June 11, 2019
Bracing for Hurricanes
by Paul Carroll
Now that hurricane season has officially begun, it’s time to rethink our strategy for dealing with them. To date, the strategy mostly has been hope. Let’s hope that not too many come ashore. Let’s hope the damage isn’t too bad if they do. Let’s hope the federal government will come to our aid quickly if we’re hit.
But surely we can do better than mere hope. I think we can.
The solution, as usual, begins with better information. In particular, we need a sharper understanding of what properties are vulnerable, so owners are fully aware of the risk and can take steps to make the properties more resilient or, at the least, buy adequate insurance. At the moment, a reliance on measures such as the 100-year flood plain for evaluating the likelihood of flooding are far too crude and inaccurate. As noted in the article, “The Top 5 Risks in Specialty Insurance,” thousands of properties have been classified as having low-threat status in Florida’s Broward County even though it is right on the coast.
Much more detail on property exposures is now possible through digital tools. Elevation is one factor—new tools make it easier figure out how much above sea level each property is, and account for that information when measuring vulnerability, rather than treat thousands of properties as being in the same plain. Our friend Nick Lamparelli of reThought Insurance told me in a recent podcast that it’s now possible for insurers to drill down and evaluate a building based on what floor expensive equipment like computer servers are on or even where that equipment is located on a given floor—providing a more accurate view as to whether it’s somewhere vulnerable to wind and flooding, or not.
It’s high time we started using such digital tools to get more accurate and detailed risk information.
The adjustment will take time, of course. It will also take discipline. Many clients with cat-exposed property will see rates soar and will resist more accurate risk-adjusted pricing. But the better information needs to find its way into the market to force change.
Other types of technology can also help by hardening properties. One of the revelations to me from the wildfire season in California last year was how a relatively modest investment in building materials can make such a big difference—the fires move so fast that an exterior that withstands a couple of minutes of frightful heat might keep the structure standing, with the insides intact.
While hurricanes are similarly destructive, some materials innovation can mitigate risk. Guy Fraker, our chief innovation officer, talks about windows and drywall designed to withstand debris thrown at them by hurricane-force winds. (Guy’s home in the Florida keys was in the eye of Hurricane Irma in 2017 and came through in good shape, though many neighbors were less fortunate.) More mundane approaches involve building homes with living space starting on the second floor, to minimize damage from flooding, and to strengthen the attachment of the house to the foundation and the roof to the house, given the tendency of hurricane-force winds to try to lift a house, or at least the roof.
If we don’t change something about our approach to hurricanes, we taxpayers can expect to continue to shell out disaster relief packages on the order of the $19.1 billion that was just allocated by the federal government, largely to help areas hit by hurricanes Harvey, Irma and Maria in 2017. We’ll always be subject to the caprices of Mother Nature, and some years we’ll skate by with little or no damage, but hope is not a strategy, especially when a far better one is available.