Tag Archives: hurricane season

The Unprecedented Hurricane Season

The National Oceanic and Atmospheric Administration (NOAA), part of the Department of Commerce, released a report in May predicting a strong chance of a busy Atlantic hurricane season this year. So far, that prediction has held true. The World Meteorological Organization (WMO) reports that the 2020 Atlantic hurricane season has been so active that scientists are running out of names on the year’s official list of storm names. For only the second time in history, hurricane experts have started to name additional storms this year using the Greek alphabet. 

There’s no question that an above-average number of hurricanes can have serious, immediate consequences for the millions of Americans who live in vulnerable coastal areas. But there may be far-reaching effects, as well. This unprecedented hurricane season, during the pandemic, could potentially affect the insurance industry both now and for years to come. 

Below are six ways an active hurricane season combined with a pandemic might affect homeowners, renters and insurance providers in the U.S. 

More claims: Perhaps the most obvious impact that an active hurricane season can have on the insurance industry comes in the form of more damage and a higher number of claims.

Weather-related claims cause more homeowners insurance losses than other types of events. Wind and hail claims, for example, make up 33% of total losses. Water and freezing damage are close behind at 30%, with fire and lightning claims accounting for 27% of total homeowners insurance losses. 

Even a seemingly small amount of damage may be more expensive than most people realize. The National Flood Insurance Program reveals that a single inch of water inside a home or business may cause around $25,000 of damage.

Increased rates: A trickle-down effect that comes with a higher number of weather-related claims (from hurricanes or other natural disasters) is the potential for insurance rate increases.

The state of Louisiana, for example, saw a 23% increase in homeowners insurance premiums after Hurricane Katrina, according to International Risk Management Institute Inc. (IRMI), a continuing education and certification provider for insurance and risk management professionals. 

The cost of homeowners insurance has already increased nearly 50% over the past decade.

See also: A Lesson From Hurricane Laura?

Fewer available adjusters: When major storms hit the U.S., insurance companies receive an influx of claims from homeowners in affected areas. Adjusters from insurance companies then travel to the covered properties to help assess the damage. However, during the COVID-19 pandemic, social distancing orders and travel within the U.S. posed great challenges. 

Travel restrictions may limit the ability of insurance companies to get adjusters to areas hit by hurricanes in a timely manner this season. On top of these restrictions, S&P Global reports that insurers may also have concerns about sending their adjusters out into potentially dangerous conditions — not only from the storms but also from potential exposure to the coronavirus. As a result, there could be an uptick in remote claim adjustment, especially in cases where less damage is reported. 

Increased interest in flood insurance: An active hurricane season may have at least one potentially positive side effect, especially for the insurance industry. More storms might lead to more interest in flood insurance, because most regular homeowners insurance does not cover this type of damage. 

While the National Flood Insurance Program, run by the Federal Emergency Management Agency (FEMA), is still the largest provider of flood insurance, more private insurers have been getting into the market in recent years.

Lapsed policies: People who are moving out of cities into hurricane zones may not realize they need special insurance coverage. In some cases, policies may be allowed to lapse. 

FEMA has put measures in place to help customers of the National Flood Insurance Program who are experiencing financial difficulties during the COVID-19 pandemic. The grace period these customers have to renew their existing flood insurance policies has temporarily increased to 120 days (normally 30 days). Insurers may not be able to help every client, but goodwill can go a long way toward customer retention. 

See also: Unusual Weather We’re Having, Right?

Higher taxes or spending cuts: Andrew Hurst, a data writer at ValuePenguin, an insurance comparison site, said, “The government has allotted a substantial amount of money toward COVID-19 relief. At the beginning of August, FEMA alone had planned to spend $10 billion over the course of its fiscal year on coronavirus aid. The damage from this year’s strong hurricane seasons could combine with the vast expenses that COVID-19 has demanded to a sum that’s unprecedented.” 

In the end, it’s the taxpayer who may have to foot a large portion of the bill for the increased government spending. These expenses from hurricane damages, coronavirus relief and vaccine development combined might trigger austerity measures like tax increases or budget cuts.

’19 Hurricane Season: Dodging a Bullet

The six-month 2019 North American hurricane season is officially in the books, and it was an active one in terms of named storm counts, with the majority of activity coming in the typical mid-August and mid-October periods. The season ended with 18 named storms, six of which became hurricanes, and three of those achieving major hurricane status (Category 3+ on the Saffir-Simpson scale). Having 18 named storms in a season is well above the 12.1 average (1981 – 2010), but the number of hurricanes and major hurricanes is right around what would be expected in an average year. In terms of ACE (Accumulated Cyclone Energy), the season ended up at 123% of the average, with two storms, Dorian and Lorenzo, contributing an impressive 61% to the tally.

Preliminary Atlantic Tropical System Track Map Source: NHC.

Key parameters that track the overall activity during a hurricane season. Source: NHC and Colorado State University

What is, perhaps, even more interesting is that, of the 18 named storms, eight of them lasted two days or less, and some didn’t even last 24 hours. Two storms (Olga and Imelda) ended up being named storms for only six hours. The number of named storm days totaled 68.5, which is 115% of the expected 59.5 average (1981 – 2010). This year clearly showed the bias to satellite observations, as several of the named storms this year likely would not have been named in the pre-satellite era.

Even these short named storms can be destructive to the insurance industry, such as Imelda, which hit parts of eastern Texas with 43 inches of rainfall. This highlights that the category is not always indicative of how destructive a hurricane might be. In fact, the named tropical storms of Imelda, Nestor and Olga accounted for 42% of the total U.S. insurance industry loss this season, which should likely ultimately settle for under $2 billion. The named storm average annual loss for the U.S. is over $15 billion annually, so the U.S. insurance industry was lucky this year, especially considering Dorian.

The season will clearly be remembered for major hurricane Dorian, which stalled over the northern Bahamas as a Category 5 hurricane for nearly two days and gave south Florida a good scare when the monster storm refused to leave the area. The insured loss impacts to the Bahamas are expected to surpass $3.5 billion. Even though the strongest winds remained off the coast of the U.S., impacts were still felt in Florida, Georgia, South Carolina and North Carolina (but not Alabama). This will be the largest insured loss event for the U.S. this season, at over $500 million.

See also: Grasping the Perils of Extreme Weather  

We also can’t forget about Dorian’s impact to eastern Canada, which is expected to hit around $2 billion (CAD) of loss and had a wide-ranging impact. This is a good reminder that strong named storms can easily affect New England during a hurricane season. With saturated ground and trees being in full leaf, many large trees were uprooted across eastern Canada, leading to long-term power outages, a major source of loss after strong wind events. Around 80% of the homes and businesses lost power in Nova Scotia at one point, a reminder that the insurance industry can easily suffer losses from long-term business interruption payments.

How Lucky

I’m not sure if the worldwide insurance industry truly understands the bullet that was dodged this hurricane season, as we saw the most intense hurricane to ever hit the Bahamas, which also tied the record with the 1935 Labor Day hurricane for the strongest landfall anywhere in the Atlantic. hurrThe losses could have easily reached $75 billion of insured loss and maybe more. The winds alone would have caused considerable damage to almost every single insured property in southeast Florida. The storm surge and flooding rains would have likely had a major impact on the National Flood Insurance Program and many of the new private markets now writing flood business in Florida. Even with 11 consecutive years (2006 – 2016) of no major hurricane catastrophes in Florida, there have been other loss issues across the state that have already strained parts of the market. Such a catastrophic event at this time would have been a big stress test for the Florida Hurricane Catastrophe Fund, considering such a Dorian-type event would be near the 100-year to 250-year event that many companies plan for on a yearly basis.

The other noteworthy (positive) impacts on the insurance industry might be the huge void of hurricane activity in the Caribbean Sea and Gulf of Mexico. In fact, only hurricanes Dorian and Barry reached hurricane-strength in those areas, which again is welcome news for the insurance industry. It always amazes me when a named storm can hit the tiny insurance hub of Bermuda, which happened this year with Hurricane Humberto.

A look ahead to 2020:

It’s way too early to make predictions for the 2020 Atlantic hurricane season, but some of the climate forcers to think about for 2020 are listed below.

See also: Risks, Opportunities in the Next Wave  

*El Niño Southern Oscillation (ENSO) is currently in a neutral state and is forecasted to stay there for the beginning of the 2020 Atlantic Hurricane Season. If this is the case, neither La Niña nor El Niño will have a large influence on wind shear or storm tracks.

IRI ENSO forecast model Based Probability showing Neutral ENSO Conditions next hurricane season July August September (JAS)

*After spiking this summer, the Atlantic Multidecadal Oscillation (AMO) index dipped back to near average in November, according to the Klotzbach and Gray AMO index, as far north Atlantic sea surface temperatures are currently near their long-term average values. This could have explained the higher activity this season and could lead to lower counts next season if sea surface temperatures continue to drop.

After spiking this summer, the Atlantic Multi-decadal Oscillation (AMO) index dipped back to near average in November.

*Madden-Julian Oscillation, which is associated with an upper-air wave that moves across the tropics every 30 to 60 days, will continue to drive periods of activity in 2020. It is important to watch these waves move from the western Pacific into the eastern Pacific, as they will ultimately help named storm formation in the Atlantic Ocean.

Preparing for the 2019 Hurricane Season

Hurricane season begins June 1. Experts are calling for a more active season this year, with the Weather Company forecasting 14 named storms, seven hurricanes and three major hurricanes, above the 30-year average.

Certainly the population growth and expansion of industries, particularly in the developing world, will ensure that losses from hurricanes will continue to increase. While hurricanes cannot be prevented, losses can be greatly minimized by adequate preparation before the hurricane arrives, including the development and implementation of a comprehensive written hurricane emergency plan.

Here are some tips to help businesses minimize damage and get back to work quickly after a hurricane or significant windstorm:

Pre-Hurricane Planning

The key to minimizing damage is adequate preparation before the hurricane arrives.

  • Assign emergency organization roles and responsibilities
  • Provide annual training
  • Assemble emergency supplies and equipment in a safe location such as plastic tarps, mops, squeegees, emergency lighting, battery-operated radio, tape for windows, lumber and nails, etc.
  • Plan for salvage and recovery, including maintaining a list of key vendors, contractors and salvage services
  • Anchor large equipment, such as cranes and draglines, in accordance with manufacturers’ guidelines
  • Fill fuel tanks of generators, fire pumps, company-owned vehicles, etc.
  • Be prepared to shut down operations if necessary

See also: How to Predict Atlantic Hurricanes  

During Hurricane

  • Keep emergency response team personnel at the facility, if safe to do so, and have them prepared to respond
  • Continue to monitor weather reports for information on potential storm damage, access to property, utility outage, etc.
  • Update management and maintenance accordingly
  • Patrol the property continuously and watch for roof leaks, pipe breakage, fire or structural damage
  • Constantly monitor any processes, equipment, boilers, furnaces, etc., that must remain online during hurricane
  • During power failure, turn off electrical switches to prevent reactivation before necessary checks are completed

After Hurricane

  • Secure the site to prevent unauthorized entry
  • Organize and prepare emergency crews for salvage and cleaning operations
  • If safe to so, conduct an immediate damage assessment, paying particular attention to structural damage, utilities, roof coverings, production and process equipment, fire protection equipment and areas subject to flooding
  • Notify utility companies of any outages or damages
  • Call key personnel and notify contractors to begin major repairs
  • Initiate salvage operations
  • Review the effectiveness of the hurricane emergency plane and revise as needed.

See also: Hurricane Harvey’s Lesson for Insurtechs  

Damage can be prevented or greatly reduced with proper planning in all stages of hurricane preparation. As we enter the 2019 hurricane season, these steps can help minimize overall damage because there is great preparation before and after; the steps also efficiently help rebuild businesses after the damage.

Updating Your Models for Hurricane Season

June 1 opened the North Atlantic hurricane season, with this year marking the 10th anniversary of one of the costliest storms to make landfall in the U.S. — Hurricane Katrina. Each year, hurricane season puts catastrophe (CAT) models to the test, with potentially millions of dollars riding on their accuracy. The loss estimates calculated by CAT models can play an important role in protecting your organization from financial loss.

The models have changed a lot over the past several years. For example, Hurricane Andrew in 1992 exposed the shortcomings of traditional actuarial methods that insurers use to model risks. And the billions of dollars in insured losses from Hurricane Katrina in 2005 helped lead to today’s CAT modeling rigor and its universal acceptance and use by the industry.

New Storms Change CAT Models
CAT models use algorithms to estimate potential losses stemming from a catastrophic event. Over the 10 years since Katrina, CAT modeling has become more complex because of technology improvements and the greater availability of data. After a significant storm, the models are updated based on the new data and a larger body of knowledge. These changes could considerably affect your property insurance and risk management strategies.

Here are some CAT modeling factors — which for U.S. hurricane exposures have changed several times in the last few years. You should consider the items below as you prepare for this year’s hurricane season:

  • Check your policy, including deductibles, coverage limits and sublimits, to ensure they’re adequate and realistic; check that exclusions are acceptable.
  • Ensure the quality of your CAT modeling data. Incomplete data causes more uncertainty for insurers; improving the data enables more accurate loss estimates and reduces the uncertainty for the underwriters.
  • Take a big picture view of your CAT exposures. By modeling your worldwide portfolio, you can identify regional drivers, which can help put U.S. hurricane risks in perspective. Also, using actuarial resources after a CAT or non-CAT claim can help evaluate your organization’s total cost of risk (TCOR), which can better inform how you use your risk management resources.

If you have locations in CAT-prone areas, you can fine-tune their CAT loss estimates with an understanding of how they’ve changed with each model update. Aligning your risk data with CAT modeling changes can yield better outputs for insurers to underwrite your risks.

To register for a webinar on June 17, 2015, on the lessons from Hurricane Katrina, click here.