas of onshore flow within the hurricane warning area, the NHC said.

Otto has already been blamed for three fatalities in Panama, according to reports.

As noted over at Dr. Jeff Masters’ WunderBlog, Otto was christened on November 21, unusually late for a Caribbean tropical storm. Only 11 Caribbean storms since 1851 have had a later formation date.

A storm of Otto’s expected strength has never made landfall so far south in the Caribbean, and there is no record of any hurricane striking Costa Rica, WunderBlog said.

The Weather Channel also tells us that NOAA has recorded only one tropical storm making landfall in Costa Rica, in any month, either from the eastern Pacific or Caribbean Sea side in their 174-year database, a December 1887 tropical storm.

Check out Insurance Information Institute facts and statistics on the Costa Rica insurance market.

It’s worth adding that it’s not unusual for Atlantic basin tropical storms to form in November.

NOAA records indicate there have been 36 Atlantic tropical cyclones of at least tropical storm strength in November from 1950 through 2015, of which 20 became hurricanes, according to the Weather Channel.

Late season storms can also be very destructive. In 1985, Hurricane Kate struck November 20-21 in the Florida Panhandle, causing $77.6 million in insured losses (about $170.9 million in 2015 dollars).

The Atlantic hurricane season officially ends November 30.

Check out I.I.I. facts and statistics on hurricanes here.

Hurricane Matthew: Early Loss Estimates and More

Early estimates put the insured property loss to U.S. residential and commercial properties from Hurricane Matthew at up to $6 billion.

While this figure covers wind and storm surge damage to about 1.5 million properties in Florida, Georgia and South Carolina, CoreLogic’s estimate does not include insured losses related to additional flooding, business interruption or contents.

Parts of North Carolina are expected to remain under dangerous flood risk for at least the next three days, according to the state’s governor Pat McCrory in a report by the Capital Weather Gang blog.

As Dr. Jeff Masters’ WunderBlog reminds us, the potentially huge cost of damage caused by inland flooding is still unfolding.

The WunderBlog post suggests:

“A roughly comparable storm, Hurricane Floyd in 1999, produced about $9.5 billion in U.S. economic damage.”

And given the ongoing flooding across the Carolinas and southeast Virginia, that is a fair starting point for Hurricane Matthew, according to Wunderblog’s account of a conversation with Steve Bowen, director and meteorologist at Aon Benfield.

Catastrophe modeler RMS expects the losses to commercial lines will be the primary driver of total flood insured losses, predominately through multi-peril or all-risks policies.

In a blog post, Tom Sabbatelli, RMS hurricane expert noted:

“We expect that the contribution to insured losses by residential claims will be limited because a proportion of the residential property losses will be covered by the National Flood Insurance Program (NFIP).”

As of July 31, 2016, there were approximately 417,000 NFIP policies in-force in Georgia, South Carolina, and North Carolina.

Penetration of NFIP coverage varies significantly by distance to the coastline, RMS said. While in coastal regions it can be as high as 25 percent in some areas, inland participation can be less than 1 percent.

“This means that although much of the storm surge-driven coastal flood losses will be covered to some extent by the NFIP, many flood-related losses further inland are expected to be uninsured.”

Ratings agency Fitch has said that the insured loss from Hurricane Matthew “is not expected to present a major capital challenge” to the industry.

Fitch estimates that if the storm results in insured losses in excess of $10 billion, a greater proportion of losses will be borne by reinsurers as opposed to primary companies.

More than 30 fatalities have been attributed to Hurricane Matthew in the U.S. alone, but in Haiti the rising death toll is now more than 1,000.

Hurricane Matthew became post-tropical on Sunday, after heading eastward from the North Carolina coast out to sea.

The Insurance Information Institute offer the following tips for filing an insurance claim in the wake of Hurricane Matthew.

 

Hurricane Matthew: Storm Surge Risk

Almost 2 million homes in Florida, South Carolina, North Carolina and Georgia are at risk of storm surge damage from Hurricane Matthew with an estimated $405 billion in total reconstruction cost value, according to new analysis from CoreLogic.

Here’s the CoreLogic graphic showing the total number and value of residential properties at risk of storm surge damage from Hurricane Matthew by state:

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The estimates come as Hurricane Matthew, still a major Category 3 storm packing 120 mph winds, continues its northward trek brushing along Florida’s northeast coast Friday, with its eye remaining just offshore.

In its latest advisory, the National Hurricane Center (NHC) said that Matthew is expected to remain a hurricane until it begins to move away from the U.S. on Sunday, though it is forecast to weaken during the next 48 hours.

A hurricane warning now stretches as far as Surf City, North Carolina.

The NHC said:

“The combination of a dangerous storm surge, the tide and large and destructive waves will cause normally dry areas near the coast to be flooded by rising waters moving inland from the shoreline.”

And:

“There is a danger of life-threatening inundation during the next 36 hours along the Florida northeast coast, the Georgia coast, the South Carolina coast, and the North Carolina coast from Sebastian Inlet, Florida, to Cape Fear, North Carolina. There is the possibility of life-threatening inundation during the next 48 hours from north of Cape Fear to Salvo, North Carolina.”

Here’s the 11am NHC prototype storm surge watch/warning graphic, showing locations most at risk for life-threatening inundation from storm surge extend from Florida to North Carolina:

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It’s important to note that flood damage resulting from heavy rain, storm surge and hurricanes is excluded under standard homeowners, renters and business insurance policies.

Separate flood coverage is available, however, from FEMA’s National Flood Insurance Program (NFIP) and from a few private insurers.

Flood damage to cars would be covered under the optional comprehensive portion of an auto insurance policy.

The NHC has a storm surge inundation map which means anyone living in hurricane-prone coastal areas along the U.S. East and Gulf coasts can now check out and evaluate their own unique risk to storm surge.

Insurance Information Institute experts are available to discuss the insurance implications of Hurricane Matthew.

Check out the I.I.I. facts and statistics on flood insurance.

Hurricane Matthew: Expect Wind, Rain, Storm Surge

Hurricane Matthew, a dangerous Category 3 storm, appears to have the cities along Florida’s east coast in its sights as it heads across the Bahamas today and tomorrow.

On its current track, Hurricane Matthew is expected to be very near the east coast of Florida by Thursday evening, according to the latest advisory from the National Hurricane Center (NHC).

States of emergency are in effect for all of Florida, coastal parts of Georgia and the Carolinas, and an evacuation has been ordered in coastal parts of South Carolina

Some slight restrengthening is possible in the next few days, the NHC said.

Currently Hurricane Matthew’s maximum sustained winds are near 120 mph (195 km/h) with higher gusts. Hurricane-force winds extend outward up to 45 miles (75 km) from the center, and tropical-storm-force winds extend outward up to 175 miles (280 km).

Whether or not Hurricane Matthew makes landfall in Florida, clearly the storm poses a serious threat to Florida, Georgia and the Carolinas, though much depends on the exact track it takes.

Note: the insured value of coastal properties in those four states (FL, GA, SC, NC) totaled $3.4 trillion in 2012, according to AIR Worldwide.

As RMS blog reports:

“The general model consensus suggests that Matthew will slide northward very near, if not scraping along, the Florida coastline as a strong hurricane, making at least tropical storm force winds, high surf, and heavy rain likely for most of the cities along Florida’s East Coast.”

The fact that Hurricane Matthew is moving slowly (currently at around 12 mph) means that the storm is likely to impact the southeast U.S. for a number of days.

With that in mind, here’s a quick review, courtesy of the Insurance Information Institute, of how insurance policies respond to hurricane-related damage caused by wind, rain and storm surge:

—Wind damage from tropical storms, hurricanes and tornadoes is covered under standard homeowners, renters and business insurance policies.

Flood damage resulting from heavy rain, storm surge and hurricanes is excluded under standard policies. Flood coverage is available from FEMA’s National Flood Insurance Program (NFIP) and from some private insurers.

—Damage to cars from tropical storms or hurricanes is covered under the optional comprehensive portion of an auto insurance policy. This includes wind damage, flooding and even falling objects such as tree limbs.

CoreLogic analysis shows that just under 3.9 million homes located along the Atlantic coast of the United States are at risk of hurricane-driven storm surge, with an estimated total reconstruction cost value (RCV) of $953 billion.

The state of Florida, which has the longest coastal area, has the most homes at risk at 2.7 million, and an estimated RCV of $196.1 billion.

Here’s the visual of Hurricane Matthew’s track, via Weather Underground:

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