Catastrophes


Five of the seven individual billion-dollar insured loss natural disaster events in 2015 were recorded in the United States, according to Aon Benfield’s Annual Global Climate and Catastrophe Report.

The other two billion dollar events were recorded in Europe.

All of the events were weather-related and below the average of eight. The five events in the U.S. were equal to the 2000-2014 average.

Italy’s May 2012 earthquake was the last non-weather billion-dollar insured loss event.

The all-time record of 17 billion-dollar weather events was set in 2011.

The costliest individual insured loss event of the year was a prolonged stretch of heavy snow, freezing rain, ice, and frigid cold that impacted much of the eastern United States in February 2015. That event prompted an estimated $2.1 billion insured loss.

Other billion-dollar insured loss events in the U.S. included a severe thunderstorm outbreak in the U.S. in May and severe thunderstorms and flooding in December. Each of these events cost an estimated $1.4 billion in insured losses.

Another thunderstorm event in the U.S. in April cost $1.2 billion, while the yearlong drought in the West was another $1 billion insured loss event.

The two non-U.S. billion dollar insured loss events of 2015 consisted of the catastrophic December flooding in the UK that cost an estimated $1.3 billion, and European windstorms Mike and Niklas in March and April which resulted in an estimated insured loss of $1 billion.

CostliestInsuredCatLosses2015

Aon Benfield noted that on a global scale disasters caused insured losses of $35 billion in 2015, below the 15-year mean of $51 billion and 14 percent lower than the median ($40 billion).

This was the fourth consecutive year with declining catastrophe losses since the record-setting year in 2011.

The U.S. accounted for 60 percent of global insured disaster losses in 2015, reflecting the high rate of insurance penetration in the country, according to the report.

I.I.I. facts and statistics on U.S. catastrophes are available here.

Natural catastrophes made up the lion’s share of global insured disaster losses in 2015, but a man-made loss was the year’s costliest.

Preliminary estimates from Swiss Re sigma put insured losses from disaster events at $32 billion in 2015, of which $23 billion were triggered by natural catastrophes and $9 billion by man-made disasters.

The explosions at the Port of Tianjin, China in August are expected to lead to claims of at least $2 billion, making it the costliest event of the year and the biggest man-made insured loss in Asia ever, sigma said.

Some 173 people were killed and many more injured in the Tianjin explosions, which damaged and destroyed vehicles, shipping containers, production facilities and surrounding property.

The insured loss estimate is subject to a high degree of uncertainty due to the many different lines of business and coverage impacted, including potentially contingent business interruption, sigma noted.

An earlier report by Guy Carpenter has suggested potential losses of up to $3.3 billion resulting from the Tianjin explosions.

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Insured losses from man-made disasters were up 30 percent in 2015 at $9 billion, from $7 billion in 2014, according to sigma.

However, at $23 billion natural catastrophe insured losses were below the annual average of $55 billion for the previous 10 years.

Losses were caused by various severe natural catastrophes across different perils in 2015, including windstorms, hurricanes, earthquakes, flooding and wildfires.

A February winter storm in the United States was the costliest natural disaster of the year, resulting in insured losses of more than $2 billion.

Low activity during the North Atlantic hurricane season kept the total global insured loss low, sigma noted.

Sadly, approximately 26,000 people lost their lives in disasters this year, double the amount in 2014.

Large disasters in other parts of the world contributed to the high level of fatalities.

The magnitude 7.8 earthquake that struck Nepal and neighboring countries in April triggered a humanitarian catastrophe, killing around 9,000 people.

More than 5,000 people also died in waves of extreme temperatures during the summer season in India, Pakistan, Europe, North Africa and the Middle East.

And more lives were lost due to capsizing of many boats carrying migrants from conflict zones in northern Africa to Europe, often in unseaworthy vessels, sigma noted.

More facts and statistics on man-made disasters available from the I.I.I. here.

As the 2015 Atlantic hurricane season draws to a close, there’s a lot of talk about how the hurricane forecasters got it right this year, due to a strong El Niño.

Over at the Capital Weather Gang blog, Phil Klotzbach, lead author of the Colorado State University (CSU) hurricane forecasting team, writes that all of the forecasting groups predicted a moderate to strong El Niño event this year, and this turned out to be correct.

Klotzbach observes:

In general, seasonal forecasts did a good job anticipating a below-average Atlantic hurricane season in 2015 due to a strong El Niño event. Most seasonal forecasts predicted a bit less activity than was observed, due to a surprising warming of the tropical Atlantic during the peak of hurricane season this year.”

So what are the key takeaways?

The final tally for the 2015 season was 11 named storms, four hurricanes and two major hurricanes.

No major hurricanes made U.S. landfall in 2015, which means the U.S. has now gone 10 years without a major hurricane landfall. Hurricane Wilma (2005) was the last, according to CSU’s report on the 2015 season.

Still, it’s important to point out that moisture from Hurricane Joaquin—the first Category 4-5 hurricane to impact the Bahamas during October since 1866—contributed to a weather system that led to catastrophic floods across much of South Carolina resulting in more than $2 billion in total economic losses.

The CSU team of Klotzbach and William Gray also reminds us that while the Atlantic has seen a large increase in major hurricanes during the recent period of 1995-2015 (average 3.4 per year) compared with the prior 25-year period of 1970-1994 (average 1.5 per year), the U.S. has been fortunate that few major hurricanes have made U.S. landfall—except during the two very damaging years of 2004-2005.

Consider this lucky statistic:

The Atlantic basin has had 27 major hurricanes since Wilma, with no major hurricane landfalls. The 20th-century average is that approximately 30 percent of all major hurricanes forming in the Atlantic make U.S. landfall.”

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

The expected $2 billion minimum economic cost of the South Carolina and eastern U.S. floods in early October will place the event as one of the top 10 costliest non-tropical cyclone flood events in the country since 1980.

Aon Benfield’s latest Global Catastrophe Recap report, which evaluates the impact of natural disaster events occurring worldwide during October 2015, reveals that already public and private insurers have reported more than $400 million in payouts from the event.

Days of relentless record-setting rainfall caused by a complex atmospheric set-up brought tremendous flooding across much of South Carolina, leaving at least 19 dead, Aon reported.

The event caused considerable flood inundation damage to residential and commercial properties, vehicles, and infrastructure after more than two feet (610 millimeters) of rain fell from October 1 to 5.

Aon noted that the minimum $2 billion in total economic losses from the event includes infrastructure and $300 million in crop damage.

Preliminary reports from insurers suggest roughly $350 million in claims.

However, additional insured losses of at least $100 million are expected via the federal National Flood Insurance Program (NFIP) and the USDA RMA crop insurance program.

A recent article by Insurance Journal noted that the potential exposure home insurers in South Carolina face from the early October event is estimated at $18 billion. That’s according to figures by catastrophe modeling firm CoreLogic.

According to the Insurance Information Institute (I.I.I.), none of the 10 largest floods as ranked by NFIP payouts occurred in South Carolina (see below).

However, the state was affected by three of the most costly U.S. hurricanes: Hurricanes Charley and Frances in 2004 and Hurricane Hugo in 1989.

The list includes events from 1978 to June 30, 2015, as of August 21, 2015.

Top10FloodEventsNFIP

Wildfires in 2015 have already caused more damage and financial loss in the United States than in any other year since 2007.

Aon Benfield’s latest Global Catastrophe Recap report reveals that California wildfires during September destroyed more than 2,000 homes and resulted in estimated insured losses of at least $1.1 billion—the costliest since 2007.

The Valley Fire, northwest of San Francisco, and the Butte Fire, southeast of Sacramento, were the most destructive of the fires.

In its report, Aon notes that the Valley Fire left four people dead, destroyed 1,958 residential and commercial structures and damaged 93 others. It is the third-most damaging wildfire in state history.

Total economic losses were estimated beyond $1.5 billion, while preliminary insured losses were put at in excess of $925 million, Aon reports.

The Butte Fire left two people dead and destroyed 475 homes, 343 outbuildings and damaged 45 other structures. It is the seventh most damaging wildfire in state history.

Total economic losses were estimated at $450 million while preliminary estimated insured losses are in excess of $225 million.

With the peak of California wildfire season just beginning, the severity of the September events serves as a reminder of how costly the peril can be for the insurance industry, Aon Benfield said.

Elsewhere around the world, wildfires continued to pose problems in parts of Indonesia as officials declared 2015 the worst year for wildfires since 1997.

One study reported that Indonesia would endure $4 billion in direct and secondary economic losses from the fires in the regions of Sumatra and Kalimantan, Aon said.

The Insurance Information Institute (I.I.I.) provides some useful facts and statistics on wildfires here.

A recent I.I.I. media advisory notes that seven of the 10 costliest wildfires in U.S. history in terms of insured losses have occurred in California. The costliest of these was the 1991 Oakland fire which produced $2.7 billion in claims (in 2014 dollars).

For more on the California wildfires, Janet Ruiz, I.I.I.’s Northern California-based representative can be reached at janetr@iii.org or (707) 490-9375.

A report in USA Today throws the spotlight on just how many homes in California are vulnerable to wildfire.

Data from the U.S. Forest Service cited by USA Today reveals that one-third of homes in California are located in areas prone to wildfires.

Apparently the Forest Service’s report estimates that 4.5 million homes in California are located in areas designated as the Wildland-Urban Interface (WUI)–developments and communities adjacent to forests.

USA Today goes on to note that California wildfires have destroyed more than 750 houses and hundreds of other buildings in the past week based on figures from CalFire, the state’s firefighting agency.

The Valley fire near Sacramento has been one of the most destructive. Mark C. Bove, senior research meteorologist with Munich Re America tweeted that for Northern California the Valley Fire is likely the biggest wildfire event in terms of insured loss since the Oakland firestorm of 1991.

GCCapitalIdeas.com has a timely roundup of the impact of the Valley and Butte fires here. Another useful resource is I.I.I.’s issues update on wildfires.

In a media advisory the Insurance Information Institute (I.I.I.) notes that seven of the 10 costliest wildfires in U.S. history in terms of insured losses have occurred in California. The costliest of these was the 1991 Oakland fire which produced $2.7 billion in claims (in 2014 dollars).

Over the 20-year period 1995 to 2014, fires—including wildfires—accounted for 1.5 percent of insured catastrophe losses, totaling about $6.0 billion, according to the Property Claims Services (PCS) unit of ISO.

Janet Ruiz, I.I.I.’s Northern California-based representative, is available to conduct interviews in person or via Skype. She can be reached at janetr@iii.org or (707) 490-9375.

The Insurance Institute for Business & Home Safety (IBHS) offers tips on how to protect your property from wildfire here.

A 2015 study by CoreLogic identifies almost 900,000 residential properties across 13 states in the western U.S. —representing an estimated combined total property value of more than $237 billion—at high or very high risk of wildfire damage.

The explosions at the Port of Tianjin, China are set to become one of the largest insured manmade losses in Asia to-date with potential losses of up to $3.3 billion, according to a new report by Guy Carpenter.

The event, which blasted shipping containers, incinerated vehicles in the port and on an adjacent highway overpass, destroyed warehouses, production facilities and dormitories, and impacted a nearby railway station and residential structures, will also be considered one of the most complex insurance and reinsurance losses in recent history.

Many classes of insurance were impacted by the loss, including: containers; cargo in containers; property; auto; and general aviation.

While access to the site is limited, Guy Carpenter said its satellite-based catastrophe evaluation service known as CAT-VIEW was able to utilize high resolution pre- and post-event satellite imagery to understand what exposures were present at the time of the blast and therefore could contribute to the loss.

The findings come as a new study published by Lloyd’s says that manmade risks are having an increasingly significant impact on economic output at risk (GDP).

In its analysis, Lloyd’s City Risk Index finds a total of $4.6 trillion of projected GDP is at risk from 18 manmade and natural disasters in 301 major cities around the world—out of a total projected GDP between 2015 and 2025 of $373 trillion.

However, manmade threats such as market crash, power outages and nuclear accidents are associated with almost half the total GDP at risk.

A market crash is the greatest economic vulnerability—representing nearly one quarter ($1.05 trillion) of all cities’ potential losses, Lloyd’s says.

New and emerging threats such as cyber attack, human pandemic, plant epidemic and solar storm are also having a growing impact, representing more than one fifth of total GDP at risk, Lloyd’s reports.

Governments, businesses and insurers must work together to ensure that this exposure—and the potential for losses—is reduced, according to Lloyd’s CEO Inga Beale.

Lloyd’s research shows that a 1 percent rise in insurance penetration translates into a 13 percent reduction in uninsured losses—a 22 percent reduction in taxpayers’ contribution following a disaster.

Insurance also improves the sustainability of an economy and leads to greater rates of growth. A 1 percent rise in insurance penetration leads to increased investment equivalent to 2 percent of national GDP, Lloyd’s notes.

Check out the I.I.I. publication A Firm Foundation: How Insurance Supports the Economy.

A New York Times article over the weekend takes a behind-the-scenes look at the recent deadly blasts at the port city of Tianjin in China.

The series of explosions and fire that began at a hazardous chemicals storage warehouse in the Binhai New Area of Tianjin August 12, leveled a large industrial area, leaving at least 150 dead and more than 700 injured.

As reported by the NYT, the lack of safety and oversight at the third largest port worldwide is shocking.

Here’s an excerpt:

As recently as 2013, Chinese academics had warned of many unacceptable environmental risks in the district, citing the growing chance of accidents from the storage of dangerous materials so close to residential neighborhoods and singling out the area where the Rui Hai facility was located. That warning, and others like it dating to at least 2008, were ignored.”

The Tianjin catastrophe points to the fact that man-made disasters can have a major impact on a global scale. Warehouses, buildings, thousands of containers and new vehicles were destroyed in the blasts, according to reports.

An initial estimate from analysts put the potential insurance loss at up to $1.5 billion. Some claims are likely to hit reinsurers, rating agencies say.

The incident also highlights the growth of accumulation risks, particularly in highly industrialized areas, according to Dieter Berg, head of department business development, marine global partnership at Munich Re.

In a recent online post for Munich Re’s publication Topics Online, Berg noted:

We as reinsurers have observed again and again over the past years how such individual events can have regional, or even global impact.”

He gave examples such as the destruction of a power plant on Cyprus in 2011 that impacted the national economy, as well as floods in Thailand in 2011 that brought conveyor belts to a halt worldwide.

While insurers and reinsurers are focused on the large loss potential arising from natural hazards, such as flooding or hail, losses are often caused by human beings, particularly around industrial facilities, Berg added.

Such losses (from explosion) are difficult to model, but are comparable to modeling terrorism losses. For large port facilities, we thus analyze not only natural hazards such as flooding, earthquake or hail, but also this type of scenario.”

Insurers and reinsurers need to fully understand the value of goods in ports and all potential exposures in order to calculate adequate premiums, he advised.

The Insurance Information Institute (I.I.I.) has facts and statistics on man-made disasters here.

 

The Insurance Information Institute (I.I.I.) is looking back at the costliest hurricane in U.S. history that took 1,800 lives and cost $125 billion in total economic losses, via a comprehensive infographic.

Insurance claims by coverage and state, total National Flood Insurance Program losses from Katrina, and other sources of Katrina recovery funds are all detailed.

Another compelling section to the infographic asks where are we now?

One of the fascinating analogies it draws is that even as awareness of flooding due to coastal storms rises, so too does the population of coastal communities.

As the I.I.I. notes, the 10 year anniversary of Hurricane Katrina gives us a timely opportunity to look at the nation’s preparedness for megadisasters.

I.I.I. disaster preparedness experts will be available via satellite media tour on Thursday August 27 to discuss how individuals and small business owners can better prepare.

View the infographic below to see Hurricane Katrina by the numbers:

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I was in New Orleans last week speaking at a Louisiana Department of Insurance conference marking the 10th anniversary of Hurricanes Katrina and Rita, writes Insurance Information Institute (I.I.I.) chief actuary James Lynch.

State Insurance Commissioner Jim Donelon (pictured below) organized the conference to emphasize how the state’s property insurance market “is more competitive and more viable than it was the day before Hurricane Katrina.” The state sought private market solutions to keep the marketplace vibrant in the wake of more than $25 billion in insured losses.

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Louisiana adopted a statewide building code so structures would be better able to withstand a hurricane. It abolished its politically appointed Insurance Rating Commission, which made it easier for insurers to charge fair premiums. And the state carefully winnowed customers out of its insurer of last resort, Louisiana Citizens Property Insurance Corp. Citizens’ market share soared after the 2005 hurricane season, approaching 10 percent by 2008. By 2014, its market share had fallen to 1.8 percent.

I spoke on a panel about the state’s property insurance markets operate today. I tried to emphasize how Louisiana’s experience shows the importance of adequate insurance. We also talked about alternative capital and how it is shaping the pricing of catastrophe reinsurance, a topic I.I.I. has discussed here.

Over the next few weeks, you will be seeing a lot of media coverage of the 10th anniversary of Hurricane Katrina. Here are some notable links:

  • The New Orleans Times-Picayune won a Pulitzer Prize for its coverage. The paper recaps that work and adds an up-to-date perspective here (h/t to I.I.I.’s Diane Portantiere for the link).
  • NPR is pouring out audio reports this month on Hurricane Katrina: 10 Years of Recovery and Reflection.
  • Forbes contributor Marshall Shepherd talked to meteorologists who noted how forecasting has improved in the past 10 years. Lots of interesting insights, including Colorado State University hurricane expert Phil Klotzbach, who sadly notes that a well-forecast hurricane like Katrina still resulted in more than 1,500 deaths. Klotzbach wondered how many survivors of Category 5 Hurricane Camille in 1969 reasoned that Cat 3 Katrina “would be a piece of cake.” I can confirm that Mississippi Governor Haley Barbour, in his tick-tock memoir about the storm and its aftermath, constantly referred back to his Camille experience – until he saw Katrina’s devastation. Tragically, the breadth and height of Katrina’s storm surge were unprecedented.
  • Barbour’s was one of many books published to coincide with the anniversary. The New York Times Book Review on August 7 featured New Orleans works, including a review of “Katrina: After the Flood,” about the city’s recovery, and a roundup of works examining the tragedy from racial, social and cultural perspectives.
  • Business Insurance discusses how catastrophe models have improved in the past 10 years, particularly in the quality of the input the models receive:
    • For example, casino barges moored on the Mississippi Gulf coast, badly damaged in Katrina’s storm surge, often were wrongly classified as normal buildings, said Jayanta Guin, executive vice president at Boston-based catastrophe modeler AIR Worldwide. Now, modelers have better data on the construction characteristics, occupancy, height and other aspects of individual buildings, he said.
  • Global Insurer Allianz used the anniversary to draw on its own database of major business insurance claims worldwide to examine trends in catastrophe losses, particularly (but not exclusively) marine losses. Its report, released August 18, points to these lessons learned:
    • Storm surge can cause more damage than high winds. Storm surge has been a contributing factor in half of the costliest U.S. storms.
    • Levees in the United States need improvement, even after the rebuilding of New Orleans’ levees after Katrina.
    • Most wind damage occurred “to the building envelope” – roof, walls, windows.
    • Demand surge can not only affect the price of materials and workers, post storm, it can affect the quality of materials, as we famously saw with drywall that created a new set of issues.

 

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