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By Steve Yahn

Even weather risk managers who rely almost entirely on ground stations for their projections are upset at the prospect of a "significant decline" in the number of satellites projected to be launched by the U.S. government between now and 2020, as underscored in a new National Research Council report.

The number and capability of weather satellites circling the planet "is beginning a rapid decline," according to the report. Meanwhile tight budgets have significantly delayed or eliminated missions to replace them, according to the report's chairman, Dennis Hartmann, professor of atmospheric sciences at the University of Washington in Seattle.

Hartmann warned that the loss of capacity will have "profound consequences on science and society, from weather forecasting to responding to natural hazards."

Specifically, the report noted that the number of NASA- and NOAA-planned Earth-orbit observation missions is projected to drop "precipitously" from 23 this year to only six by the end of the decade.

The possible effects on the weather risk management business could be substantial.

A decline in space missions may have a particularly negative impact on tracking and monitoring hurricane data.

"From a qualitative standpoint, we can say as you reduce the number of missions, it's possible especially if these were missions that were measuring sea-surface temperatures it would have a direct impact on our ability to monitor and assess hurricane risk in the near-term," said Michael Kistler, Hoboken, N.J.-based director of model product marketing at RMS, a leading model provider for catastrophic risk management. "So that's probably where we would have the most direct impact from reduced satellite missions."

Julian Roberts, London-based executive director of weather risk management for the Willis Group, noted his team relies almost entirely on ground stations to create its weather risk management products, which it sells to a wide range of industries, including agricultural, retail, sports and entertainment and more.

But Roberts said there is also a lot of technical interconnectedness in the area of meteorology, not least in the sphere of weather forecasting.

Furthermore, he added, it would be short-sighted not to take into account the future of new technologies, which are increasingly likely to make use of satellite data.

"We're already seeing that the availability of satellite data is helping to solve some more intractable weather risk challenges that simply cannot be measured by a weather station," Roberts said.

For weather risk management firms that have a greater reliance on satellite data, the dire consequences predicted by the National Research Council have a much more serious impact.

"A lot of us who are involved with weather satellites are starting to see this significant drop in instruments looking at Earth from space and we have not been in that position before," said Guy Seeley, executive vice president of Lexington, Mass.-based Atmospheric and Environmental Research, which helps governments, businesses and insurers anticipate and manage climate- and weather-related risks.

"If these satellite cutbacks do occur, our ability to quantify and predict our natural environment is going to go backwards," he added.

According to the National Research Council report, the number of instruments monitoring the Earth will decline from a peak of about 110 last year to fewer than 30 by 2020.

Seeley noted that numerical weather prediction requires a detailed understanding of the current state of the atmosphere.

"So there is a direct relationship between the number of opportunities to observe the atmosphere in space and time and your ability to predict what's going to happen in the future," he said.

If the number of Earth-orbiting satellites declines, it will affect the global capability for vendor forecasting, as well as any kind of weather forecasting or modeling for climate change, wild-fire modeling, and early-warning systems for tornadoes, cyclones and hurricanes, said EQECAT Inc.'s Oakland, Calif.-based meteorologist Annes Haseemkunju.

"One advantage of having a satellite is you have something observing from above you and it covers the whole globe," he said. "If you can't go to a place on an open ocean any other way, or other open spaces on Earth, satellites can provide data for all of these areas. Whereas, if you take away that technology, definitely, there will be a data gap. That is the concern for industry and scientific research."

Haseemkunju, whose firm provides catastrophic risk models, software, data products and consulting for insurance and reinsurance companies, also noted that satellites "can continuously provide data in an inexpensive way," compared to any other method of gathering data.

Pointing to rainfall data as a very important indicator that he tracks, Haseemkunju noted that, if you don't have a local gauge, the only way to track rainfall is remotely by satellite. "So, if there's a decline in the number of satellites, it might affect the quality of the rainfall accuracy and data," he said.

One leading underwriter who sees a ray of sunshine in the landscape is Mike Thorp, but his enthusiasm is qualified over the long run.

Thorp, a London-based global space underwriter for Torus Insurance, said: "One interesting consequence of cutbacks in U.S. spending on satellites that were meant to be launched but perhaps will be delayed is that there is worldwide capability, both government and commercial, to provide similar services."

But if there is a spending reduction now, a spending recovery might take a long time, said Thorp, whose firm provides property, casualty and specialty insurance as well as niche reinsurance around the world.

"I think the concern is that there is not a firm plan in place for what they're going to spend through 2020," he said.

"There does not seem to be much in the pipeline."

In addition to the spending cutbacks, another issue that has affected satellite plans is that several NASA missions have failed in the past few years, most notably Glory and OCO, he said.

"So the loss of these two projects will have quite a long-term effect," Thorp said. "And this highlights one of the downside aspects of government-funded missions: They are not generally insured so if they fail, NASA may simply chalk them up as a loss."

From the perspective of reinsurer Tom Paylor, a meteorologist and trader at Ren Re Energy Advisers Ltd. in The Woodlands, Texas: "Where the decline in weather satellites would play into what we do is that there could possibly be a degradation in the forecast skill out several days if the initialization is set on those models."

Brian O'Hearne, president and CEO of eWeatherRisk, an online weather risk management company based in Kansas City, Mo., that trades in hedges and, therefore, takes more of a historical approach to weather trading, said that, as you lose some of the data gathered from satellite observations, the weather models "will be a little bit more difficult to initialize."

O'Hearne, formerly managing director and head of Americas environmental and commodity markets at Swiss Re, said hedging has a forecast built into it typically, a longer-term one. "It's sort of a big ensemble of forecasts, sometimes combining the forecasts of 40 or 50 meteorologists," he said, noting that his firm has 6,000 weather stations that it can write risk on.

Stacey Boland, a member of the National Research Council committee that issued the report and a senior system engineer at NASA's Jet Propulsion Laboratory in Pasadena, Calif., summed things up: "You can't afford to collapse the current system to a few missions because to answer the questions society has of us, you need more than just a handful of measurements.

"We'll slowly become data starved at the current rate of satellite deployment," Boland said.

STEVE YAHN is the former editor of Advertising Age. He can be reached at riskletters@lrp.com.

July 24, 2012

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