Tag Archives: hurricane

’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.

How to Operationalize Hazard Data

This is the second in a series. The first article can be found here.

Our industry is facing a major problem related to hazard data: More hazard and event data providers are producing higher-resolution footprints for a larger number of catastrophic events than ever before.

All this data is difficult (and, in some cases, impossible) for insurers to process fast enough to deploy timely responses to their insureds.

If this problem sounds all too familiar, you’re not alone. At SpatialKey, working with our clients has highlighted a consistent struggle that many insurers are facing: There is a gap between the wealth of data available and a carrier’s ability to quickly process, contextualize and derive insight from it. Carriers that try to go it alone by relying on in-house data teams may find that they’re spending more time operationalizing data than deriving value from it, particularly during time-sensitive events.

Catastrophe data has evolved tremendously with our data partners, such as KatRisk, JBA and Impact Forecasting, becoming more agile and producing outlooks, not only during and after events, but well ahead of them. We’re seeing a push among our data partners to be first to market with their forecasts as a means to establish competitive advantage. And, while this data race has the benefit of generating more information (and views of risk) around a given event, it also creates a whole lot of data for you, as a carrier, MGA or broker, to keep up with and consume.

Three key considerations that arise while operationalizing data during time-sensitive events are:

  1. Continuous file updates make it difficult to keep up with and make sense of data
  2. Processing sophisticated data requires a new level of machine power, and, without it, you may struggle to extract insights from your data
  3. Overworking key players on your data or GIS team leads to backlogs, delays and inefficiencies

1. Continuous file updates throughout the life of an event

File updates can bring you steps closer to understanding the actual risk to your portfolio and potential financial impact when an event is approaching or happening. At the same time, the updates can make it exceedingly difficult for in-house data teams and GIS experts to keep pace and understand what has changed in a given model. Data providers, like KatRisk, are continuously refining their forecasts (see below) as more information becomes available during events, such as last year’s hurricanes Michael and Florence.

Using SpatialKey’s slider comparison tool, you can see KatRisk’s initial inland flood model for Hurricane Florence on the left, compared with the final footprint on the right. The prolonged flooding led to multiple updates from KatRisk, enabling insurers to gain a solid understanding of potential flood extents throughout the event—and well in advance of other industry data sources.

See also: Using Data to Improve Long-Term Care  

Over the course of Hurricane Florence, SpatialKey received five different file updates from just one data provider. That means that, for the data partners that we integrate with during an event like Hurricane Florence, we load upwards of 30 different datasets into SpatialKey! If you’re bringing this type of data processing in-house, it’s both time-consuming and tedious; in the end, you may end up with limited actionable information because you can’t effectively keep up with and make sense of all the data.

A solution that supports a data ecosystem and interoperability creates efficiencies and eases the burden of operationalizing data, especially during back-to-back events like we’ve seen the last two hurricane seasons.

2) Hazard data sophistication

Beyond just keeping up with the sheer volume of data during the course of catastrophes, being able to process high-resolution models and footprints is now a requirement. Many legacy insurance platforms cannot consume the quality and resolution requirements that today’s data providers are churning out.

High-resolution files are massive and a challenge to work with, especially if your systems were not designed for the size and complexity of these files. If you’re attempting to work with them in-house, even for a small-scale, singular event, it requires a lot of machine power. The most sophisticated organizations will struggle to onboard files that are 5-, 10- or 30- meter resolution, such as the KatRisk example above. And, doing so could make the model prohibitive, meaning you’ll have spent time and money on data that you won’t be able to use.

3) Dependency on in-house GIS specialists

The job of 24/7 data puts an enormous strain on data teams, especially during seasons where back-to-back events are common. For example, during hurricanes Michael and Florence, our SpatialKey data team processed and made available more than 50 different datasets over the course of four weeks. This is an intense effort with all hands on deck. Insurers that lack the expertise and resources to consume and work with the sheer volume and complexity of data that is being put out by multiple data providers during an event may find the effort downright grueling—or even impossible.

Additionally, an influx of data can often mean overworking a key player on your data or GIS team, leading to backlogs and delays in making the data consumable for business users who are under pressure to report to stakeholders and understand financial impact—while pinpointing affected accounts.

The role of a data team can be easily outsourced so your insurance professionals can go about analyzing, managing and mitigating risk.

It’s time to automate how you operationalize data

As catastrophes grow in frequency and severity, it’s time to explore how you can easily integrate technology that will automate the process of operationalizing data.

See also: Turning Data Into Action  

Imagine how much time and effort could be diverted toward extracting insight from data and reaching out to your insureds rather than processing it during time-critical events. There’s an opportunity cost to the productivity that your team members could be producing elsewhere.

Check back for Part 3 of this series, where we’ll quantify the actual time and inefficiencies involved in a typical manual event response workflow.

Top 5 Risks in Specialty Insurance

To help brokers better understand the current risks in specialty insurance and assist their clients, our team at Aon Programs, which serves independent insurance brokers across the U.S. with access to a portfolio of hundreds of specialized insurance programs, identified the top five areas of risk to watch out for.

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Flood Risk: Apathy

Too many property owners today are blissfully ignorant to the flood risk they face. Even after the 2017 season, which saw Hurricanes Harvey, Irma and Marie cause billions of dollars of damage to the Southeastern seaboard, the public still struggles to see the value of flood insurance.

During a 30-year mortgage, a property owner is 27 times more likely to experience a flood than a fire, yet only 20% of the damage caused by Harvey was insured by flood insurance. Conversely, 90% of damage caused by the 2017 wildfires in northern California was covered by fire insurance.

After a hurricane season, people tend to think, “It was bad, but we’ll get past this. It won’t happen again.” This is the root of the struggle people have with flood insurance. They get comfortable, and they don’t think ahead, especially while the sun is shining.

Take Florida. While the Sunshine State has a higher ratio of property owners carrying flood insurance than the rest of the nation, inland cities such as Orlando have lower ratios of insured property owners. Most of these homes are outside the 100-year flood plain, and homeowners aren’t required by their mortgage company to buy flood insurance.

FEMA is remapping flood zones in much of the country. For example, Broward County is a coastal area, yet thousands of properties have been moved from A to X-zone, which sends the message that homeowners don’t need flood insurance. Brokers will play a critical role in advising clients to retain coverage.

See also: Protecting Airports From Flood Risk  

Fine Art Risk: Catastrophes

Coupled with the onslaught of wind and flood damage associated with hurricanes Harvey, Irma and Maria, the catastrophic Californian wildfires and mudslides in 2017 were truly alarming from both a personal and insurance industry perspective. In the past, there would be a lull between events, as was the case between Katrina in 2005 and Sandy in 2012. Now, weather-related severity and frequency dynamics are increasing as we face multiple, successive catastrophes in a single year.

Generally, when something gets wet or blown over it can be conserved. But, when it’s incinerated there’s no possibility of restoration, as was the case with the wildfires in California. Many homes, including those in luxurious neighborhoods, were burned to the ground, and the damage caused to art collections was devastating. For instance, one prominent private collector had his home completely burn to the ground. Nearly $10 million worth of artwork went up in smoke. For that particular family the loss was as emotional as much as it was physical – sadly, for the country, an important part of our collective cultural fabric was lost.

Meanwhile, we had another prominent collector with a waterfront home in Palm Beach that experienced hundreds of thousands of dollars of damage from Irma. Given the massive aggregation of wealth in that county, the insurance industry is fortunate that the hurricane tracked west.

Most individuals chose not to carry standalone flood insurance. Fortunately, specialty fine art insurance policies typically do not exclude the peril of flood, so it’s definitely in the financial interest of wealthy individuals with art collections to obtain this essential protection, particularly because homeowners’ policies exclude flood coverage.

Home Health Risk: Malpractice

With the aging of the baby boomer generation has come rapid growth in the home healthcare market. People today do not want to live in nursing homes. They prefer to remain in their residence, where they’re more comfortable living independently and costs are lower.

To meet this demand, home healthcare agencies provide skilled and unskilled services. In addition to nursing care, they provide non-medical custodial care with home health aides and companions who support activities of daily living including: cooking, cleaning and assistance driving patients to appointments. Unfortunately, with the high number of residents needing home healthcare, these agencies are having a hard time keeping up with the demand.

With the overburdening of home care agencies comes malpractice claims. Recently a home health aide took an elderly client shopping— and lost her in the mall. The woman was found the next day outside, having died from exposure to the elements. The result was a malpractice lawsuit that settled close to policy limits.

Common malpractice claims involve helping patients with the support of daily activities, like bathing. Lifting patients adds to the exposure. Brokers should be aware of their home health clients’ exposures, including professional liability and hired/non-owned auto to ensure they have the proper coverage in place.

Special Events Risk: Bodily Injury

Special events cover a wide variety of potential exposures, from a one-day fair at a local church to a week-long art festival at a university, to a musical concert that travels across the country for a year. The venues for each will require your client to provide a certificate of insurance showing general liability coverage.

One of the most common bodily claims we see arises from the use of golf carts. Organizers will use golf carts to run entertainers or staff members from spot to spot on the event grounds. Recently, we settled a claim that exceeded $500,000 at a large fairground where an employee who was headed to the parking lot offered an elderly woman a ride. He made a sharp turn, causing the woman to fall from the cart and suffer a head injury.

If someone were to walk into your office with a special event, you might be intimidated when looking at the venue contracts, especially if the event involves fireworks or liquor liability.

Nonprofit Risk: Cybercrime Notification

Cyber is a top concern for organizations in a multitude of industries, including nonprofits. It is imperative that nonprofits be aware of their own specific cyber situation, especially any geographic-specific legislation with which they need to comply. For example, a primary concern in Florida is the privacy data breach statute, known as the Florida Information Protection Act. The provisions of the law are not very well known in the insurance community, particularly when insuring community associations.

See also: Don’t Risk a Lot for a Little  

Here are the primary provisions of the statute:

  • Any commercial or governmental entity that stores personal information is subject to the law
  • The entity is responsible for taking reasonable measures to protect the data in its care, such as names, email addresses and Social Security numbers
  • Persons affected by a breach must be notified within 30 days from the time it is discovered
  • Violations are subject to a $1,000-a-day fine up to 30 days, and $50,000 fine for each subsequent 30-day period, not to exceed $500,000

Most cyber liability policies will provide some assistance complying with Florida’s notification requirements. The challenge is that there is no standardization within the industry. Many liability policies offer as little as a $25,000 or $50,000 cyber sublimit.

It is important for brokers to make sure their client is receiving coverage for first-party and third-party claims. The IHG D&O policy for community associations provides coverage up to the full limits of the policy for third-party liability claims and $100,000 for first-party expenses such as notification costs.

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Staying abreast of emerging risks in the specialty insurance marketplace can help brokers recommend the appropriate coverage to their clients, and minimize their chances of experiencing an errors and omissions claim.

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.

Future of Flood Insurance

Hurricanes Harvey, Irma and Maria laid bare fundamental inadequacies of the current flood insurance program in the U.S. Too few homeowners had flood insurance in place. Federal Emergency Management Agency (FEMA) flood maps were inadequate to encompass actual flood risks and, even more importantly, outreach programs by FEMA and the National Flood Insurance Program (NFIP) were inadequate to properly communicate risks to the market.

See also: Time to Mandate Flood Insurance?  

The current hurricane season revealed an astounding lack of resiliency in the U.S. on many levels: (1) lack of insurance coverages; (2) inadequate mapping of flood risks; (3) failure to properly educate homeowners about their actual flood risks; and, (4) gross under-investment in resilient infrastructure by all levels of U.S. governments.

As Congress prepares to slash budgets and cut taxes, the fact that Hurricane Irma easily topped City of Miami’s sea walls with only Category 1 strength winds and brought a four-foot river of water down Brickell Avenue, the center of Miami’s Financial District, shows how much work needs to be done to achieve resiliency in just one U.S. city.

In its rush to reduce taxes, Congress is ignoring the U.S. infrastructure deficit, which is estimated to be in the multiple trillions of dollars by the American Society of Civil Engineers. The slide deck that I prepared for the Future of Flood Summit discusses new, cost-effective tools for flood risk modeling, flood risk report production and flood risk communication. A central theme is: “Can the insurance industry do a better job of helping insureds and societies cope with the increasing risks they are facing, as our climate changes and sea levels rise?”

You can find the presentation here.