The outer bands of Tropical Storm Beta are lashing the Texas coast but official landfall is forecast to be late this evening. Beta is also bringing tropical storm conditions to parts of the southwestern Louisiana coast where 2 to 4 feet of storm surge is possible.
The storm is going to bring heavy rainfall to areas that were hit by Hurricane Laura.
High tide on Tuesday could bring “life-threatening storm surge” in areas of Texas and Louisiana, according to the National Hurricane Center (NHC). “Persons located within these areas should take all necessary actions to protect life and property from rising water and the potential for other dangerous conditions,” NHC said. “Promptly follow evacuation and other instructions from local officials.”
The storm could also create tornadoes near the middle-to-upper Texas coast or the southwestern Louisiana coast, NHC said.
Please click on the links below for Triple-I’s hurricane preparedness guides:
“Any home can flood,” says Dan Kaniewski — managing director for public sector innovation at Marsh & McLennan and former deputy administrator for resilience at the Federal Emergency Management Agency (FEMA). “Even if you’re well outside a floodplain…. Get flood insurance. Whether you’re a homeowner or a renter or a business — get flood insurance.”
Dr. Rick Knabb — on-air hurricane expert for the Weather Channel, speaking at Triple-I’s 2019 Joint Industry Forum — is similarly emphatic.
“If it can rain where you live,” he said, “it can flood where you live.”
Despite such warnings, even in designated flood zones, the protection gap remains large. A McKinsey & Co. analysis of flood insurance purchase rates in areas most affected by three Category 4 hurricanes that made landfall in the United States — Harvey, Irma, and Maria — found that as many as 80 percent of homeowners in Texas, 60 percent in Florida, and 99 percent in Puerto Rico lacked flood insurance.
To make matters worse, a recent analysis by the nonprofit First Street Foundation found the United States to be woefully underprepared for damaging floods. The report identified “around 1.7 times the number of properties as having substantial risk,” compared with FEMA’s designation.
“This equates to a total of 14.6 million properties across the country at substantial risk, of which 5.9 million property owners are currently unaware of or underestimating the risk they face,” the foundation says.
A more recent Triple-I analysis, conducted in advance of Hurricane Sally, found that flood insurance purchase rates in the counties most likely to be affected by the storm were “remarkably low.”
“In Taylor County, Ga., for example, just 0.09 percent of properties are insured against flooding,” Triple-I wrote.
NOT covered by homeowners insurance
Flood damage is excluded under standard homeowners and renters insurance policies. However, flood coverage is available as a separate policy from the National Flood Insurance Program (NFIP), administered by FEMA, and from a growing number of private insurers, thanks to sophisticated flood models that have made insurers more comfortable writing this once “untouchable” risk.
Invest in resilience
If it seems as if you’ve heard me beat this drum before, you’re right. I take flood and flood insurance very personally.
After Hurricane Irene flooded my inland New Jersey basement in August 2011, destroying many irreplaceable items, it was my flood insurance that enabled me to have a French drain and two powerful pumps installed that have since kept my historically damp basement bone dry – even during Superstorm Sandy the following year.
The 2020 Triple-I Consumer Poll found that homeowners are protecting their properties against disasters like flooding and hurricanes at a higher rate than previously reported, a welcome development as the 2020 Atlantic hurricane season got off to an early start and is expected to produce a higher-than-average number of storms.
“The insurance industry’s focus on resilience is starting to pay dividends as more Americans recognize the very real risks their residences face from floods, hurricanes, and other natural disasters,” said Sean Kevelighan, CEO, Triple-I. “There is still time to act. Hurricane Sally today became the eighth named storm to make landfall in 2020 but the Atlantic hurricane season continues through the end of November.”
However, the poll also found that greater consumer understanding on insurance coverage is still needed.
In something of a surprise, 27 percent of homeowners surveyed reported they have flood insurance, the highest level of flood coverage reported since the Triple-I began asking Americans this question in 2007. Most insurance industry and FEMA National Flood Insurance Program (NFIP) sources estimate anywhere from 10 to 15 percent of U.S. residences are covered under a flood insurance policy.
It is possible a number of Triple-I Consumer Poll respondents with homeowners insurance believe they have flood coverage when they actually do not. The discrepancy between those who have flood insurance and those who think they do gives insurers an opportunity to inform their customers about the need to purchase flood insurance, either from the NFIP or a private insurer, according to the Triple-I.
In addition to floods and hurricanes, the poll looked at how Americans assessed their risks from wildfires and earthquakes and surveyed the percentage of U.S. drivers who received auto insurance premium relief this year after the pandemic reduced miles driven nationwide.
The poll was conducted in July and is available here.
As Hurricane Sally slowly moves over the Gulf Coast in the next few days, historical flooding is predicted from rainfall for parts of Alabama, Georgia, Mississippi, Louisiana, Florida and the Carolinas.
National Weather Service published a map of areas in Gulf Coast states most at risk for flash floods. Triple-I estimated the percentage of properties in these counties that are covered by flood insurance and found that purchase rates are remarkably low in some areas. In Taylor County, GA for example, just 0.09 percent of properties are insured against flooding.
Standard homeowners and renters insurance policies do not cover flooding. The National Flood Insurance Program (NFIP) and a growing number of private companies sell the coverage. However, NFIP policies purchased now would take 30 days to take effect. Private companies have shorter waiting periods, about 14 days.
Hurricane Sally made landfall this morning near Gulf Shores, Alabama, as a Category 2 storm with sustained winds of 105 mph and higher gusts. The storm threatens extremely heavy rainfall and catastrophic floods for miles. Dr. Philip Klotzbach, Triple-I non-resident scholar and Colorado State University atmospheric scientist, gives an update on the storm in the video above.
Hurricane Sally looks to be a very significant hurricane for the northern Gulf Coast according to Triple-I non-resident scholar and Colorado State University atmospheric scientist Dr. Philip Klotzbach.
While the Category 1 storm doesn’t look to intensify much today given relatively strong wind shear and cooler sea surface temperatures (since the storm is moving very slowly and consequently churning up colder water beneath the surface), we’re likely to have a long duration storm event unfolding over the next several days.
Wind impacts will be moderate, but the storm will be moving very slowly, so a prolonged period of high winds can be expected. The very slow-moving hurricane is going produce tremendous amounts of rain along the northern Gulf Coast. Large regions will likely experience 10+” of rainfall, with isolated storm totals approaching 30″, said Dr. Klotzbach.
Emergency declarations for parts of Florida, Louisiana, Mississippi and Alabama have been issued and residents are urged to listen to local officials.
U.S. Gulf Coast residents from Louisiana to Florida should prepare for Tropical Storm Sally, which is forecast to strengthen into a hurricane before making landfall on Tuesday.
There is uncertainty over the specific timing and location of Sally’s landfall, as well as its ultimate intensity level. Severe weather conditions will last, however, for several days in multiple states.
The NHC warns Sally will generate destructive hurricane-force winds; torrential rain; life-threatening storm surge; flash flooding; isolated tornadoes; and widespread power outages.
Sally will be the eighth named storm to make landfall in the continental U.S. this hurricane season. Previous 2020 landfalls include Hurricanes Hanna, Isaias and Laura as well as Tropical Storms Bertha, Cristobal, Fay and Marco.
Louisiana, Mississippi, Alabama and Florida residents in the path of Sally should take the following precautions:
Review your evacuation plan and, if you have a pet, your pet’s evacuation plan.
Make sure you have a minimum seven-day supply of non-perishable food and drinking water (one gallon per person, per day) for all family members and pets, as well as a one-week supply of medications for everyone in your household.
Write down the name and phone number of your insurer and insurance professional and keep this information either in your wallet or purse.
Purchase emergency supplies, such as batteries and flashlights.
Prepare your yard by removing all outdoor furniture, lawn items, planters and other materials that could be picked up by high winds.
Fill your car’s gasoline tank because long gas lines and fuel shortages often follow in areas impacted by a tropical cyclone.
Perhaps the most emotionally compelling data point invoked by those who would compel insurers – through litigation and legislation – to pay business-interruption claims explicitly excluded from the policies they wrote is the property/casualty insurance industry’s nearly $800 billion policyholder surplus.
Many Americans hear “surplus” and think of a bit of cash they have stashed away for emergencies. And when you consider that nearly 40 percent of Americans surveyed by the Federal Reserve said they would either have to borrow or sell something to cover an unexpected $400 expense – or couldn’t pay it at all – that number may sound like overkill.
Not as much as you think
But policyholder surplus isn’t a “rainy day fund.” It’s an essential part of the industry’s ability to keep the promises it makes to policyholders. And although a number like $800 billion may raise eyebrows, when we look more closely at its components, the amount available to cover claims turns out to be considerably less.
Insurers are regulated on a state-by-state basis. Regulators require them to hold a certain amount in reserve to pay claims based on each insurer’s own risk profile. The aggregation of these reserves – required by every state for every insurer doing business in those states – accounts for about half the oft-cited industry surplus.
Call it $400 billion, for simplicity’s sake.
Each company’s regulator-required surplus can be thought of as that company’s “running on empty” mark – the point at which alarms go off and regulators start talking about requiring it to set even more aside to make sure no policyholders are left in a lurch.
By extension, $400 billion is where alarms begin going off for the entire industry.
It gets worse – or better, depending on your perspective.
In addition to state regulators’ requirements, the private rating agencies that gauge insurers’ financial strength and claims-paying ability don’t want to see reserves get anywhere near “Empty.” To get a strong rating from A.M. Best, Fitch, S&P, or Moody’s, insurers have to keep even more in reserve.
Why do private agency ratings matter? Consumers and businesses use them to determine what insurer they’ll buy coverage from. Also, stronger ratings can contribute to lower borrowing expenses, which can help keep insurers’ operating costs – and, in turn, policyholders’ premiums – at reasonable levels.
So, let’s say these additional reserves amount to about $200 billion for the industry. The nearly $800 billion surplus we started with now falls to about $200 billion.
To cover claims by all personal and commercial policyholders in a given year without prompting regulatory and rating agency actions that could drive up insurers’ costs and policyholders’ premiums.
Which brings us to today.
Losses ordinary and extraordinary
In the first quarter of 2020, the industry experienced its largest-ever quarterly decline in surplus, to $771.9 billion. This decline was due, in large part, to declines in stock value related to the economic recession sparked by the coronavirus pandemic.
Insured losses from this year’s Hurricane Isaias are estimated in the vicinity of $5 billion. Hurricane Laura’s losses could, by some estimates, be as “small” as $4 billion or as large as $13 billion.
And the Atlantic hurricane season has not yet peaked.
The 2020 wildfire season is off to a horrific start. From January 1 to September 8, 2020, there were 41,051 wildfires, compared with 35,386 in the same period in 2019, according to the National Interagency Fire Center. About 4.7 million acres were burned in the 2020 period, compared with 4.2 million acres in 2019.
In California alone, wildfires have already burned 2.2 million acres in 2020 — more than any year on record. For context, insured losses for California’s November 2018 fires were estimated at more than $11 billion.
And the 2020 wildfire season still has a way to go.
All this is on top of routine claims for property and casualty losses.
Four billion here, 11 billion there – pretty soon we’re talking about “real money,” against available reserves that are far smaller than they at first appear.
No end in sight
Oh, yeah – and the pandemic-fueled recession isn’t expected to reverse any time soon. Economic growth worldwide remains depressed, with nearly every country experiencing declines in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world’s 10 largest insurance markets is expected to decrease by 6.99 percent in 2020, compared to Triple-I’s previous estimate of a 4.9 percent decrease.
If insurers were required to pay business-interruption claims they never agreed to cover – and, therefore, didn’t reserve for – the cost to the industry related to small businesses alone could be as high as $383 billion per month.
This would bankrupt the industry, leaving many policyholders uninsured and insurance itself an untenable business proposition.
Fortunately, Americans seem to be beginning to get this. A recent poll by Future of American Insurance and Reinsurance (FAIR) found the majority of Americans believe the federal government should bear the financial responsibility for helping businesses stay afloat during the coronavirus pandemic. Only 16 percent of respondents said insurers should bear the responsibility, and only 8 percent said they believe lawsuits against insurers are the best path for businesses to secure financial relief.
This blog post has been updated based on new information received since it was first published on September 4, 2020.
Hurricane Laura may have caused as little as $4 billion of insured damage or as much as $13 billion, according to early estimates.
Property information, analytics and data provider CoreLogic said residential and commercial insured losses from Hurricane Laura in Louisiana and Texas will come in at between $8 billion and $12 billion. Most of the property damage occurred in southwest Louisiana, where Laura made landfall early as a Category 4 hurricane with 150 mph winds.
Catastrophe risk modeler RMS puts the range between $9 billion and $13 billion. This includes wind and storm surge losses of between $8.5 billion and $12 billion, inland flood losses of $100 million to $400 million, and National Flood Insurance Program (NFIP) losses of $400 million to $600 million.
Catastrophe risk modeling firm Air Worldwide said it expects losses related to Laura to fall in the $4 billion to $8 billion range. The combination of the storm’s track through less-populated areas and its relatively small “Rmax” – the distance from the center of the storm to the location of the maximum winds – should keep insured losses down somewhat, the company said.
Cat risk modeler Karen Clark & Co. estimates insured onshore property losses from wind and storm surge will likely amount to $8.7 billion in the U.S. and $200 million in the Caribbean. Its estimate includes the privately insured wind and storm surge damage to residential, commercial, and industrial properties and automobiles but not losses covered by the NFIP or losses to offshore assets.
All estimates are subject to change as more information becomes available.
Under the best of circumstances, the Atlantic hurricane season is a challenging time. Despite improved forecasting and analytical tools, pre-storm communication, and engineering, hurricane-related losses continue to climb.
But the 2020 season hasn’t come during the best of circumstances. This extremely active season arrived on the heels of a pandemic that hasn’t ebbed, accompanied by civil unrest and atypical wildfire activity that could draw attention and resources away from preparation and post-storm aid.
And, as if that wasn’t enough, it falls in the middle of what is arguably the most contentious, chaotic U.S. election year in modern history.
To say these new variables complicate resilience would be a gross understatement in a year whose (to use the technical insurance phrase) “general weirdness” would be difficult to overstate.
So, in a paper published today we review the current state of hurricane resilience – how forecasting, modeling, preparation, and mitigation have evolved – and how the insurance industry is working to help communities bounce back from hurricanes.
Demographics more than climate change
Nine of the 10 costliest hurricanes in U.S. history have occurred since 2004, and 2017, 2018, and 2019 were the largest back-to-back-to-back insured property loss years in U.S. history. Many would instinctively chalk up such numbers to climate change. But a careful look at the data suggests climate change isn’t the predominant driver of losses.
U.S. Census Bureau data indicate that the number of housing units in the United States increased most dramatically since 1940 in areas that are most vulnerable to weather-related damage. They also show that new homes are bigger and more expensive than in past decades.
Bigger homes full of more valuables, more cars and infrastructure in disaster-prone locales – these, more than climate trends, seem to be the dominant factors driving losses.
Not more, but wetter
Hurricanes may not be more frequent or significantly more intense due to climate change, but they seem to be getting wetter. Inland flooding has caused more deaths in the United States in the past 30 years than any other hurricane-related threat.
Early in the 2020 season, Tropical Storm Cristobal made landfall along southeastern Louisiana and triggered flash flooding as far inland as northwest Wisconsin.
“As the atmosphere continues to warm, storms can hold more moisture and bring more rainfall,” said Triple-I non-resident scholar and Colorado State University atmospheric scientist Dr. Philip Klotzbach. This trend could be exacerbated if, as some experts expect, storms begin traveling more slowly, adding to the moisture they would pick up from the ocean and drop over land.
Our paper also looks at the evolution of hurricane modeling and forecasting, as well as developments in preparation and mitigation.
Better data and improved modeling have made private insurers comfortable writing coverage, like flood insurance, that was previously considered “untouchable” and enabled the creation of entirely new types of insurance products.
But challenges remain. Experts disagree as to which models are best, and the proprietary nature of these models can make it hard for regulators to determine whether filed rates based on them are unfairly discriminatory.
Hurricane preparation and damage mitigation have benefited from improved communication and public planning.
“Many people still don’t evacuate the way they should,” says Todd Blachier of Church Mutual Insurance, “but states like Louisiana, Florida, Alabama and Mississippi have gotten much better in terms of shutting down inbound roads and creating one-way egress to facilitate evacuation.”
He says officials are acting much more quickly and communicating more effectively, thanks in large part to improved information from the National Oceanic and Atmospheric Administration (NOAA) and other resources.
One area in which improvements could boost resilience is building codes and standards. A recent Federal Emergency Management Agency (FEMA) study quantified the losses avoided due to buildings being constructed according to modern, hazard-resistant codes and standards. In California and Florida — two of the most catastrophe-prone states — FEMA found adopting and enforcing modern codes over the past 20 years led to a long-term average future savings of $1 billion per year for those two states combined.