Category Archives: Catastrophes

U.S. Thunderstorm Losses Add Up To Q1 Record

Topping $5.7 billion. That’s the record cost of insured losses from severe thunderstorms and convective weather in the United States in the first quarter of 2017.

The latest figures come via Steve Bowen, director and meteorologist at Impact Forecasting, the catastrophe risk modeling center at Aon Benfield.

Here’s the chart (via @SteveBowenWx):

Artemis blog offers this perspective:

“It’s the second year in succession that insurance and reinsurance markets have faced a heavy toll from severe thunderstorm related losses, which in turn means impacts to ILS [insurance-linked securities] funds and investors, as severe convective storm risk is a typical peril of many catastrophe reinsurance arrangements that ILS investments are linked to.

Beyond the first-quarter the expensive run-rate of losses from severe thunderstorms has continued, with some further outbreaks in the last fortnight.”

A recent Willis Re study found thunderstorms were just as costly to insurers as hurricanes.

Check out these resources (here and here) from the Insurance Institute for Business & Home Safety on how to protect your home and business from thunderstorms and tornadoes.

Register here for an April 27 Swiss Re and I.I.I. webinar on natural catastrophes.

I.I.I. facts and statistics on tornadoes and thunderstorms here.

Insurance Payouts Underpin Disaster Recovery Process

Tens of thousands of policyholders caught in a disaster in 2016 were better able to recover from the losses and hardships inflicted thanks to insurance.

Global insured losses from catastrophes totaled around $54 billion in 2016 – the highest level since 2012, according to the latest report from Swiss Re sigma.

North America accounted for more than half the global insured losses in 2016, with insured losses from disaster events reaching $30 billion, the highest of all regions.

This was due to a record number of severe convective storms in the United States and because the level of insurance penetration for such storm risks in the U.S. is high, sigma noted.

For example, a hailstorm that struck Texas in April 2016 resulted in an economic loss of $3.5 billion, of which $3 billion, or 86 percent, was covered by insurance.

“With insurance, many households and businesses benefited from insurance payouts for the heavy damage to their property caused by large hailstones.”

However, insurance cover is not universal. The shortfall in insurance relative to total economic losses from all disaster events—the protection gap—was $121 billion in 2016. See this chart:

“Under-insurance against catastrophe risk is a reality in both advanced and emerging markets, and there is still large opportunity for the industry to help strengthen worldwide resilience.”

For example, Swiss Re noted that the U.S. has been and continues to be critically underinsured for flood risk, with a flood protection gap of around $10 billion annually.

Additional Insurance Information Institute facts and statistics on global catastrophe losses are available here.

Cyclone Debbie: Storm Surge Biggest Threat

More than 30,000 people in low-lying coastal areas have been urged to evacuate their homes ahead of powerful Cyclone Debbie, as it bears down on the Queensland coast in northeastern Australia.

With landfall expected early Tuesday, Cyclone Debbie is currently a Category 4 storm and could intensify to Category 5. A Category 4 storm on the Australian scale equates to wind gusts of more than 140 miles per hour, the New York Times said.

Storm surge poses the biggest threat as the cyclone strengthens, according to major weather forecasters and news outlets.

The Sydney Morning Herald: Cyclone Yasi, which struck north Queensland in 2011, powered a storm surge that reached 7.5 metres between Cardwell and Tully Heads, akin to a tsunami, said David King, the director of the Centre for Disaster Studies at James Cook University in Townsville.

The New York Times: “People living in coastal or low-lying areas prone to flooding should follow the advice of local emergency services and relocate while there is time,” said Bruce Gunn, the regional director of Queensland’s bureau of meteorology. 

The warnings are a good reminder that while we may think of destructive winds as the biggest danger in a cyclone or hurricane, storm surge is often more deadly.

Here in the U.S. the National Oceanic and Atmospheric Administration this hurricane season will use a storm surge watch/warning system to highlight areas along the Gulf and Atlantic coasts that are at risk of life-threatening inundation.

The new tool will alert residents to the risks of rising water and the need to evacuate, the Tampa Bay blog said.

A 2016 updated study by CoreLogic found that more than 6.8 million homes located along both the Gulf and Atlantic coasts of the United States are at risk of damage caused by hurricane-driven storm surge flooding. More on storm surge risk via the Insurance Information Institute facts and statistics on flood insurance.

What Does Private Market Flood Insurance Look Like?

In his second post from the Cat Risk Management 2017 conference, Insurance Information Institute chief actuary James Lynch discusses private market flood insurance options:

Florida has opened its market to private flood insurance, and there has been some activity in that area. Most plans have been National Flood Insurance Program (NFIP) clones in that they mimic how the NFIP prices risk but introduce a lot of underwriting rules to try to avoid problem risks.

Other than mimicking the NFIP program, there are two alternative ways to price risk:

    • Develop a refined rating plan, which resembles (to me at least) a traditional classification plan. The company develops a base rate then credits and debits a risk based on factors like:
      • Elevation.
      • Relative elevation (whether a risk is higher or lower than the areas that immediately surround it).
      • Distance to coast.
      • Distance to river.
    • Use a sophisticated catastrophe model to price each risk individually. That approach is more precise, but it could be more difficult to pass regulatory approval.  (The model might be too much of a black box.) It could also be harder for agents to understand the model and explain it to clients.

Much of the industry long-term seems interested in how computer models can price flood risk, but most people recognize the challenges. A big one is how to build in the precision necessary.

Figuring out how far a property is from a river is easy. But it is hard to use Big Data techniques to determine something as simple as whether a property has a basement; let alone knowing the elevation of the lowest vulnerable point in a property. (Hint: It’s probably not the front threshold.)

Private Market Looks Closely At Flood Insurance

Almost all private insurers have shunned covering flood since the 1950s, but that could be changing fast, writes Insurance Information Institute (I.I.I.) chief actuary James Lynch:

At the Cat Risk Management 2017 conference I attended earlier this month, flood was the hottest topic. Here’s why:

  • Insurers have become increasingly comfortable with using sophisticated models to underwrite insurance risk, and modeling firms are getting better at predicting flood risk.
  • The federal government, which insures the vast majority of flood risk, is looking for ways to share the risk with private industry. Key reasons:
    • The National Flood Insurance Program (NFIP) owes the Treasury more than $20 billion (thanks to flooding from Hurricane Katrina and superstorm Sandy). It has no practical way to pay that back, and the government has made it clear that it doesn’t want to fund more losses. So the NFIP is purchasing private reinsurance. More on that below.
    • The number of people who lack flood insurance is distressingly high. I.I.I. surveys show that only about 12 percent of Americans have flood insurance. The government wants people to be protected, and encouraging a private flood insurance market could do that.

Here are some of my notes from #catrisk17 on flood insurance:

  • The NFIP reinsurance deal (effective January 1, 2017) means that reinsurance would reimburse NFIP for 26 percent of the losses from an event where losses exceed $4 billion. The maximum recovery is $1.046 billion, and the cost, according to my notes, is $150 million. (If you work in reinsurance it may be easier to think of the pricing this way: NFIP cedes 26 percent of the $4 billion excess $4 billion occurrence layer at a 14.3 percent rate on line.) There have only been a couple of floods that big in NFIP history (Hurricane Katrina and superstorm Sandy), so the cover is in place primarily to protect against storm surge. However, it would cover other major types of flood as well.
  • A significant obstacle to modeling flood risk is the fact that much of the most important data (underwriting and claims information) is in the federal government’s hands. The government wants to share the data responsibly, but its hands are tied by federal rules on sharing data about individuals. The rules are driven both by privacy concerns and cyber security laws. The government will likely be developing a certification process so that professionals could qualify to have access to the data on a limited basis.
  • A live poll found that flood modeling was the most important topic at the conference, cited by 56 percent of respondents – outpacing severe convective (thunder) storm models, cyber insurance models or terrorism models.

From Many Models, One Decision

Insurance Information Institute chief actuary James Lynch previews one of the most important conferences in the catastrophe modeling world.

I will be attending Cat Risk Management 2017 in Orlando next week, and the reason is as close as the weather forecast I’m looking at early Wednesday.

By now, the weather models have more or less converged: my own sliver of New Jersey is forecast to get about 6 inches of snow. The key word in that last sentence is models.

The many organizations that forecast the weather – the Weather Channel, Accuweather, Weather Underground, the National Weather Service – even the hearty jokester on your local station – use multiple models to predict sun, rain or snow.

The similarity to actuarial work is striking. Like an actuary, the weatherman hasn’t built the models but has to understand the strengths and weaknesses of each. And she has to make a single, certain prediction, yet couch that certainty within a pocket of doubt. The National Weather Service predicts 6.7 inches for my hometown: as much as 7 but as little as 3 (Editor’s Note: total snowfall 6.3 inches by Thursday evening).

Actuaries do that with your insurance policy – many uncertainties but one price. Of the many risks with which they must contend is how their portfolio of policies will perform under a catastrophe. Years ago this risk was estimated crudely – the old Casualty Actuarial Society exams included a section on the ISO Excess Wind calculation. Now catastrophe models do the job. And insurers need a lot of catastrophe models, which is what will be taking me to Orlando.

Next week’s conference is a cornucopia of cat models – hurricane models and wildfire models, earthquake and flood models. There is even discussion of how to coordinate the many models insurers must juggle. The conference, presented by the Reinsurance Association of America, is sold out; about 500 will attend.

I will be live-tweeting and will post a report. I.I.I. wants to draw attention to the importance of resilience – helping people understand that the best way to rebound from cataclysm is to prepare for it. Explaining how insurers do their part – in this case using models so that a policy’s price reflects its risk – helps everyone understand how much risk they must prepare for.

And I suppose, yes, will be good to visit balmy Florida after digging out from a half-foot of snow.

I.I.I.’s Facts and Statistics on global catastrophes gives a good idea of the scope of disasters that insurers protect against.

Nat Cat Losses Increase in 2016

Total global insured losses from natural catastrophes and man-made disasters in 2016 rose to at least $49 billion in 2016, 32 percent higher than the $37 billion recorded in 2015.

Preliminary estimates from Swiss Re sigma put insured losses from natural catastrophe events at $42 billion in 2016, up from $28 billion in 2015, but slightly below the annual average of the previous 10 years ($46 billion).

Man-made disasters triggered an additional $7 billion in insurance claims in 2016, down from $9 billion the previous year.

Hurricane Matthew and severe storms in the United States generated high losses during the year, Swiss Re noted.

Insured losses from Hurricane Matthew, which caused devastation across the east Caribbean and southeastern U.S. in October, are estimated to be in excess of $4 billion, while economic losses were $8 billion.

Matthew was also the deadliest natural catastrophe of the year globally, claiming up to 733 lives, most of those in Haiti.

A number of severe weather events impacted the U.S. in 2016, including a series of severe hail and thunderstorms.

The costliest was a hailstorm that struck Texas in April, resulting in economic losses of $3.5 billion and insured losses of $3 billion due to heavy damage to property from large hailstones, Swiss Re said.

Swiss Re chief economist Kurt Karl, noted in a press release:

“In this case, because households and businesses were insured, they were much better protected against the financial losses resulting from the storms.”

Total economic losses from natural catastrophes and man-made disasters globally are estimated at $158 billion in 2016, significantly higher than the $94 billion recorded in 2015, due to some large natural catastrophes such as earthquakes and floods.

The gap between total losses and insured losses in 2016 shows that many events took place in areas where insurance coverage was low, Swiss Re said.

Earthquake losses, in particular, underscore the underinsurance problem. For example, government sources put the overall reconstruction cost of an earthquake in August in Italy as high as $5 billion. But insured losses for that event are only a fraction of the total, estimated at $70 million, mainly from commercial assets.

“Society is underinsured against earthquake risk. And the protection gap is a global concern.”

The Kumamoto quakes that struck Japan in April were the costliest disaster event of the year, causing at least $20 billion in economic losses, and $5 billion in insured losses.

Insurance Helps Break Cycle of Extreme Disasters and Poverty

The human and economic costs of extreme natural disasters on poverty are much greater than previously thought and insurance is one of the resilience-building tools that could help, according to new analysis from the World Bank.

In all of the 117 countries studied, the report finds that the effect of floods, windstorms, earthquakes and tsunamis on well-being, measured in terms of lost consumption, is larger than asset losses.

It estimates the impact of disasters on well-being in these countries is equivalent to global annual consumption losses of $520 billion, and forces 26 million people into poverty each year. This outstrips other estimates by 60 percent.

But resilience-building interventions, including universal early warning systems, improved access to personal banking, insurance policies and social protection systems (like cash transfers and public works programs) could lessen climate shocks.

The report finds that these measures combined would help countries and communities see a gain in well-being equivalent to a $100 billion increase in annual global consumption, and reduce the overall impact of disasters on well-being by 20 percent.

As World Bank Group President Jim Yong Kim, says:

“Severe climate shocks threaten to roll back decades of progress against poverty. Storms, floods, and droughts have dire human and economic consequences, with poor people often paying the heaviest price. Building resilience to disasters not only makes economic sense, it is a moral imperative.”

Efforts to build resilience among poorer communities are already gaining ground, the report shows.

For example, Kenya’s social protection system provided additional resources to vulnerable farmers well before the 2015 drought, helping them prepare for and mitigate its impacts.

And in Pakistan, after record-breaking floods in 2010, the government created a rapid-response cash grant program that supported recovery efforts of an estimated 8 million people.

Check out the Insurance Information Institute issues updates on microinsurance and emerging markets here, and on catastrophes and insurance issues here.

Growing Insurance Resilience to Disasters

Latest estimates from Aon Benfield that just 50 percent of the U.S. losses from Hurricane Matthew are covered by public and private insurance renews the spotlight on the growing risk protection gap and disaster resilience.

In its latest Global Catastrophe Recap report, Aon Benfield’s Impact Forecasting unit expected total economic losses from Matthew would range up to a high of $10 billion. Public and private insurance losses were considerably less, estimated as high as $5 billion.

The reason for this is that a large portion of the inland flood loss in North Carolina went uninsured due to low take-up of the federally-backed National Flood Insurance Program (NFIP), Aon said.

A post over at Artemis blog reports:

“Once again this demonstrates the insurance and reinsurance protection gap is not simply an emerging market issue, rather it is evident in perhaps the most mature property catastrophe insurance market in the world in the United States.”

Indeed, Swiss Re sigma has said the amount of financial loss caused by catastrophes not covered by insurance is growing.

This so-called global insurance protection or funding gap totaled $75 billion in 2014, according to Swiss Re.

A recent issue brief by Wharton Risk Center co-director Howard Kunreuther pointed to evidence showing that consumers tend to purchase too little insurance or purchase it too late.

As a result, it said, taxpayers wind up bearing substantial burdens for paying restoration costs from extreme events. The 2005 and 2012 hurricane seasons alone cost taxpayers nearly $150 billion.

The Wharton brief suggests there is much that can be done to better facilitate the role that insurance can play in addressing losses from extreme events, both natural and man-made.

To better meet its objectives, insurance must embody two guiding principles, first premiums must accurately reflect risk and secondly, to ensure equity and affordability, special financial assistance should be made available to homeowners who would no longer be able to afford their premiums.

More information on the protection gap problem in this Insurance Information Institute report Underinsurance of Property Risks: Closing the Gap.

I.I.I. facts and statistics on flood insurance are available here.

Post-Matthew Update: How To Safely Clean Up Mold After A Flood

Guest Post: CDC

Returning to your home after a flood is a big part of getting your life back to normal. But consumers and small businesses may be facing a new challenge: mold. What can you do to get rid of it? How do you get the mold out of your home or office and stay safe at the same time? CDC has investigated floods, mold, and cleanup, and offers practical tips for homeowners and others on how to safely and efficiently remove mold from the home.

In 2005, thousands of people along the Gulf Coast were faced with cleaning up mold from their homes after Hurricanes Katrina and Rita. One of our first concerns was to let homeowners and others know how they could clean up mold safely. After Hurricane Sandy in 2012, we teamed up with other federal agencies to provide practical advice on mold cleanup. This guidance outlines what to do before and after going into a moldy building, how to decide if you can do the cleanup yourself or need to hire someone, and how you can do the cleanup safely.

Prepare To Clean Up

Before you start any cleanup work, call your insurance company and take pictures of the home and your belongings. Throw away, or at least move outside, anything that was wet with flood water and can’t be cleaned and dried completely within 24 to 48 hours. Remember, drying your home and removing water-damaged items is the most important step to prevent mold damage.

Protect Yourself

We offer specific recommendations for different groups of people and different cleanup activities. This guidance educates people about the type of protection (think: gloves, goggles, masks) you need for different parts of your mold cleanup. It also identifies groups of people who should and should not be doing cleanup activities.

Be Safe With Bleach

Many people use bleach to clean up mold. If you decide to use bleach, use it safely by wearing gloves, a mask, and goggles to protect yourself. Remember these four tips to stay safe:

  • NEVER mix bleach with ammonia or any other cleaning product.
  • ALWAYS open windows and doors when using bleach, to let fumes escape.
  • NEVER use bleach straight from the bottle to clean surfaces. Use no more than 1 cup of bleach per 1 gallon of water when you’re cleaning up mold.  If you are using stronger, professional strength bleach use less than 1 cup of bleach per gallon of water.
  • ALWAYS protect your mouth, nose, skin, and eyes against both mold and bleach with an N-95 mask, gloves, and goggles.  You can buy an N-95 mask at home improvement and hardware stores.

You can take steps to keep yourself and others protected while cleaning up mold after a flood. Make sure to follow CDC’s recommendations so you can return home safely.

Resources