Category Archives: Coastal Property

The 2018 Hurricane Season: A Retrospective

Hurricane Michael

The 2018 hurricane season officially ended on November 30. The National Oceanic and Atmospheric Administration’s (NOAA) storm counts for the season were: 15 named storms, including eight hurricanes. Two of these were “major” hurricanes (Category 3, 4 or 5).

To put that into perspective, the average hurricane season has 12 named storms, including six hurricanes, of which three are major. That makes 2018 a little worse than a “normal” year, and well within NOAA’s predictions before the start of the season on June 1.

Fortunately, these numbers are down from the especially destructive 2017 season, which included the so-called “HIM” storms (Harvey, Irma, and Maria). In 2017 there were 17 named storms, including 10 hurricanes, of which six were major.

But that is little comfort to the people affected by the two major hurricanes, Florence and Michael.

Hurricane Florence: Florence reached Category 4 status on September 10, making landfall on September 14 in North Carolina as a Category 1. Because the storm moved very slowly, Florence dumped at least 30 inches of rain in parts of North Carolina, setting a record in the state for rain from a hurricane.

Catastrophe modelers have estimated that insured losses from Hurricane Florence could range from $2.5 billion to $5.0 billion, excluding National Flood Insurance Program losses. Worryingly, it’s been estimated that somewhere between 70 percent and 85 percent of flood losses are uninsured (get flood insurance, everybody).

Hurricane Michael: Michael became a strong Category 4 storm on October 10 and made landfall shortly afterward in the Florida panhandle. The storm registered wind speeds just under Category 5-level speeds, making Michael perhaps the strongest hurricane to ever hit the Florida panhandle.

Catastrophe modelers estimated that insured losses from Hurricane Michael could range from $6 billion to $10 billion.

(The loss numbers for both hurricanes are subject to change, since losses are still being adjusted and paid out.)

In comparison, the Property Claims Services (PCS) unit of ISO estimates that insured losses from Hurricane Harvey will top $14 billion. PCS estimates that insured losses from Hurricane Irma will be more than $20 billion.

At a high level, the 2018 season was bad – but compared to last year, it could also have been a whole lot worse. Not that that’s any comfort to people who lost homes or family members. Hopefully 2019 will be calmer.

For more information on the 2018 season, see the I.I.I.’s Facts + Statistics: Hurricanes page. And again, get flood insurance.

The “Sand Palace”: A Poster-Child for Resilience

You probably remember the “Sand Palace,” the lone house standing after Hurricane Michael made landfall in the Florida panhandle in October.

It’s a powerful story about one man’s stand against nature’s destructive power. But the Sand Palace is also a story about insurance.

There are generally two aspects of insurance. One is to pay out claims to make people whole again after a loss. Another is to incentivize behavior that makes those losses less likely to happen. In insurance-speak, we call that “mitigation.”

Consider the Sand Palace in that context. According to an AIR Worldwide analysis, the house was built to be even more resilient than Florida’s already-stringent building codes: reinforced concrete, limited windows, minimal space below the roof to prevent uplift, a first floor 15 feet above ground, and more.

AIR analyzed how this construction fared during the hurricane. The structure’s features reduced wind losses by about 90 percent compared to other homes. Plus, the height of the building significantly reduced any storm surge damage.

This led AIR to conclude that “the Sand Palace is an excellent case study of the impact of mitigating features for use in risk reduction.” Presumably, the house also made an excellent risk for an insurer to cover.

It’s fair to ask, though: at what cost resilience? These kinds of reinforcements can cost tens of thousands of dollars, which can be out of reach for many homeowners.

But that’s probably where insurance can play a role. For example, is there a potential for insurers to offer economic incentives or discounts to homeowners to make their houses resistant to hurricane-force floods and winds? This incentive could be particularly effective in a world where climate change events might cause insurers to raise their premiums to account for higher risks. (That’s why many argue that insurance can play a crucial role in helping to combat the effects of climate change.)

It’s not always easy to say where the intersection between the costs and benefits of mitigation is. That’ll be up to the individual insurer and their insureds. But if done right, mitigation can be a win-win strategy. Insurers don’t have to pay out as much money for losses. Consumers don’t have to pay as much for their insurance. And the world can be made a safer, more resilient place.

Updated 2018 Atlantic Hurricane Season Outlook: Cooler Atlantic Temperatures Could Lead to Below-Average to Near-Average Hurricane Season

Special to the Triple-I Blog

by Philip Klotzbach,Ph.D,
Research Scientist, Department of Atmospheric Science, Colorado State University and I.I.I. Nonresident Scholar

Colorado State University (CSU) has just updated their outlook for the 2018 Atlantic hurricane season, and is now calling for a near-average season with a total of 14 named storms, six hurricanes and two major hurricanes (maximum sustained winds of 111 miles per hour or greater; Category 3-5 on the Saffir-Simpson Wind Scale) (Figure 1).  This prediction is a slight lowering from their initial outlook in early April which called for 14 named storms, seven hurricanes and three major hurricanes.  Accumulated Cyclone Energy (ACE) and Net Tropical Cyclone (NTC) activity are integrated metrics that take into account the frequency, intensity and duration of storms.

Figure 1: May 31, 2018 outlook for the upcoming Atlantic hurricane season

CSU’s meteorological team uses a statistical model as one of its primary outlook tools.  This methodology applies historical oceanic and atmospheric data to find predictors that were effective in forecasting previous years’ hurricane activity. Based on data dating back to 1982, this model has shown consistent accuracy. (Figure 2)  Statistical forecast for 2018 is calling for a below-average season.

Figure 2: Accuracy of June statistical forecast model at predicting historical Atlantic hurricane activity (since 1982)

CSU also employs an analog approach, which uses historical data from past years with  conditions that are most similar to those currently observed (as of May 31, 2018).  The team also forecasts projected conditions during 2018 peak hurricane season (August-October) by looking at historical data from years with similar August-October conditions.

This approach yields a similar outlook of below-average to near-average sea surface temperatures (SSTs) in the tropical Atlantic and near-average sea surface temperatures in the eastern and central Pacific.  The average of the four analog seasons calls for a near-average season. (Figure 3)

Figure 3: Analog predictors used in the May 31, 2018 seasonal forecast

CSU does not anticipate a significant El Niño event for the peak of the Atlantic hurricane season.  At this point, the meteorological team believes that the most likely outcome is neutral conditions for the next several months.  El Niños tend to reduce Atlantic hurricane activity through increases in upper-level winds that tear apart hurricanes as they are trying to develop.  Most of the dynamical and statistical model guidance agrees with this assessment and calls for neutral conditions for the next several months. (Figure 4)

Figure 4: Statistical and dynamical model guidance for El Niño

Most models are calling for neutral conditions for August-October, as highlighted by the black arrow. (Figure courtesy of International Research Institute for Climate and Society.)

The primary reason for a reduced seasonal forecast (compared with earlier 2018 outlook), is due to anomalous cooling of the tropical Atlantic over the past couple of months.  As shown in Figure 5. most of the Atlantic right now is quite a bit cooler than usual. In addition to providing less fuel for storms, a cooler tropical Atlantic is also associated with a more stable and drier atmosphere as well as higher pressure—all conditions that tend to suppress Atlantic hurricane activity.

Figure 5: Current SST anomalies in the North Atlantic.  SSTs are much cooler than normal across the entire tropical Atlantic

The most important thing to note with all seasonal forecasts is that they predict basinwide activity and not individual landfall events.  However, regardless of what the seasonal forecast says, it only takes one storm near you to make it an active season.  Therefore, coastal residents are urged to have a plan in place now before the hurricane season ramps up over the next couple of months.

Extra: If you live in a hurricane-prone region, your homeowners insurance policy may have a separate hurricane deductible. This infographic explains what you need to know.

Texas’ Property Insurer of Last Resort Serves Many in Harvey’s Path

Many of the homeowners and businesses in the path of Hurricane Harvey get hurricane protection for their properties from the Texas Windstorm Insurance Association (TWIA) instead of from either a traditional homeowners or business policy.

Created by the state Legislature in the 1970s, TWIA is a privately funded property insurer that provides windstorm and hail coverage to Texas homeowners and businesses in numerous coastal counties.

Homeowners and businesses purchase TWIA policies from their insurance professionals separate and apart from their homeowners and business policies so as to be covered for two specific events—either wind or hail-caused damage to their property.

Flood coverage for homeowners and businesses must be acquired separately from either FEMA’s National Flood Insurance Program (NFIP) or a private flood insurer.

TWIA policies have hurricane deductibles, which are usually equal to anywhere from 1 to 5 percent of a property’s insured value.  For instance, a TWIA policyholder who has a home with an insured value of $150,000, and a hurricane deductible of 5 percent, would have a $7,500 deductible. ($7,500 is 5 percent of $150,000.)  In this instance, the TWIA policy would cover wind-caused property damages above and beyond the $7,500 deductible. So if wind damage was $20,000, TWIA coverage would be $12,000 less $7,500, or $12,500.

TWIA claims are paid primarily from two revenue sources: the premiums TWIA collects from its policyholders and the money TWIA can access from its Catastrophe Reserve Trust Fund (CRTF).  The CRTF consists of funds TWIA has accumulated over time.  If TWIA needs additional money to pay claims, it is also authorized to use the money every Texas-licensed property insurer pays to TWIA in the form of annual assessments. It has a variety of other funding mechanisms that give it the ability to handle up to $4.9 billion in claims, which right now seems to be plenty for this particular storm.

TWIA issues policies in 14  coastal counties as well as portions of Harris County. TWIA writes the wind/hail for about 60% of the policies in that region, the rest being covered by private companies.

If you are insured by TWIA, you’d know it. It is an insurer of “last resort.” At least two traditional insurers would have to have refused to cover your property for wind risk, and your agent would have notified you of that fact and sent you to TWIA to seek coverage.

If you are a TWIA policyholder, you can learn more about filing a claim at the organization’s website or by calling (24 hours a day, seven days a week) (800) 788-8247.

Updated at 3:50 p.m. Eastern 8/26 to show the percentage of policies held by TWIA in the coastal region.

Updated at 5 p.m. Eastern 8/26 to give more detail on TWIA’s funding mechanisms and how people can know whether TWIA is their insurer.

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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Hawaii, Florida, Georgia and North Carolina Prepare for Storms

With numerous tropical systems in the Atlantic and two major hurricanes (Madeline and Lester) threatening Hawaii in the Pacific, insurers are keeping a close watch to see how things develop.

Over at Wunderblog, Dr. Jeff Masters observes that the dual scenario of two major hurricanes heading towards Hawaii is unprecedented in hurricane record keeping.

Hurricane Madeline, the closer of the two to Hawaii, intensified rapidly, growing from tropical storm to Category 3 strength in just 24 hours, Dr. Masters notes, and has since intensified to Category 4.

While the forecast models are not conclusive on the exact tracks and intensity of these named storms, it’s clear that both Hurricane Madeline and Hurricane Lester could affect Hawaii with high surf, torrential rain, and potential winds over the next week.

Hawaii’s costliest hurricane, based on insured property losses, was Hurricane Iniki in September 1992. Iniki caused $1.6 billion in damage when it occurred, or $2.7 billion in 2014 dollars, according to the Insurance Information Institute (I.I.I.).

Check out the I.I.I.’s Hawaii Hurricane Insurance Fact File for more information, including the top writers of homeowners, commercial and auto insurance.

Meanwhile, on the U.S. Atlantic coast, a tropical storm warning is in effect for the coast of North Carolina from Cape Lookout to Oregon Inlet for tropical depression eight.

A second system—tropical depression nine— is also being closely watched in the Gulf of Mexico. In its latest public advisory, the National Hurricane Center says the system is set to strengthen and that interests in central and northern Florida, and southeastern Georgia should monitor its progress.

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I.I.I.’s Florida insurance representative Lynne McChristian offers some sound advice on making sure your property insurance is ready for named storms in her latest blog post.

Take a look at I.I.I.’s North Carolina Hurricane Insurance Fact File, Georgia Hurricane Insurance Fact File, and Florida Hurricane Fact File for more information.

Top Metro Areas Have More to Lose When a Hurricane Hits

Latest Atlantic hurricane season forecasts are focused on the numbers – how many storms can we expect? and how many of those will be major hurricanes? NOAA, Colorado State University and Tropical Storm Risk cast their predictions here, here and here.

But as the latest storm surge analysis from CoreLogic indicates, it is where a hurricane hits land that is often a more important factor than the number of storms that may occur during the year.

Why?

More than 6.8 million homes located along both the Gulf and Atlantic coasts of the United States are at risk of hurricane-driven storm surge, with a total reconstruction cost value (RCV) of just over $1.5 trillion, according to CoreLogic.

But the disproportionate numbers of at-risk homes in just 15 major metropolitan areas means that where the storm makes landfall can make all the difference in terms of property damage and loss of life.

15metroareas

CoreLogic’s analysis reveals that some 67 percent of the 6.8 million total at-risk homes and 68 percent of the total $1.5 trillion RCV is located within 15 major metropolitan areas.

That’s 4.6 million homes, with total RCV of just over $1 trillion located in urban centers along the Gulf and Atlantic coasts including Miami, New York City, New Orleans, Houston, Philadelphia, Charleston and Boston.

The Miami metro area, which includes Fort Lauderdale and West Palm Beach, tops the list with 780,482 at-risk homes and an RCV of $143.9 billion.

By comparison, the New York City metro area has slightly fewer homes with potential storm surge risk at 719,373, but a significantly higher RCV totaling $260.2 billion.

As CoreLogic says:

“History has shown us that a single low-level storm can cause substantial property loss and potential loss of life it it occurs in or near an area of dense development.”

It’s important to note that properties located outside of designated FEMA flood zones may still be at risk for storm surge inundation.

However, only homes located within FEMA-designated high risk flood areas are required to carry flood insurance through the National Flood Insurance Program.

A 2015 poll by the Insurance Information Institute found that 14 percent of American homeowners had a flood insurance policy. This percentage has been at about the same level every year since 2009.

Storm Surge: The Trillion Dollar Risk

More than 6.6 million homes on the Atlantic and Gulf coasts are at risk of hurricane-driven storm surge with a total reconstruction cost value (RCV) of nearly $1.5 trillion.

The latest annual analysis from CoreLogic finds that the Atlantic Coast has more than 3.8 million homes at risk of storm surge in 2015 with a total projected reconstruction cost value of $939 billion, while the Gulf Coast has just under 2.8 million homes at risk and nearly $549 billion in potential exposure.

Which states have the highest total number of properties at risk?

Six states–Florida, Louisiana, New York, New Jersey, Texas and Virginia—account for more than three-quarters of all at-risk homes across the United States. Florida has the highest total number of properties at various risk levels (2.5 million), followed by Louisiana (769,272), New York (464,534), New Jersey (446,148), Texas (441, 304) and Virginia (420,052).

But if you rank the states by the highest total projected reconstruction costs in 2015, the top five are: Florida ($491.1 billion), New York ($177.4 billion), Louisiana ($162.1 billion), New Jersey ($126.8 billion) and Virginia ($91.1 billion).

CoreLogic makes the point that even though Louisiana has the second highest number of homes at risk to storm surge in 2015, only one-quarter are in the extreme or very high storm surge category, due in large part to the upgrade and expansion of levees in the state in the 10 years since Hurricane Katrina.

As Dr. Tom Jeffery, senior hazard risk scientist for CoreLogic says:

The number of hurricanes each year is less important than the location of where the next hurricane will come ashore. It only takes one hurricane that pushes storm surge into a major metropolitan area for the damage to tally in the billions of dollars. With new home construction, and any amount of sea-level rise, the number of homes at risk of storm surge damage will continue to increase.”

CoreLogic’s analysis comes as the National Hurricane Center (NHC) debuts experimental storm surge watch and warning graphics for the 2015 hurricane season:

ssgraphic_imagery_neworleans_300

Storm surge is often the greatest threat to life and property in the event of a hurricane. While most coastal residents can remain in their homes and stay safe from a storm’s winds, evacuations are generally needed to keep people safe from storm surge, the NHC says.

It’s important to note that many properties located outside designated FEMA flood zones are still at risk for storm surge damage.

As CoreLogic reminds us, homeowners who live outside the FEMA flood zones frequently do not carry flood insurance, given that there is no mandate to do so, and therefore may not be aware of the potential risk storm surge poses to their properties.

Data in the full CoreLogic report can be found here.

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

I.I.I. Report: Actuarially Sound Rates Key To Residual Property Market

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.”

Why a Below-Normal Hurricane Forecast Doesn’t Matter

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.