'Very Active' 2010 Hurricane Season Calls for the Best Possible Preparedness for Insurers
The National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center, for example, recently predicted an "active to extremely active" hurricane season for the Atlantic Basin this year (the official hurricane season began June 1 and runs through Nov. 30).
The NOAA Center, a division of the National Weather Service, is projecting a 70 percent probability of the following ranges: 14 to 23 named storms (top winds of 39 mph or higher), including eight to 14 hurricanes (top winds of 74 mph or higher), of which two to seven could be major hurricanes (Category 3, 4 or 5; winds of at least 111 mph).
Meteorologists Philip Klotzbach and William Gray of Colorado State University's Tropical Meteorology Project also foresee a very active hurricane season in 2010, having increased its forecast from early April. Klotzbach and Gray predict 18 named storms (up from 15 in April), 10 hurricanes and five major hurricanes for the 2010 season.
"If our outlook holds true, this season could be one of the more active on record," says Jane Lubcenco, undersecretary of commerce for oceans and atmosphere, and NOAA administrator. "The greater likelihood of storms brings an increased risk of a landfall. In short, we urge everyone to be prepared."
Lubcenco will get no argument from Howard Botts, PhD, executive vice president of CoreLogic's spatial solutions group, formerly First American Corporation and the nation's largest provider of business information.
"The 2010 hurricane season looks like it will be one of the most active seasons this decade," Botts notes. "It's also a very good reason for property owners and the carriers that insure them to get the best possible data to help mitigate losses and reduce claims."
Botts explains that apart from damaging winds and torrential rain, storm surge is another major cause of hurricane-based destruction. This past spring, CoreLogic released its "2010 CoreLogic Storm Surge Report: Residential Storm Surge Exposure Estimates for 13 U.S. Cities," and the results are eye-opening. In its report, CoreLogic found more than $234 billion in residential storm surge exposure along specific U.S. coastal cities/regions.
"Without a doubt, storm surge is one of the most disastrous natural flooding events that can occur," Botts says. "With its exposure to tropical storms along its East and Gulf Coasts, the United States has long been aware of the damage caused by hurricane and tropical storm winds, but only recently has the storm surge been recognized by insurers as the number one cause of property damage. With modern building codes and wind damage mitigation protection a homeowner can significantly reduce property loss from wind damage, but an individual homeowner is powerless to reduce storm surge losses.
According to Botts, storm surge is triggered by large intense low pressure systems moving rapidly across the ocean and is influenced by both off-shore conditions (depth of water, wind speed, size of the storm, and angle of coastal impact) and on-shore conditions (elevation and barriers).
"The forward velocity of the hurricane causes water to 'pile-up' along the front of the storm, particularly along the right side of the storm. Also as a hurricane moves across the ocean, the storm-generated high winds and low pressure act as a "straw," creating a mound of water at the storm's center. These two effects cause a large bulge of water to develop," Botts says.
Over deep water far from land, the water bulge remains relatively small as its energy can be dissipated downward or to the side, keeping the rise in sea level small. But as the storm moves closer to shore, where water depth is shallow, the water has nowhere to go and the bulge of water grows. When the hurricane moves onshore, and particularly if landfall is at high tide, vast quantities of water are amassed along the coastline and flood large areas of land. High waves aggravate this situation. Where low-lying coastlines are protected by dikes, seawater cannot flow back into the sea after flooding has occurred. Furthermore, a storm surge will push up a river estuary and can cause damage over great distances inland.
Storm surge moves with the forward speed of the hurricane--typically 10-15 mph. One cubic yard of sea water weighs 1,728 pounds--almost a ton. Compounding the destructive power of the rushing water is the large amount of floating debris that typically accompanies the surge. Trees, pieces of buildings and other debris float on top of the storm surge and act as battering rams that can cave in buildings.
"While the wind intensity of a hurricane will grab the majority of headlines as it bowls its way across the Atlantic or Gulf towards a major U.S. city, storm surge inundation will be the primary culprit to cause residential damage due to intense flooding and residual standing water," Botts says.
In its report, CoreLogic considered several factors when selecting the areas of the U.S. to study, primarily hurricane probability, vulnerability and residential density. Most of the nation's most densely populated areas are located along the coast. In fact, 23 of the 25 most densely populated U.S. counties are coastal. Coastal counties average 300 persons per square mile, much higher than the national average of 98 persons per square mile. And since 1980, population density has increased in coastal counties by 65 persons per square mile, or by 28 percent.
CoreLogic chose the following geographic areas to review: Gulf Shores, Ala., South Padre/Brownsville, Texas, Corpus Christi, Texas, Myrtle Beach, SC, Wilmington, N.C., Long Island, N.Y., Jacksonville, Fla., New Orleans, L.A., Charleston, S.C., Houston-Galveston, Texas, Tampa, Fla., Virginia Beach, Va., and Miami-Dade, Fla.
The company's analysis found that on the lower end of the spectrum, a Category 5 hurricane striking Alabama's Gulf of Mexico shoreline would expose over $1.2 billion worth of residences to storm surge, affecting nearly 7,000 properties. On the higher end, a Category 5 hurricane slamming Miami could result in property losses of well over $50 billion and would affect more than 254,000 properties in the Miami-Dade area. Even if the hurricane is only a Category 1 storm, it could cause Miami-area residents total property damage of over $20 billion, impacting over 55,000 homes.
Of course, the storm surge impact on insurance claims can be a disaster as well. In post-Hurricane Katrina, the first of the so-called "slab suit" trials (only the slab, the foundation of the home, remained after the storm) was decided after a claim denial. The court, in a directed verdict, found in favor of the plaintiffs, reasoning that the insurer could not prove what portion of the loss was due to flooding and what portion to wind. The impact of this decision forced the defendant, a major carrier, into negotiations with 640 other litigants in a class-action suit. According to the insurer, as of April 2007, it had paid $1.2 billion to settle claims of Mississippi policyholders alone.
The 2005 Atlantic hurricane season, which included Katrina, was the most catastrophic ever recorded, and it changed the way the insurance industry conducts business. From that point on, faced with potential staggering costs and the prospect of continuing global climate changes, insurers began abandoning coastal markets--or limiting their losses by creating arbitrary "no-policy" distance buffers from the coast--in an attempt to exclude properties vulnerable to storm surge.
"The difficulty for insurers is that storm surge is impacted by barriers and on-shore elevation which are not directly correlated to distance from the coast," Botts says. "Only by using granular modeled storm surge inundation data which takes into account all the variables that impact storm surge loss can carriers accurately identify low-risk coastal properties reducing potential losses while maximizing profits. But to seize this opportunity, insurers must be able to reliably identify the individual properties at risk of catastrophic hurricane loss."
One way to do that is by using a solution such as CoreLogic's advanced data modeling and technology.
For example, CoreLogic's Geographic Information System (GIS) experts and staff of PhD-level geographers and hydrologists developed a state-of-the-art storm surge spatial analytic, which generates storm-surge inundation polygons for all counties along the Gulf and Atlantic Coasts.
"Our spatial analytic accounts for changes in coastal elevations and barriers to inland movement of surge waters, and produces polygons identifying five zones of storm surge, rated from low to extreme," Botts explains. "Using this data, underwriters can access detailed surge-risk scores for specific property locations and identify properties that generate high premiums, yet are less susceptible to storm-surge damage."
Botts says coastal storm surges are very complex events that consist of many different components that influence their effect on properties and assets, and an insurer with policies exposed to natural catastrophes can benefit from predictive hazard analytics. For one, analytical models can reduce the amount of time it takes to contemplate and measure the accumulation of risk, especially for risk managers and in the insurance market, where underwriting decisions today are made in a matter of hours, rather than days or weeks. Using predictive analytics can lead to proper pricing decisions, which can help mitigate future risk of default, loss or fraud in any industry.
"There is no real reason for insurers to abandon the coastal market, because as coastal population density continues to grow, so does the need for insurance coverage," Botts says. "Using a sophisticated approach to underwriting that allows carriers to make sound risk decisions, they can still succeed in this growing insurance market."
To get more information and/or download of copy of CoreLogic's complete storm surge report, visit www.corelogic.com.
(The above piece is part of our continuing Insights series designed to highlight key products and services to our readers. This paid-for Insights was written and edited by Risk & Insurance®
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June 30, 2010
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