Coastal Property


Just in time for the peak of hurricane season, our updated paper on the residual property market is hot off the press.

At first glance the numbers on the property insurance provided by the nation’s FAIR and Beach and Windstorm plans indicate that attempts by certain states to reduce the size of their plans appear to be paying off.

As you’ll see, the exposure value of the residual property market in hurricane-exposed states has declined significantly from the peak levels seen in 2011. In fact between 2011 and 2013, total exposure to loss in the plans fell by almost 30 percent – from $885 billion to $639 billion.

Why such a drop?

Florida Citizens, a plan that accounts for more than half (51 percent) of the total FAIR Plans’ exposure to loss, saw its exposure drop by nearly 50 percent from $429.4 billion in 2012 to $228.9 billion in 2013, as Citizens took much-needed steps to reduce its size.

This accounted for the overall reduction in total exposure under the FAIR plans. In 2013 total exposure to loss in the FAIR Plans was $445.6 billion, a 38 percent drop from its 2011 peak of $715.3 billion.

But what of the Beach and Windstorm plans?

Latest data show that between 2011 and 2013 exposure to loss in the Beach and Windstorm Plans actually grew by 14 percent.

Five state Beach and Windstorm plans are covered in our report: Alabama, Mississippi, North Carolina, South Carolina and Texas.

Over a longer time period, 2005 to 2013, the I.I.I. finds that some of the Beach and Windstorm plans saw accelerating growth. For example, total exposure to loss in the Texas Beach Plan (the Texas Windstorm Insurance Association (TWIA)) increased by 230 percent during this period.

A plan that would move TWIA’s policies over to private insurers and depopulate its book of business (much like Florida Citizens has done) is in the works, but so far nothing definite.

An ongoing and arguably more pressing concern is the fact that many of the residual market plans charge rates that are not actuarially sound and do not accurately reflect the risk of loss.

What does this mean? The I.I.I. warns that a major hurricane could expose residents in certain states to billions of dollars in post-storm assessments:

While hurricane activity in the most exposed states may have been lower in recent years, there is no question that over the long-term major hurricanes will cause extensive damage in future. This highlights how important it is for the rates charged by these plans to be actuarially sound.”

Forecasters with NOAA’s Climate Prediction Center now say the chances of a below-normal Atlantic hurricane season have increased to 70 percent, up from 50 percent in May.

In its updated outlook, NOAA said overall atmospheric and oceanic conditions that are not favorable for storm development will persist through the season.

Check out the revised numbers in this NOAA graphic:

However, coastal residents may want to heed the words of NOAA lead forecaster Dr. Gerry Bell:

Tropical storms and hurricanes can strike the U.S. during below-normal seasons, as we have already seen this year when Arthur made landfall in North Carolina as a category-2 hurricane. We urge everyone to remain prepared and be on alert throughout the season.”

This echoes the warning of others. After all, it only takes one landfalling hurricane for a season to go from below-active to active for coastal residents.

In a recent post Weather.com gave the classic examples of 1992 and 1983:

The 1992 season produced only six named storms and one subtropical storm. However, one of those named storms was Hurricane Andrew, which devastated South Florida as a Category 5 hurricane. In 1983 there were only four named storms, but one of them was Alicia. The Category 3 hurricane hit the Houston-Galveston area and caused almost as many direct fatalities there as Andrew did in South Florida.”

The $15.5 billion in estimated property losses ($23.4 billion in 2013 dollars) paid out by insurers for Hurricane Andrew ranks second in a PCS chart via the I.I.I. of the 10 most costly hurricanes in U.S. history, after Hurricane Katrina in 2005.

If Hurricane Andrew were to occur today, Karen Clark & Company estimates insured property losses would total $57 billion, based on current exposures.

A new study from NOAA reminds us that as sea levels rise, it no longer takes a strong storm or hurricane to lead to flooding.

So-called “nuisance flooding” – which results in public inconveniences such as frequent road closures, overwhelmed storm drains and compromised infrastructures – has increased on all three U.S. coasts by between 300 and 925 percent since the 1960s, according to NOAA.

Eight of the top 10 U.S. cities that have seen an increase in nuisance flooding are on the East Coast.

Annapolis and Baltimore, Maryland, lead the list with an increase in number of flood days of more than 920 percent since 1960.

New Jersey’s Atlantic City and Sandy Hook also made the top five with an increase in flood days of more than 600 percent, NOAA reports.

Port Isabel, Texas, along the Gulf coast, showed an increase of 547 percent, and nuisance flood days in San Francisco, California, increased by 364 percent.


Dr. William Sweet, oceanographer at NOAA’s Center for Operational Oceanographic Products and Services (CO-OPS) and the report’s lead author notes:

Flooding now occurs with high tides in many locations due to climate-related sea level rise, land subsidence and the loss of natural barriers. The effects of rising sea levels along most of the continental U.S. coastline are only going to become more noticeable and much more severe in the coming decades, probably more so than any other climate-change related factor.”

Scientists took data from 45 NOAA water level gauges with long data records around the country and compared that to reports of number of days of nuisance floods.

The study defines nuisance flooding as a daily rise in water level above the minor flooding threshold set locally by NOAA’s National Weather Service, and focused on coastal areas at or below these levels that are especially susceptible to flooding.

NOAA concludes that any acceleration in sea level rise that is predicted to occur this century will further intensify the impact of nuisance flooding over time, and will further reduce the time between flood events.

It also warns that while event frequencies are accelerating at many U.S. East and Gulf coast gauges, many other locations will soon follow regardless of whether there is an acceleration in relative sea level rise.

Check out I.I.I. facts and statistics on flood insurance and climate change and insurance.

Some 6.5 million U.S. homes with a total reconstruction value of nearly $1.5 trillion are at risk of damage from hurricane-driven storm surge, and more than $986 billion of that risk is concentrated in 15 metro areas, according to an annual report by CoreLogic.

The 2014 analysis by CoreLogic found that by state, Florida ranks number one for the number of homes at risk, with nearly 2.5 million homes and $490 billion in total projected reconstruction costs.

At the local level the New York metropolitan area (including northern New Jersey and Long Island) contains not only the most number of homes at risk for potential storm surge damage (687,412), but also the highest total reconstruction value of residential homes exposed, at more than $251 billion.

Ranked second among the major metropolitan areas at risk is Miami, Florida with 562,410 homes exposed and a total reconstruction value of $103.2 billion, followed by Tampa, Florida with 444,765 homes at risk and a total reconstruction value of $79.1 billion.

CoreLogic makes the point that just one storm of sufficient intensity occurring in or near one of the major metropolitan areas in the report is all that would be needed to cause tens of billions in property damage:

Past hurricane seasons have demonstrated the impact that just one storm of sufficient severity, located in exactly the wrong place, can achieve. Andrew, Katrina, and finally Sandy are still reminders that it takes no more than one hurricane roaring through a metropolitan and densely populated area to cause widespread property damage and threaten lives.”

CoreLogic goes on to explain that extensive regions along both the Gulf and Atlantic Coasts are vulnerable to storm surge, and yet many of the homeowners who live in these areas are not required to carry flood insurance because they are not located within a designated FEMA 100-year floodplain.

Since standard homeowners insurance excludes flood losses from either fresh or salt water, homeowners who are not located in FEMA Special Flood Hazard Areas, but are in high-risk surge zones, often do not consider buying National Flood Insurance Program (NFIP) coverage for their properties.”

With just over a week to go until the start of the 2014 Atlantic hurricane season, NOAA’s outlook is hot off the press and garnering a lot of attention.

Here’s NOAA’s take on the season by the numbers:

● NOAA is calling for a 50 percent chance of a below-normal season, a 40 percent chance of a near-normal season, and only a 10 percent chance of an above-normal season.

● NOAA predicts a 70 percent likelihood of 8 to 13 named storms (winds of 39 mph or higher), of which 3 to 6 could become hurricanes (winds of 74 mph or higher), including 1 to 2 major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher).

● These numbers are near or below the seasonal averages of 12 named storms, six hurricanes and three major hurricanes, based on the average from 1981 to 2010.

What are the reasons behind NOAA’s predictions for a near-normal or below-normal season?

A key driver of this year’s outlook is the anticipated development of El Niño this summer that is expected to cause stronger wind shear which reduces the number and intensity of tropical storms and hurricanes.

Cooler Atlantic Ocean temperatures this season also suggest fewer hurricanes, NOAA says.

Despite the prognosis for a below-normal or near-normal season, it’s important that coastal residents don’t underestimate the hurricane threat. As Dr. Kathryn Sullivan, NOAA administrator says:

Even though we expect El Niño to suppress the number of storms this season, it’s important to remember it takes only one land falling storm to cause a disaster.”

Note: NOAA’s seasonal hurricane outlook is not a hurricane landfall forecast and does not predict how many storms will hit land or where a storm will strike.

For a round-up of the latest predictions from the major hurricane forecasters check out this post at Dr. Jeff Masters’ Wunderblog.

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

Hurricane forecasters are sounding a warning bell for the U.S. East coast in their latest predictions for the 2014 hurricane season, even as overall tropical storm activity is predicted to be much-less than normal.

WeatherBell Analytics says the very warm water off of the Eastern Seaboard is a concern, along with the oncoming El Niño conditions.

In its latest commentary forecaster Joe Bastardi and the WeatherBell team notes:

We think this is a challenging year, one that has a greater threat of higher intensity storms closer to the coast, and, where like 2012, warnings will frequently be issued with the first official NHC advisory.”

WeatherBell Analytics is calling for a total of 8 to 10 named storms, with 3-5 hurricanes and 1-2 major hurricanes.

According to WeatherBell, there have been plenty of El Niño years with high impact seasons for the U.S. coast: 1957, 1965, 1969, 1976, 1983 (fading but still there), 1991, 1992, 2002, and 2004.

The forecasters say this pattern favors stronger storms (relative to normals) in-close to the U.S. rather than in the deep tropics which will have less to much-less than normal activity this year.

There is nothing to prohibit another Sandy-type hit from the southeast or three storms up the East Coast in one year despite a relatively low number of named storms in a season.”

Check out this post by Eric Holthaus over at Slate’s Future Tense blog for his take on how this year’s El Niño could grow into a monster.

Meanwhile, London-based consortium Tropical Storm Risk (TSR) has lowered its forecast and predicts Atlantic hurricane activity in 2014 will be about 25 percent below the 1950-2013 long-term norm and about 40 percent below the recent 2004-2013 10-year norm.

In its updated forecast TSR is calling for 12 named storms, 5 hurricanes and 2 major (Category 3 and higher) hurricanes.

TSR says two key factors in its forecast for below-normal activity are: lighter trade winds over the Caribbean and North Atlantic coinciding with the likely development of a moderate El Niño; and cooler than normal sea surface temperatures in the tropical North Atlantic.

TSR says both these predictors will have a moderately suppressing effect on activity.

A post over at Artemis blog points out that while El Niño typically results in a below average hurricane season in terms of the number of storms that form, that is no guarantee of a benign season in terms of catastrophic losses as that is down to the strength or severity and path of any storms that do form.

Updated forecasts will be released around June 1, when hurricane season opens.

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

As the 2013 Atlantic hurricane season comes to a close, it may be easy to dismiss the significance of this year’s season.

While it’s true that this year had the fewest number of hurricanes since 1982, the 2013 hurricane season was only the third below-normal season in the last 19 years, since 1995, when the current high-activity era for Atlantic hurricanes began, according to forecasters.

A NOAA press release quotes Gerry Bell, lead seasonal hurricane forecaster at NOAA’s Climate Prediction Center, a division of the National Weather Service:

A combination of conditions acted to offset several climate patterns that historically have produced active hurricane seasons. As a result, we did not see the large numbers of hurricanes that typically accompany these climate patterns.”

A total of 13 named storms formed in the Atlantic basin this year, NOAA reports, but only two, Ingrid and Humberto, became hurricanes. Neither of these storms became a major hurricane (Category 3, winds of 111-129 mph and above).

Although the number of named storms was above the average of 12, the numbers of hurricanes and major hurricanes were well below their averages of six and three, respectively.

Meanwhile, the Insurance Information Institute (I.I.I.) and the Florida Insurance Council (FIC) remind us that while Florida has escaped hurricane damage for eight consecutive years, insurers are prepared for the state’s severe weather history to repeat itself.

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

While the size of the residual property market in hurricane-exposed states in 2012 declined from the peak in exposure value and policy counts seen in 2011, the market overall remains at near-record levels, the Insurance Information Institute (I.I.I.) says.

In an updated report Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice, the I.I.I. notes that exposure to loss in the residual property market totaled $818.1 billion in 2012 with total policies in-force of 3.23 million.

This compares with total exposure to loss of $884.7 billion and total policies in-force of 3.3 million in 2011.

The I.I.I. notes that today, overall exposures in the residual property market appear to have stabilized somewhat and many of the plans are underwriting profitably.

Legislative reform passed in some of the most at-risk markets, for example the state of Florida, has contributed to an improvement in the overall financial position of the plans, it says.

Diminished hurricane activity in recent years in areas like Florida has been another positive factor.

The I.I.I. warns:

But, while hurricane activity in the most exposed states may have been lower in recent years, there is no question that over the long-term major hurricanes will cause extensive damage in future. This highlights how important it is for the rates charged by these plans to be actuarially sound.”

Despite attempts by certain states to reduce the size of their plans, the fact of the matter is that this market of last resort remains the market of first choice for many vulnerable, high-risk coastal properties, the I.I.I. says.

 

As we approach the peak of hurricane season, catastrophe modeler RMS has warned that storm surge poses a greater risk than hurricane wind.

RMS says its updated North American hurricane model shows there is a 20 percent chance that storm surge loss will be greater than wind loss for any U.S. hurricane that makes landfall. And for the northeast coast of the U.S. the risk is even higher.

Dr. Claire Souch, vice president, model solutions at RMS says:

Our model shows there is a 20 percent chance that storm surge loss will be greater than wind loss for any U.S. hurricane that makes landfall, which rises to almost 40 percent along the northeast coast of the United States – this is a risk the market can no longer afford to ignore.”

RMS’ updated North Atlantic hurricane model suite includes the ability to fully quantify the risk from catastrophic hurricane-driven storm surge.

An earlier paper by RMS on Superstorm Sandy made the point that storm surge loss can drive more insurance loss than hurricane wind.

In the paper RMS noted that while Sandy was not even classified as a hurricane at landfall, it caused a Category 2 storm surge in New York City:

This is not the first time that storm surge has had a dominant effect. It was responsible for more than half of the total loss from 2005’s Hurricane Katrina, which was a Category 3 storm at landfall, but had a Category 5 equivalent storm surge.”

Recent analysis by CoreLogic estimates that more than 4.2 million U.S. residential properties are exposed to storm-surge risk valued at roughly $1.1 trillion, with more than $658 billion of that risk concentrated in 10 major metro areas.

According to I.I.I. facts and stats on flood insurance, Hurricane Sandy was the second costliest U.S. flood, based on National Flood Insurance Program (NFIP) payouts as of July 12, 2013.

A steady rise in the number and value of exposed properties along the U.S. Gulf and East Coasts continues – and remains the largest factor increasing the hurricane risk of property insurers today, according to catastrophe modeling firm AIR Worldwide.

AIR just released an updated version of its report The Coastline at Risk, showing that the insured value of residential and commercial properties (the replacement value or cost to rebuild) in coastal counties now exceeds $10 trillion.

In coastal counties of Florida and New York, values approach $3 trillion in each state.
AIR notes:

In the past five years, the insured value of properties in coastal areas of the United States increased at a compound annual growth rate of just under 4 percent. Indications are that, as the economy recovers, the rate of growth will pick up. At a historical rate of 7 percent, the total values insured would double every decade.”

Overall, AIR estimates that some 38 percent of the total exposure in Gulf and East coast states is located in coastal counties. This exposure accounts for nearly 16 percent of the total value of properties in the U.S.

New York edges Florida as the state with the highest coastal property values, at over $2.9 trillion, but Florida has the largest proportion of its value in coastal counties at 79 percent.

More on this story from Claims Journal.

Check out additional facts and statistics from the I.I.I. on hurricanes.

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