By Sean Kevelighan, CEO, Insurance Information Institute
On May 27, for the second time in three years, Ellicott City, Maryland was ravaged by what meteorologists term a “1,000-year flood”—this while some businesses were still celebrating the one-year anniversary of their reopening after the August 2016 catastrophe.
As affected households and businesses assess the damage and pledge to rebuild (or to relocate) after this deadly event, one fact looms largest: that 1,000- or 100-year floods now seem to strike with numbing regularity. The time has come, then, for communities and individuals to accept this paradigm shift by embracing resilience.
Local, state and federal governments have a wide range of tools at their disposal to effectuate resilience, including public policy solutions and rebuilding/retooling critical infrastructure to withstand greater stresses. However, for business owners, homeowners, and renters, the most important step they can take is to close the “coverage gaps” that expose them to massive uninsured losses that can delay or prevent recovery. And for regulators and insurers, this creates an excellent opportunity for public/private solutions to meet this growing challenge head-on.
Puerto Rico is still suffering the devastating aftereffects from 2017 hurricanes Irma and Maria. Rebuilding the island will cost up to $50 billion according to a recent statement by FEMA head, William “Brock” Long. Many residents are still without power and the new hurricane season is just around the corner.
The situation in Puerto Rico is a warning to North America of what could happen If we fail to address our outdated and crumbling infrastructure, according to a new report from Zurich North America.
The report, Rebuilding Infrastructure: The Need for Sustainable and Resilient Solutions, points out that during the years leading up to Hurricane Maria, Puerto Rico’s infrastructure had been in increasing need of routine maintenance. The island’s power grid had fallen into a particular state of disrepair as a result of declining revenues and political corruption.
While the U.S. mainland infrastructure may not be in as bad a shape, the increased frequency and severity of extreme weather events makes the issue of resilient and sustainable building impossible to ignore.
The report stresses the importance of planning to rebuild BEFORE a disaster strikes and of anticipating future needs. On the positive side, over the past few years, use of reinsurance and catastrophe bonds by governments and government agencies have been increasing. Several South and Central American countries have obtained bonds that would pay for damage caused by earthquakes, and FEMA has begun obtaining reinsurance for its National Flood Insurance Program.
The February issue of our Latest Studies digest is now available.
In this issue:
- Aon, CoreLogic and McKinsey on 2017 catastrophes and future trends
- Cyberrisk insights form Lloyd’s and Aon
- The latest auto and home insurance price trends from the NAIC
And much more…..
Catastrophe risk modeling firm RMS puts insured and reinsured losses stemming from the December Thomas fire in Southern California at somewhere between $1 billion and $2.5 billion, reports the Artemis blog.
The fire, which started on December 4, became the largest in California history and was followed by devastating mudslides in burned areas stripped of vegetation.
RMS estimates include losses from burning or smoke damage to personal and commercial lines and insured losses due to business interruption and additional living expenses. They don’t include automobile and agriculture losses, or damage related to the recent mudslides.
The I.I.I. has Facts & Statistics on wildfires here.
The New Yorker magazine reported recently on the work of the Buoyant Foundation Project, an organization that provides architectural flood mitigation solutions for vulnerable populations.
Amphibious architecture allows an otherwise-ordinary structure to float on the surface of rising floodwater. An amphibious foundation retains a home’s connection to the ground by resting firmly on the earth under usual circumstances, but allows a house to float when flooding occurs.
A buoyant foundation is specifically designed to be retrofitted to an existing house that is already slightly elevated off the ground and supported on short piers. Under the house the foundation’s buoyancy blocks provide flotation, vertical guideposts prevent the house from floating away, and a frame ties everything together. Any house that can be elevated can be made amphibious.
Amphibious retrofitting has not yet gained widespread acceptance, and buildings with amphibious foundations are not eligible for subsidized policies offered by the National Flood Insurance Program.
Munich Re has released its 2017 catastrophe review, and disaster related insured losses for the year are the highest on record at $135 billion.
The record losses are driven by the costliest hurricane season ever in the United States and widespread flooding in South Asia. Overall losses, including uninsured damage, came to $330 billion.
The United States made up about 50 percent of global insured losses in 2017, compared with just over 30 percent on average. Hurricane Harvey, which made landfall in Texas in August, was the costliest natural disaster of 2017, causing losses of $85 billion. Together with Hurricanes Irma and Maria, the 2017 hurricane season caused the most damage ever, with losses reaching $215 billion.
The United States also suffered a devastating wildfire season and at least five severe thunderstorms across the country, accompanied by tornadoes and hail.
Mark Bove, a senior research meteorologist at Munich Re, said in a New York Times interview that losses jumped in the United States because so many of the disasters hit highly populated areas: the Houston bay area, South Florida, Puerto Rico. It’s a trend that he expects to continue.
The I.I.I. has data on natural disasters here.
New York Times columnist David Leonhardt discusses how people think about probability:
People understand that if they roll a die 100 times, they will get some 1’s. But when they see a probability for one event, they tend to think: Is this going to happen or not?
They then effectively round to 0 or to 100 percent. . . . It’s . . . what many Americans did when they heard Hillary Clinton had a 72 percent or 85 percent chance of winning. It’s what football fans did in the Super Bowl when the Atlanta Falcons had a 99 percent chance of victory.
If you tell someone a thing is unlikely, they will tend to think it is impossible. When the unlikely happens, they are more likely to blame you (or your mathematical model) than their leap of logic.
In insurance, we hear about it when a flood encroaches a 500-year floodplain or a 1-in-250 year storm hits.
It is one of the biggest challenges we face in helping to create a more resilient world – convincing people that what is unlikely today is inevitable someday.
Swiss Re sigma has released its preliminary 2017 catastrophe loss estimates today. Here are some of the findings:
- Total global economic losses from natural disasters in 2017 came to $306 billion, up from $188 billion in 2016, according to Swiss Re sigma estimates.
- Insured losses from catastrophes are estimated to be $136 billion, the third highest recorded by sigma.
- Losses were heaviest in U.S. which was pummeled by hurricanes Harvey, Irma and Maria making 2017 the second costliest hurricane season after 2005.
- Over 11,000 people died because of disaster events in 2017.
In addition to the intense hurricane season other major disasters of 2017 include:
- Major wildfires in October through December in California, which led to significant losses which are still being tallied. Property Claims Services estimates combined insured property losses from the fires to be $7.3 billion.
- In mid-September, two powerful earthquakes in Tehuantepec and Puebla, Mexico, which led to numerous building collapses, claiming many victims and resulting in insured losses of over $2 billion.
- In late March, tropical Cyclone Debbie, which hit the northeastern coast of Australia as a category 4 storm. Wind gusts and widespread flooding in central and southeast Queensland and northeast New South Wales led to insured losses of $1.3 billion.
- Europe suffered a cold snap at the end of April, followed by a summer of record temperatures.
- Severe floods in Southeast Asia claimed many victims and caused large devastation.
Martin Bertogg, Head of Catastrophe Perils at Swiss Re:
“In recent years, annual insurance losses from disaster events have exceeded USD 100 billion a few times. The insurance industry has demonstrated that it can cope very well with such high losses. However, significant protection gaps remain and if the industry is able to extend its reach, many more people and businesses can become better equipped to withstand the fallout from disaster events.”
It’s mid-December and some areas of the country have already had heavy snowfalls. Winter storms can have a serious economic impact with disruption of business and travel, collapsed roofs and stresses on municipal governments. It’s useful to know the relative impact of winter storms, and in a recent blog post, AIR Worldwide spotlights a rating scale called Northeast Snowfall Impact Scale (NESIS), developed by the Weather Channel and the National Weather Service.
NESIS provides a relative measure of Northeast winter storm impact based on total snowfall amount, geographic distribution, and population density. The scale does not consider the replacement value of property, however.
NESIS has five categories: Extreme, Crippling, Major, Significant, and Notable. The Great Blizzard of 1993 holds the record for maximum NESIS value for a single storm at 13.20
The I.I.I. has a Facts & Stats about Winter Storms here.
The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights.
More than 90,000 people have been evacuated in recent weeks as California’s Thomas Fire—the fourth largest in the state’s history in terms of acreage burned—migrated last weekend (December 9-10) into Santa Barbara County from Ventura County.
The total insured damage caused by 2017’s hurricanes Harvey, Irma, and Maria, coupled with two Mexican earthquakes, could rival 2011’s record catastrophe-related payouts from that year’s major earthquakes in Japan and New Zealand, according an analysis published in The Wall Street Journal’s Wednesday, December 13, print edition.
The I.I.I.’s Market Report webinar, “Protecting Small Business Against #cyberfail,’ was held on Monday, December 11. It is archived online.