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BMS Tropical Update July 11th

As mentioned in the last BMS Tropical Update, a storm is brewing in the Gulf of Mexico.  The National Hurricane Center has now named this system Tropical Storm Barry and expects it to potentially become a hurricane by Saturday and make landfall shortly thereafter, with possible impacts along the coasts of Texas and Louisiana, particularly in the city of New Orleans.  As many already know, New Orleans sits below sea level and has had its share of flooding problems in the past.  Since water is the new wind risk for the insurance industry, this BMS Insight will focus on this threat in a bit more detail, as any wind damage at this time is uncertain given the high forecast uncertainty around the overall intensity and track of the storm.

The forecast models are suggesting as much as 18 inches of rain for the region, which isn’t good, considering that the area is already inundated with rain. New Orleans has already flooded this week from rain, with many streets covered with a dangerous amount of water.  The Mississippi River is expected to rise to 19 or 20 feet by the weekend, which is near the height of the city’s levees.

By Saturday, it may have winds of 85 mph, making it a Category 1 hurricane on the Saffir-Simpson wind scale.  It should be noted, however, that there is a lot of uncertainty around the forecasted intensity of the storm. This intensity will depend on how much wind shear the storm encounters and how much time it spends over the warm waters of the Gulf of Mexico.  Currently, the worst-case scenario appears to be a Category 1 hurricane.  However, forecasts can change fast, as we experienced with Michael last year.  Most of the model guidance is suggesting a lopsided tropical storm with a landfall somewhere along the Louisiana coastline.

Wind speed is just one of the insured loss concerns from the storm.  Historically, flooding has not been a big concern for the insurance industry, but the take-up rates of flood insurance are higher in Louisiana, including New Orleans.  The reinsurance markets are taking on some of the risk from the National Flood Insurance Program, so this flood risk needs to be watched.  Also, coastal flooding tends to be the deadliest aspect of a hurricane.

The main concern here is that the storm surge combined with heavy rainfall could reach 3 to 5 feet, which would flood many of the low-lying areas of Louisiana.  This storm is expected to generate a lot of rain, with some areas potentially seeing more than a foot, which can contribute to inland flooding along the banks of rivers.

This is the current National Weather Service rainfall forecast over the next 7 days. This rainfall forecast will depend highly on the track of Barry
Current National Weather Service Forecast river level in New Orleans. This forecast will change with the track and intensity of Barry

The biggest threat from the storm may be in New Orleans, where the Mississippi River is already at 16 feet due to the very wet spring and summer upstream.  Some states along the river have seen their wettest spring in recorded history.  All of this water has worked its way down the Mississippi River, which has been high for well over a month now.  The National Weather Service is now predicting the river to crest at 19 feet on Saturday.  That is one foot below the top of the river levees. This could change given the track of the forecast. This morning the forecasted river height was 20 feet, so the forecast is changing for the better since the newest forecast is now one foot below the top of some of the levees.

So, why is this a concern?  During both Hurricane Katrina in 2005 and Hurricane Isaac in 2012, storm surge pushed well upriver. In those cases, however, the river was only at a level of 3 feet or less.  During Katrina, a Category 3 hurricane with top winds of 125 mph, the river swelled to at least 15.25 feet at the Carrollton Gage in New Orleans.  The gage stopped operating when the water reached that level.  Several barges were deposited on top of the levees in Plaquemines Parish during the storm by surge water.  During Isaac, a Category 1 hurricane with top winds of 80 mph, the river rose to 9.5 feet at the Carrollton Gage.  While the current river level in New Orleans is 16 feet, levees and floodwalls protect the city up to water heights of about 20 feet.

How high is a 20-foot-high river stage for New Orleans?  It is higher than 99.9% of the city’s land surface, higher than every human being except those in multi-story buildings and about 30 feet higher than the lowest neighborhoods.

The red dots show where levees in New Orleans are under 20 feet.  This is where over-topping of levees is most likely if the forecast of 19 feet comes to fruition on Saturday. The red dots on the north side of the Mississippi River flooded during Katrina, including the Lower 9th Ward.
These are the areas of New Orleans that flooded during Katrina.

In summary, the precursor for a bad flooding event is set for New Orleans and remains for much of the hurricane season.  Many areas of Louisiana are flat, and flooding is a big concern with this upcoming storm.  There is uncertainty at this time around the potential strength and track of the storm, which also increases the level of uncertainty around the storm surge that may be expected.  However, the rainfall forecasts have been fairly consistent over the last several days, with most of the heaviest rain expected to fall along with the storm’s forecasted path.

BMS Tropical Update: July 9th

There is an old proverb used to describe the Atlantic hurricane season: “June – too soon; July – stand by; August – come they must; September – remember; October – all over.” In fact, we suggested in our May BMS Tropical Insight that the next best opportunity for tropical storms was going to be in early July. It appears that June was indeed too soon for tropical threats to the U.S. coastline. However, with the start of July, that is expected to change with development appearing likely in the northern Gulf of Mexico later this week and into the weekend.

The NHC is giving an 80% chance of a Tropical depression forming in Gulf of Mexico later this week.


A precursor vorticity center (areas of spin) is currently heading south through Georgia and will emerge into the northeast Gulf of Mexico by Wednesday. This circulation will take advantage of warm water in the area to build thunderstorms and may slowly intensify into a tropical system.
Dry air and dust from a few major outbreaks of Saharan dust have battered most of the Atlantic basin for the last several weeks. This combined with strong wind shear has prevented tropical development across the Atlantic basin since Subtropical Storm Andrea briefly roamed the waters of the west-central Atlantic in late May.

With the Madden-Julian Oscillation (MJO) currently in a positive phase that supports upward motion over Central America, the absence of strong wind shear and warmer than normal waters across the Gulf of Mexico, it should not take much to organize a tropical named storm which, if it develops later this week, will be named Barry. For the last several days, the forecasted steering winds have suggested that any named storm would drift toward the central and western portions of the Gulf of Mexico this weekend. This would give it more time over open water and could potentially create a stronger storm. With this track the risk to the insurance industry grows due to the large amount of exposure in the Houston areas, the risk to offshore assets increases due to a number of petroleum rigs and refineries along the central and western Gulf Coast. Regardless of how much development we see, the forecast models are suggesting multiple days of showers and thunderstorms that could potentially bring flooding to the southern Plains, lower Mississippi Valley and/or the southern Appalachians starting this weekend and into next week, depending on the track and timing of the storm. Some models take the tropical storm as far west as Houston which has no issue flooding from even the smallest of weather systems. Currently, some of the guidance calls for 15″ of rain over the next 7 days for the area.

The overall model guidance from the ECMWF and GFS models have been back and forth over the last few days and the landfall location as suggested by the above GFS ensembles is anywhere from east Texas to Louisiana. Keep in mind this entire area will see a lot of rain.
Source: https://www.tropicaltidbits.com


The last time a named tropical system made landfall in the U.S. during the month of July was Tropical Storm Emily of 2017. Emily formed in the eastern Gulf of Mexico and moved into the central Florida Peninsula on the last day of July, so it’s not unusual to see the forecast of such an event happening this week. As I mentioned in our May BMS Insight, it appears that this season’s tropical activity will be more likely to develop closer to the U.S. coastline instead of out in the Main Development Region (MDR) of the Atlantic Ocean. The bigger question is just how much activity we’ll see this season as we move toward its climatological peak at the beginning of September.


Forecasters continue to call for five to eight hurricanes to develop this season. July still does not look like a very active period for named storm development, as large scale sinking air will continue over much of the Atlantic basin, along with on and off bursts of Saharan dust that may keep activity to a minimum. While El Niño conditions may suppress the total number of tropical storms and hurricanes in the Atlantic basin this season, the data is suggesting that El Niño is weakening and may become a non-factor as we head into September. With the warmest ocean temperatures right along the U.S. coastline, the insurance industry should continue to watch for tropical waves coming off Africa which could potentially strengthen into named storms when they get closer to the U.S. coastline versus the MDR in a more typical season.

Above are the different phases of the MJO and the influence on precipitation. Notice the red circled areas above. Tropical cyclones making landfall along the Gulf Coast during Phase 2 of the MJO during meteorological summer causes a statistically-significant positive precipitation anomaly to show up in the Deep South in the 1979-2008. Research here by Zhou et al.
Notice how the red circled areas match the forecasted areas for heavy rainfall over the next 5-7 days along the Gulf Coast.

We are also now in the period where the insurance industry can begin to watch the subseasonal forecast. I have mentioned before that one of the best ways to predict this is to use the MJO, which is a pulse of upward motion that travels the tropics but also creates areas of sinking stable air in other parts of the tropics. This symbiotic pattern of wetter and drier areas moves east as a unit and typically completes a full cycle in 45 to 60 days. When the MJO (or similar phenomena) promotes upward motion over the Atlantic, hurricane development and rapid strengthening becomes much more common. According to research performed by Phil Klotzbach of Colorado State University, hurricane damage in the U.S. during convectively active phases of the MJO since the early 1900s is nearly three times greater than during suppressed Atlantic phases.


Therefore, I believe the next round of tropical storms may begin during the second week of August. Based on the current state of African waves and favorable conditions for development along the U.S. coastline, we may also be seeing an active late September and early October. Until then, keep watching the skies off the Gulf Coast and along the southeastern U.S. for the development of named storms that might not coincide with the MJO phases.

Insurance industry impacts to upgrading Michael to a Category 5

When Hurricane Michael made landfall on October 11th 2018, it had a central pressure of 919mb, which is the third lowest pressure of any U.S. landfalling hurricane. Yet, at the time, the storm was classified on the Saffir Simpson Hurricane Scale as a Category 4 hurricane with winds of 155 mph – only one mph below the Category 5 criteria. On April 19, the National Hurricane Center (NHC) announced what some meteorologists were already thinking, that, at the time of landfall, Hurricane Michael was actually a Category 5 storm with a wind speed intensity of 160 mph. The NHC bumped up the maximum wind speed based on a detailed analysis of aircraft, Doppler radar velocities, and new surface wind speed observations. It is worth noting the caveat from the NHC report that the maximum winds were in a very small area and future revisions are possible. Reconstruction of Stepped Frequency Microwave Radiometer (SFMR) winds showed possible higher values, but the reliability is still unknown, and more research is being done on this data.

There is also some other useful information to the insurance industry in the NHC report. Along a wealth of observational data the report also details some important loss information. The National Centers for Environmental Information (NCEI) currently estimates total economic damages from Michael in the United States at $25B. There have been several media articles written about the continuing insurance loss development. With a current insurance industry loss at $10B, the overall figure is coming close to the generally-held rule that the economic loss is about half the insured loss for U.S. landfalling named storms. Another interesting aspect of the report is the overall damage figures. For example, $3B of loss was on Tyndall Air Force Base near the landfall location. The damage survey suggested that every building at the Base was damaged to some degree. In Mexico Beach, 1,584 out of the 1,692 buildings were damaged with 48% being completely destroyed. The report also goes into damage figure details for Bay County and Gulf County. For example, Marianna, Florida, which is over 50 miles inland, had 1,000 buildings destroyed or with major damage. Seminole County in the Southwest part of Georgia reported 99% of homes were damaged from wind gusts in excess of 100 mph.

Not to be overshadowed, the storm surge section of the report is just as impressive. The storm surge surveys and analysis revealed maximum inundation of 14.7 feet above what is normally dry ground in Mexico Beach, which would also explain much of the damage found in that area.

Top Four Historical Category 5 Hurricanes that have made U.S. Landfall. Plots created using NOAA Historical Hurricane Tracks Tool https://coast.noaa.gov/hurricanes/

The formality of upgrading Michael from a Category 4 to a Category 5 is a big deal. Michael is now tied with the San Felipe Hurricane of 1928 or also known as Okeechobee hurricane as the fourth strongest hurricane to strike the United States (including Puerto Rico) since 1900, behind the Labor Day Hurricane (1935), Camille (1969), and Andrew (1992).
If you believe empirical landfall probabilities, the addition of Michael in the U.S. record since 1900 has increased the probability of a Category 5 storm making landfall from 2.52% to 3.36% or, in terms of a return period, 40 years to 30 years. As respects Florida only, the same calculations went from 1.68% to 2.52% and 60 years to 40 years.

Constantly Changing View of Landfalling Hurricane Risk
So, has the overall risk for the insurance industry increased? How will this new data change the insurance industry’s view of landfalling frequency and severity?

Hurricane risk across the U.S. is understood through the use of catastrophe risk models that employ stochastic catalogs containing thousands of events, each one with a small impact on model results. There is an ongoing process of recalibration of the stochastic catalogs. This constant reevaluation of current and past storms contributes materially to the development of a rich stochastic set of events informed by the historical record that is adjusted based on history or future forecasts.

Due to advanced observation techniques and improved understanding of tropical cyclones, the Hurricane Research Division (HRD) has implemented a data set (HURDAT2) that addresses errors and biases identified in the historical record. A working group of scientists makes corrections to location and intensity information in the six-hour track points for select tropical cyclones. Additionally, this research, supported by new evidence and data, adds previously undocumented cyclones to the record. Currently, the scientists are looking at storms after 1960 with further changes likely as a result of new findings.

One does not need to look very hard for proof that catastrophe modeling companies use changes in HURDAT2 to help adjust landfall frequencies. Recently, HURDAT2 updated Hurricane King (1950) from a Category 2 to a Category 3 storm resulting in a long-term rate increase in Miami Dade County in one of the stochastic catalogs. Another notable example of a tropical cyclone reanalysis is the Labor Day Hurricane of 1935. Upon reanalysis, the maximum wind speed at the time of its first landfall over the Florida Keys was increased (23 mph), increasing its intensity to strong Category 5 status. This reanalysis revised the Labor Day Hurricane to be the strongest U.S. landfalling hurricane in the historical record. Additional reanalysis upgraded its second landfall, in northern Florida, from Category 1 to Category 2 intensity and shifted its track closer to land. This change also resulted in changes in loss results from the Florida region in particularly using this event as a historical what if scenario.

As Hurricane Michael continues to be examined by researchers, recent activity will also adjust landfall rates. In fact, the most recent updates of HURDAT2 reevaluated landfalling events during the 2015 – 2016 season, including Hurricane Hermine (2016) and Hurricane Matthew (2016), yielding localized loss increases in the landfall areas. Similarly, losses increased in Canada due to changes in landfall categories for some storms during the 1956 – 1960 period as part of the HURDAT2 updates. In areas that didn’t see any new landfalling storms, small decreases in loss across mainland U.S. resulted.

With the knowledge that Hurricane Michael is, in fact, the fourth Category 5 hurricane to make landfall along the U.S. coastline, it will surely change the historical view of risk, particularly in the Eastern Florida Panhandle, which already has a limited historical record of major hurricanes making landfall. Michael is now the strongest hurricane landfall of record in the Florida Panhandle and only the second known Category 5 landfall on the northern Gulf Coast. Additionally, Michael marks the latest in the season a Category 5 hurricane has made landfall in the United States. All of this should be factored into new landfall rate adjustments.

It is too early to determine potential changes to future stochastic catalogs, but these revisions tend to be in the single percentages based previous Atlantic Hurricane model updates. It should also be a reminder, however, that just because the landfall frequency and severity might change for major hurricanes, the insurance industry should not forget storms of lesser intensity can also cause billions of dollars in loss. Any hurricane can cause great devastation.

BMS 2019 Atlantic Hurricane Season Update

The Season Has Begun
There has undoubtedly been a lot of attention given to severe weather across much of the U.S. since the end of April, but in the meantime, the Atlantic hurricane season has arrived. In fact, most people may not have noticed that the Atlantic Basin already had its first named storm (Andrea) of the season. Andrea was a short-lived (less than 24 hours) storm that formed on May 20, about 300 miles south of Bermuda. Andrea became the fifth tropical storm to form before the official start of the Atlantic hurricane season, which did not officially begin until June 1.

Dates of first named storm formation over the past 50 years. The official start of hurricane season is marked by the horizontal green line, and the median date of the first formation is marked by the horizontal dashed black line. The trend over the past 50 years has been for the first named storm to form earlier, with a large spread. There is no correlation between an early start of the season and the season’s overall activity, as discussed here. Source: (Brian McNoldy)

According to the National Hurricane Center, there is a 60% chance of named storm development in the near term in the southern Gulf of Mexico. It’s typical for us to see early season development in this area. At this time, most of the forecast models are bringing tropical weather up into Texas, which will also bring more moisture to the Central Plains where it is surely not needed at this time.

Invest 91 is a tropical disturbance in the southern Gulf of Mexico, which could develop into a named storm as it moves northwest over the coming days. Source: Weathermodels.com

Seasonal Forecasts

I was recently asked: “Does the insurance industry place any weight on seasonal hurricane forecasts?” My quick answer was Yes and No, as it depends.

To elaborate on the Yes part: The insurance industry has always been supportive of seasonal hurricane forecasts by subscribing to private forecasting companies and by funding academic research in these areas. Most companies don’t like surprises and, naturally, being prepared is the logical thing to do for both the reinsurance and insurance industries. However, insurance companies may be more limited in what they can do than reinsurance companies.

The seasonal forecasts can influence the strategic planning of an insurance company by making sure they have adequate claims adjusters in place going into the hurricane season to better serve their customers. Of course, an active hurricane season might require an insurance company to consider service level agreements or loss adjustment expenses and the effects of demand surge that might need to be paid in an active hurricane season. However, since the insurance industry is heavily regulated, companies have little ability to adjust rates for an active or inactive season ahead of time. The reinsurance industry, on the other hand, can be a bit more opportunistic when dealing with seasonal forecasts in terms of planning ahead to provide reinsurance in the secondary market.

To the No side of the answer: Capital requirements for insurance companies are regulated by rating agencies and the insurance commissioners of each state, and do not allow for rate adjustments on a seasonal basis. As part of its strategic planning, an insurance company may want to stress test a portfolio to a certain loss level, as it has the ability to buy more reinsurance during the season if it is uncomfortable with the potential losses that may come from a particular seasonal forecast. The extent of just how much seasonal forecasting plays into each insurance company’s strategic planning is unknown, but generally, insurance companies spend considerable time with strategic planning to understand the potential of losses in any given season, regardless of the Atlantic Basin seasonal activity.

From a business perspective, it’s hard to rely heavily on forecasting when the accuracy of seasonal forecasting is low. Historically, in June seasonal forecasts, the forecasting of activity has not correlated well with actual insurance industry losses. How many times have you heard about 1992’s Hurricane Andrew and how that season was a below normal year? Yet, Andrew happened and was a very big loss for the industry. “It only takes one” will haunt the industry until forecasting gets better.

The readers of my past Atlantic hurricane seasonal forecasts may know that I am all for our industry moving away from simply looking at activity in terms of the number of named storms and hurricanes the Atlantic basin might produce, and rather focus more on what the pattern is suggesting in terms of landfall impacts. This is where we will find the most value, as I describe in more detail below.

Seasonal Forecast and Landfall Threats
The seasonal forecasts we see each year from various sources that provide a number range of expected named storms and hurricanes in the Atlantic Basin are a dime a dozen. There is usually a considerable spread in these forecasts. Currently, there are 19 different forecast groups that have submitted Atlantic seasonal hurricane forecasts to http://seasonalhurricanepredictions.bsc.es/ . The average of these forecasts calls for 6 hurricanes, which is closer to an above normal season.

What do El Niño and La Niña have to do with tropical cyclones? During El Niño, wind shear increases in the Atlantic and we see cooler sea surface temperatures. In La Niña, wind shear decreases and the sea surface temperatures become warmer in the Atlantic, fueling more tropical cyclone activity. Source: NOAACliamte.gov

One of the major factors being considered in many of these forecasts is what the state of El Niño Southern Oscillation (ENSO) may be during the hurricane season. Currently, there is a weak El Niño occurring in the tropical Pacific, and this is forecasted to maintain into the heart of hurricane season. El Niño historically limits named storm development by increasing wind shear across the Caribbean and the Main Development Region. However, not all El Niños are the same, and this El Niño is a Modoki El Niño. This means that the warmest water is found in the central Pacific rather than off the coast of South America. We may see less of an overall impact on Atlantic hurricane season activity with a Modoki El Niño.

General difference between La Niña and  El Niño season.  However, the current El Niño is more of a Modoki El Niño which has less overall impact on the Atlantic hurricane season. Source: NOAA

Another factor to consider, which I think some of the seasonal forecasts may be missing, is that the depth of warm water is shallow and there is actually cooler than normal water beginning to show up at depth, which actually suggests more of a La Niña signature. This could mean that we see very little El Niño impact this hurricane season and instead begin more of a transition to a La Niña weather pattern for 2020.

The image to the left is the  vertical profile of the water temperatures at depth across the Pacific Ocean from South America to Australia as represented by the black line in the image to the right. Note the cold water below the warmer sea surface temperature closer to South American coastline with much of the warmer than normal water in the Central Pacific, which is more of a classic Modoki El Niño signature. Source. NOAA CPC

Sea Surface Temperatures across the Atlantic are currently warmer than usual, which would suggest a more active season. However, we may also want to consider one of the indexes that the insurance industry has looked at for over two decades now. According to Colorado State University, the Atlantic Multidecadal Oscillation (AMO) is currently in a cold phase, which historically would limit named storm activity in a given season, however, SST will be plenty warm enough for named storm development.

The other two factors to watch this Atlantic hurricane season will be Saharan dust and the Madden Julian Oscillation (MJO). Both of these are difficult to predict at seasonal time scales, but understanding the phases of the MJO can help determine when named storm development will occur. The MJO is the major fluctuation in tropical weather on weekly to monthly timescales that comes from pulses of tropical convection over the subcontinent of Asia. The MJO can be characterized as an eastward moving ‘pulse’ of cloud and rainfall near the equator that typically recurs every 30 to 60 day. In fact, the Atlantic basin is currently going into a phase (The MJO is currently in phase 3 and about to enter phase 4) that is not conducive to tropical development. It would appear unlikely that anything of substance develops in the Atlantic Ocean through early July as El Niño and the phase of the MJO limit convection development, which would also limit named storm development.

Overall, it looks like we have the potential for another late blooming season for 2019 with some subtropical development between now and the middle of July, along with a chance for a weak named storm in the Gulf of Mexico this week.

Saharan dust can be an inhibitor of Atlantic Hurricane activity, but it often moves off Africa in waves. In between these breaks of dust, and when combined with the right phase of the MJO, you can find that named storm development has a higher probability of occurring.

Above are the phases of the MJO and the tropical storm tracks that have occurred across the world. Atlantic Ocean is to the far right in the images above.   The MJO can also considerably influence hurricanes in the Gulf of Mexico, Caribbean Sea, and tropical Atlantic. More hurricanes tend to occur in MJO phases 2 and 3 than in phases 6 and 7. Differences in major hurricane numbers and hurricane days in the main development region are a factor of 3. Source: https://journals.ametsoc.org/doi/pdf/10.1175/BAMS-D-12-00026.1

As we’ve discussed, there are multiple factors to weigh when trying to predict the timing for named storm development. However, what are the seasonal climate models suggesting in terms of the possible tracks for named storms? As seasonal climate models continue to get better, we can begin to pick up on the overall pressure and precipitation patterns to help determine where storms will track.

The ECMWF Climate model is suggesting higher wind shear across the Caribbean which would limit tropical storm development in this area.  However, a window of lower shear is forecasted for the Atlantic hurricane season from the Bahamas to south of Bermuda.  Source: Ben Noll Weather

 

The CanSIPS  climate forecast model provides an view of where the Bermuda Azores high might be positioned for the Atlantic hurricane season. The lower than normal pressure coming from the model could suggest area of more named storms. Pressure below average near U.S. coast, above average in Main Development Region. Source: TropicalTidbits.com

 

Seasonal climate models are suggesting that above normal precipitation will be occurring this summer off the eastern coast of the U.S. This suggests that this is where the storm track may set up for the season, as storms bring above average rainfall to the eastern coast of the U.S. and the island of Bermuda. Also notice less overall rainfall in the central Atlantic suggesting storms might form closer to the East Coast if they develop. Source: Ben Noll Weather

Summary

I am expecting a more active than normal (Named Storm and Hurricane Storm Counts) Atlantic hurricane season as I think the Modoki El Niño will have less of an overall impact. When one combines this with the warmer than normal SST and weaker than normal wind shear near the East Coast, the conditions should allow for more than normal named storm development. The climate models are suggesting above normal precipitation on the periphery of the west side of the Bermuda high, which could come in the form of named storms during the summer months.  The key to the overall season will be how the MJO and Saharan dust enhance convection, with the next best possible window after this week coming in early July.  How all of this insight will impact the insurance industry is a big question at this point in time, but risks along the East Coast need to be watched.

The Makings of a Disastrous Hail Storm

There have been several big hail losses to the insurance industry over the last several years in fairly predictable locations. In 2016, three separate large loss hail events in the span of 10 days impacted several communities in Texas. The front range of the Rockies, including the Denver area, has had several billon-dollar hail events over the last few years as well. However, perhaps surprisingly, Phoenix holds the record for the costliest hail event, which is clearly in an area one might not expect large hail to occur.

Powerful storms moved through the western and southwestern suburbs of Chicago on May 16th providing a relatively rare occurrence of hail through the Chicago metro region. Hail observations ranged from 1 to 2.75 inches in diameter hitting a high exposure area from the suburbs to downtown.

Last night (May 28th) severe weather that occurred in parts of the PA and NJ  is a perfect example of The Makings of a Disastrous Hail Storm. The report of 4 inch hail in Northumberland County, PA would be only the fifth report of hail that large in PA since 1950. This hail swath could easily occur in Reading or Allentown, PA Large hail also came dangerously close to Newark Int’l Airport near Elizabeth NJ. Think of the insurance loss if this hail swath went over all those open car lots around the airport.

While sizeable hail losses across the Central Plains typically grab media headlines and much of the insurance industry’s attention, it is not uncommon for other metropolitan areas, such as Minneapolis, Chicago, and even large cities on the East Coast, to be at risk for considerable hail events. In fact, if you look at the various state record hail sizes across the Northeast, many are four inches in diameter. A hailstone of this size would rival some of the large hail observed in the Central Plains in any given year.

Property Claims Services (PCS) reports there is also a steady increase in severe thunderstorm insured losses. According to the Insurance Institute for Business & Home Safety (IBHS), hail accounts for nearly 70% of all property damage from severe thunderstorms. One of the major reasons for the increase in insured loss amounts from hail events is that there have been demographic changes over time, with more people now living in hail-prone areas in the Central Plains. The already compact populations in many U.S. cities are becoming denser, with some of the biggest cities continuing to grow.

Another factor that needs to be considered is that, as the population increases, the size of newly constructed homes has been growing with it. A recent report published by the U.S. Census Bureau found that the average new house is getting larger, even as the average size of families in the U.S. shrinks. Over the years, the size of newly constructed homes has increased more than 1,000 square feet, ballooning from an average of 1,660 square feet in 1973 to 2,641 square feet in 2018. This means that rooftop targets are larger and easier to hit, which adds to the overall exposure of this already expensive peril. Despite all of the new construction, many homes are aging and are more likely to have older roofing materials, such as asphalt shingles, that don’t get replaced as often as necessary. The exposure of these outdated materials to extreme cold and heat can make them more vulnerable to falling hailstones, thereby increasing the overall susceptibility to hail loss across the region.

There also seems to be a prolific problem of roofing contractors who chase storms. Following the housing downturn in 2008, contractors have increased the practice of trailing damage after hail storms, which aligns with the general uptick in hail-related claims after that year.

Hail Research
I was lucky to join a group of leading researchers at the National Center for Atmospheric Research (NCAR) for the North American Hail Workshop this past summer. This first-of-its-kind workshop was an opportunity for many industry professionals impacted by hail to learn more about this complex peril that is, currently, not well understood. After all, the more knowledge and facts we can gather as an insurance industry, the better the chances are that we can manage risk and reduce premiums for consumers.

From the workshop, it became clear that the IBHS is doing much of the heavy lifting when it comes to understanding hail impacts to the insurance industry. They have conducted extensive research in the observation of hail over the last few years, including the first-ever 3D scans of hailstones, along with density and kinetic energy measurements – very important components of understanding the potential damage hail can cause to structures. The IBHS is also conducting a roof aging study to better understand the impact that roof age has on the resilience of roofing materials to hail damage, among other perils. The initial results from samples that have been aged five years are expected sometime in 2019.

The workshop also went into great detail on weather forecasting models and their reliability to predict hail events in both the near term (day-to-day weather forecasting) and long term. As with any extreme weather peril, the question of what role climate change is playing was discussed. It’s difficult to answer because researchers still don’t fully understand the process of how hail forms and the factors that contribute to different hail size. There is an imperfect understanding of the microphysics and how storm-scale processes interplay. However, in its simplest form, climate change research suggests that a warmer climate would allow for an increased amount of moisture in the air, which would increase the Convective Available Potential Energy (CAPE). In warmer climates, the Convective Inhibition (CIN) also increases with a warmer atmosphere. A warmer climate allows for the build-up of buoyancy for longer periods of time, and when storms break the Inhibition, they could be more severe and intense than in the current climate. The climate modeling presented at the workshop generally shows that climate change may produce an increase in large hail sizes and frequencies, especially in mid-latitudes. The modeling suggests that there may be a decrease in frequency in the lower latitudes, where there are higher temperatures and moistures.

One thing that is helping the insurance industry is the new dual polarization radar data from the National Weather Service. These new radars are providing more precise information on hail size and location for hail swaths, allowing insurance companies to better estimate expected losses from hail events and to mobilize resources to more effectively serve customers that may be filing claims. Having the ability to plan and respond efficiently and accurately is key to managing losses from such large events. BMS Re US clients have access to historical hail swath events to run “what if” scenarios using Verisk Weather Solutions Respond hail data. Using this data, we have built a historical frequency of hail occurrences across the U.S., providing a view of the highest risk zones for hail that are not subject to the various errors that may appear from human-based storm reports. Below is a look at the Verisk Weather Solutions Respond Hail Swath data converted into a Hail Swath Relativity.

BMS Re US iVision hailswath occurrence frequency which utilizes Verisk Weather Solutions Respond Product.

Parts of this BMS Insight are set to be published in the spring addition of the New York Insurance Association NY Connection Magazine.

Medical Professional Liability 2019: themes, topics and encroaching disruption

By Andrew Wheeler, Managing Director, Specialty Casualty 

The US healthcare industry is never one to sit still. A number of disruptive forces are at work, all of which will form the basis of the most contentious debates and discussions at this year’s MPL Association Conference. Deep and profound transformation in recent times dictate that new trends continue to emerge and reshape the environment in which we live and work. This backdrop of change will certainly provide for an extremely exciting and interesting MPL Association meeting.

Of these new trends, perhaps the most important is the shift we’re seeing in how healthcare is being delivered. The trend towards the employment of physicians has had a profound impact on the MPL Association member companies. With employment approaching 50% nationally and significantly, almost 70% of those are under the age of 40, the trend can only continue. Aside from the obvious impact on MPL premium levels, member companies have had to diversify product and geography to accommodate this shift in risk.

The latest shift in the provision of healthcare is likely to be as, if not more, profound. Take Amazon, the business that seems to permeate every aspect of our life, and its recent focus on the healthcare industry. A partnership with Berkshire Hathaway and J.P. Morgan for an employer health initiative can only suggest a significant market share play in a $3.5bn sector. The acquisition of the internet pharmacy PillPack, the investment in medical diagnostics, a project to mine patient records and the start up of its own employee health clinic lead us to believe this will be hugely disruptive for the healthcare industry. The question is how do the MPL Association members adjust in order to meet these challenges, and what will be the impact on risk?

Then there is the changing face of claims. The industry has benefited significantly from the reduction in frequency experienced in recent years. Whilst we may see pockets where frequency is increasing, it is certainly not a national phenomenon. That being said, severity is unquestionably increasing at a rapid pace. The industry is still seeking the answer to what has driven this shift and Whilst there are several considered factors, much like with frequency reduction, the industry is still seeking the answer to what has driven this shift.. Put simply, the medical profession is losing cases at trial which in the past, perhaps, would have received a more sympathetic hearing by a jury. A recent TransRe claims report found that the average value of the top 50 medical malpractice verdicts is $29.55m, which is the highest it’s been in the last 18 years. We have also seen two cases in the last 12 month where awards have exceeded $150m. Of note, there is no discernible commonality as relates to specialty, geographic location or jury demographic.

Added to this is the well-publicised opioid crisis and the mass litigation, which has reached 1,548 federal court cases involving millions ofaffected people. In 2017, the US Department of Health and Human Services declared a public health emergency and announced a five-point strategy to combat the opioid crisis.

As an example of the scale of the problem, over half of West Virginia is addicted to opioids and in Ohio, over 1,500 state municipalities are suing the pharma companies for mass over-subscription of opioids. The case rests upon who should pay the bill and it may well become one of the most complicated legal battles in US history. Whilst the immediate focus of the plaintiff bar is on big pharma, MPL Association members and, for that matter reinsurers, are closely monitoring the potential for such litigation to expose physician or facility liability carriers.

Medical professional liability is in a state of flux perhaps greater than ever before. The challenges facing the sector need swift and decisive answers but also cross-sector collaboration to tackle. As a reinsurance intermediary, we at BMS are here to help. We are looking forward to discussions at MPL Conference so that we can tailor the tools and strategies needed to provide the best capital solutions.

The most profitable healthcare businesses will be those that adapt to the new environment and adopt technological change, improved actuarial modelling and disruptive thinking into their business model. So perhaps, together, we can ease the impact of change and usher in a new era of both profitable and sustainable growth.

Approaching the peak of the severe weather season

This BMS Insight will summarize the status of severe weather across the country so far this year and what can be expected as we move into the peak of the season. Typically, Local Storm Reports for tornadoes peak in the middle of May, which is a bit early in the season compared to Hail and Wind reports. Hail reports tend to reach the maximum level around the beginning of June and wind reports peak toward the end of June. The halfway point of large insured loss events, according to Property Claims Services (PCS), tends to also peak around June 6.
There have already been some notable severe weather outbreaks this year, with the highest tornado count occurring since 2012. What makes this season interesting, however, is that, up until the last few weeks, parts of the East Coast had experienced more tornadoes than states in the Central Plains.

Severe storm reports of tornado occurrences show the majority of tornadoes have been in the southeast, with just as many tornadoes occurring in some East Coast states as in Tornado Alley

In fact, some states like North Carolina and Virginia have recorded just as many tornadoes as Oklahoma. With much of the severe weather focused along the more populated East Coast, which has a higher concentration of exposure, one might expect that insured losses would be running above normal. Although it is still early, the data suggests that insured losses are, surprisingly, running 45% below the 2008 – 2018 mean across 11 PCS events year-to-date, which is what the insurance industry would expect. Although there will likely be some loss development, the 489 tornadoes that have occurred this year have, fortunately, missed large cities, which would have increased the insured loss values. As highlighted in my March 3 Insight, tornadoes have occurred, but primarily across the southeast where there is a large concentration of lower valued properties, such as mobile homes.

With the overall count of tornadoes for the year running right at average, and wind reports running slightly above average, it is interesting to note that reports of hail, which have been grabbing a lot of the insurance industry’s attention over the last few years, are down by a significant 57%. This could contribute to the overall decrease in insured loss for severe weather. I reached out to a few hail researchers to ask what might be driving the lower-than-average hail counts this season. The response was that many storms have been centered across the Southeast, which generally doesn’t experience a lot of occurrences of hail. The storms have had relatively anemic lapse rates and less of a deep-layer sheared environment, both of which are needed for larger hail events. John Allen a Assistant Professor of Meteorology at Central Michigan University made mention that lower hail frequency over the Plains is one of the expectations in El Niño years, currently in place in the South Pacific. There also could be a simple lack of reporting of hail events this year which is puzzling in itself.

Daily reports of severe weather (green) and the Average Annual Trend and daily hail reports from 2005 – 2015.

As the insurance industry is well aware, it only takes one destructive tornado or large hail event to impact a populated area, and some of those destructive events often occur in May and June, such as the infamous Joplin, Missouri tornado and hail event of May 22, 2011. So what does the overall threat look like going forward for the next month and a half? Ian Livingston, an author and contributor for the blog site, U.S. Tornado, recently summarized the number of days through the end of June from 2009-2018 that correlate with the various Storm Prediction Center (SPC) outlook categories.

The plot of daily maximum value from 2009 – 2018 of SPC Convective Outlooks.

The plot Livingston created above demonstrates that in May and June there is a consistent probability of Slight and Marginal risk, which makes sense, given this is the overall peak of the severe weather season. He also looked at the percentage of total days with at least some type of severe weather risk and, in June, an impressive 96% of days have at least a low-level tornado threat somewhere in the country.

The forecast models suggest a decent chance of severe weather on Wednesday in Tornado Alley and the Ohio River Valley on Thursday, which could bring more severe weather into parts of the East Coast on Friday. Regardless, severe weather should push its way into the Northern Plains as summer starts to take hold and the jet stream shifts northward.

I recently reviewed the spatial areas of the SPC convective outlook to create a unique view of Severe Storm Relativity-based conditions that could produce severe weather.  Although the Southeast and parts of the East Coast have had their share of severe weather already this year, the overall climatology and longer term weather forecasts suggests a shift will likely occur into the Central Plains and further into the Upper Midwest as summer progresses.

The climatological risk of SPC Daily Convective Outlooks 2000 – 2017.

March 3, 2019 – Severe Weather Outbreak

The familiar saying is that March can start in one of two ways: like a lion or a lamb. Unfortunately, this year it has come in roaring like a lion, with the occurrence of a very active outbreak of severe weather that has moved across the southeastern U.S., spawning numerous tornadoes (Filter NOAA Storm Reports suggest 39 tornadoes). The hardest hit areas seem to be Beauregard and Smith Station, AL, with initial damage reports suggesting the tornado travels 67 miles with a maximum width of 1 mile and had a maximum intensity of an EF4 tornado with 170 mph winds.  So far this tornado was the cause of all 23 reported fatalities. The Talbotton, GA, tornado could have also experienced a low to mid-level EF4 (166 – 200 mph) tornado and could actully be part of the same tornado that tracked over Beauregard and Smith Station, AL. Cairo, GA experienced an EF2 (120 mph) tornado, but data will continue to be analyzed before finalizing the rating. Overall, reports (only 16) of severe hail and other winds associated damage (62 reports) with this severe weather outbreak were relatively limited, but some insurance loss could result from these perils as well.

BMS iVision ingests filtered National Weather Service Observations of Severe Weather so clients can quickly get a view of impacted risks using one of the many Scenario View tools. After the Weather Service conducts damage swaths these can also be made available in iVision for deeper analysis.

The catalyst for this event was an area of low pressure moving across the Lower Mississippi Valley toward the Mid-Atlantic coast. In fact, if you look at the temperature anomaly from yesterday afternoon, it was a classic signature of a large tornado outbreak, similar to the late-April Tuscaloosa tornado outbreak of 2011. With record cold occurring in the north-central plains and ample warm moist air along the southeast feeding off the above-normal Sea Surface Temperatures (SST) in the Gulf of Mexico, the pattern is set for severe weather.

This is the 2 meter air temperature anomaly on the afternoon of March 3, showing the very cold air (16 degree below normal) over the Central Plains and the 6 degree above normal temperature over the southeast U.S. When the atmosphere air masses clash like this there is bound the be trouble – Source: WeatherBell

 

The National Weather Service Storm Prediction Center in Norman, OK (NWS) had issued a statement prior to the outbreak indicating that, given the buoyancy and intense shear profile in place, tornadogenesis would likely occur within 30 – 60 minutes, with the possibility of a strong tornado occurring after 1:00 p.m. CST.   The Preliminary lead time from the concentrated areas of damage in Smith Station is estimated to be 8-9 minutes.

Sadly, many people lost their lives even with this ample warning. With the death toll currently at 23 and potentially still rising, this tornado outbreak is the deadliest since May of 2013 when 24 people were killed in Moore, OK, and the deadliest day for tornadoes in Alabama since 2011.

Given the rating of the Smith Station, AL tornado is now an EF4, this ends the remarkable drought of an EF4 tornado.  According to the source, U.S. Tornadoes Violent tornadoes have caused 63.1% of all deaths despite the only accounting for 1% of all tornadoes in the historical record.

This chart has been featured in several BMS Insights blog post highlighting the lack of major tornadoes over the last few years.   This chart will now have to be updated given the Smith Station, AL tornado has been rated an EF4 by  NWSBirmingham.  The EF4 tornado drought has officially ends at 672 consecutive days. The longest such streak in the United States since 1950.

It is notable that the prevalence of images of driveways with debris everywhere, but no indication of foundations, suggests a large number of mobile homes were likely in these locations, perhaps contributing to the loss of life. Mobile homes tend to be lighter and have much less stable foundations than a typical single family home.  In fact, data from Stephen Strader and Dr. D.S. LaDue shows there are very few community tornado shelters in the part of Alabama hit by the tornadoes. Mobile homes are a big part of the housing stock across the deep south which is troubling, as even the weaker tornadoes or strong wind storms can destroy such structures. When you combine this with the huge growth in exposure to the tornado hazard across Dixie Alley, the insurance industry is bound to continue to experience loss from events like this into the future, even if it has been some time.

Data show there are very few community tornado shelters in the part of Alabama. In the lower right is a blue box of the approx tornado location and only 1 – 3 tornado shelters exist in the impacted areas. Source: Dr. D.S. LaDue

Some of the counties that had tornado impacts have 23 – 40% mobile home stock.  Source:  Peter Forister

Preliminary overlay of rotation tracks radar data and some ground observations.  However, also provided is the mobile home inventory across the possible tornado swath.   Source: David B. Roueche

Unfortunately, the forecast calls for another storm systems later this weekend and another duing the middle of next week that could lead to more outbreaks of severe weather. In fact, last week the large forecasting company AccuWeather predicted 1,075 tornadoes will occur in 2019. This is a bold prediction that has drawn some scrutiny as being very unscientific.  It is expected severe weather usually occurs across Dixie Alley in the early spring, as this is the climatological peak for storms before the focus shifts to the central plains.  AccuWeather believes warmer-than-normal SST over the Gulf of Mexico will lead to increased moisture transport from the Gulf over the region and, ultimately, a higher frequency of severe weather this season. I think the forecast is, bold, but the insurance industry needs companies and other researchers to push forecasting, but also state the uncertainties in such forecasts as guidance is feasible at longer lead times, but there is substantial variability. A number of factors that influence seasonal tornadoes include the state of the El Niño Southern Oscillation, Pacific and Atlantic SST profiles and seasonal wind shifts like the Madden-Julian Oscillation or the global wind oscillation. For the upcoming season, there is a weak ongoing El Niño event which, typically, implies the unstable conditions favorable to tornadoes are less likely over the Great Plains. But the Gulf of Mexico is exceptionally warm, and I know first-hand the snowpack over the northern plains and Rocky Mountains are healthy, which suggests more instability over the U.S. Only time will tell how this plays out, but the tornado drought appears to be over, and insurance companies are, yet again, facing loss from the raw destruction that can occur from severe weather.

 

Winter Weather and Hidden Issues for the Insurance Industry

It was not long ago that the insurance industry suffered a $2.4B industry loss from the harsh winter of 2013/2014, when “Polar Vortex” became a household word after the major cold snap of January 5-8, 2014 gripped the nation. Subsequent winters have totaled over $7B of loss, but there still appears to be a lack of awareness regarding the increased cost to the insurance industry due to winter weather. A number of the major catastrophe modeling companies have developed winter storm models to help understand the overall catastrophic nature of winter weather risk. However, as recent winters have shown, these losses are complex and often fall outside of typical event definitions observed in catastrophe models, which are largely focused on windstorm-related losses. At the RAA CAT Risk Management conference in 2015, I gave a presentation to my catastrophe modeling industry peers on winter weather and the hidden issues for the insurance industry. Given the cold that is currently descending on 90% of the nation, now is a good time to review the main talking points.

The forecast from the National Weather Service is above.  Any values on the forecast map through Thursday, January 31 that are circled are expected new record low temperatures and squared values represent new forecasted record low high temperatures for those weather stations. Source Weathermodels.com

As of 8AM January 30th, widespread new daily record cold temperatures have been set along with a few all-time and monthly record cold temperatures. We’ll probably see several more all-time records set this morning. The Midwest today is experiencing a truly historic event!

According to the Insurance Information Institute, winter weather makes up 6.4 -6.7% of U.S. insured loss, falling behind hurricanes and severe weather-related losses (pending adjustment due to wildfire losses). However, given that much of the insured loss is often not catastrophic in nature and results in a retained loss to most insurance companies, this percentage could be higher due to the overall lack of reporting. What might be more troubling to insurance companies is that, often, the insurance industry experiences a profitable first-quarter loss result. However, when severe winter weather hits in the first quarter, it can cause unexpected aggregated losses that fall below traditional catastrophe covers, thus negatively affecting insurance companies’ bottom line.

PCS Historical Losses (Not CPI adjusted) and number of Winter Storm PCS Events per year.  Winter storm losses are on the rise, but are likely nothing new to the insurance industry especially when you factor in socioeconomic factors.

In fact, just last winter the insurance industry experienced a situation where large insured losses across the northeast occurred without Property Claim Services (PCS) declaring a catastrophe bulletin for the major Arctic outbreak of cold weather. Between December 26, 2017 and January 8, 2018, record-setting cold descended across much of the East Coast of the U.S. and resulted in the first measurable snowfall in 28 years to reach all the way down to Tallahassee, FL. This cold along the East Coast resulted in claims of bursting pipes and auto accidents from snow and ice (normal and black). What complicated the insurance claims process for some companies is that PCS issued a catastrophe bulletin for the nor’easter (January 3-6) winter storm Grayson, or what the media referred to as a “BombCyclone” or “Bombogenesis.” This storm brought power outages from high winds and, in some cases, the lack of power for heating systems resulted in freeze-related losses. However, the fact that many of these claims were outside of the PCS date designation left some insurance companies wondering how to classify the cold air outbreak as an event. In fact, BMS has helped a few insurance companies with assessing claims that could be part of these winter storm events.

With some of the coldest air of the 2018/2019 winter season approaching, it is important for the insurance industry to be aware of the factors that could result in winter storm-related losses not reaching the attachment of a catastrophe program:

  • Number of occurrences/date of loss ambiguities
  • Specified perils and deductibles/sublimits and how they apply to winter storms
  • Property damage – freezing pipes can be very common with first and secondary homes
  • Business interruption deductibles/waiting periods
  • Contingent Business Income insurance losses and supply chain disruptions
  • Falling trees from winter storm can still occur (wind/ice storms)
  • Auto accidents increase drastically with black ice becoming more common in extreme cold
  • Ice damming, which can lead to water leakage (dates of loss are difficult to pinpoint)
  • Property liability – slip and fall on ice
  • Rare weight of snow roof collapses

Ice dam water leakage claims are the most difficult to determine the potential loss date, but here weather data can help determine a more exact date of loss between snow and freeze thaw cycles.

Another important thing to remember about winter storms is that they can be part of weather events that include other perils, such as severe weather. The U.S. can easily experience a winter storm that creates severe weather such as tornadoes and hail across the southern states while producing winter storm-like perils across the north. A classic example of this type of event is the March 12-14, 1993 Storm of the Century, also known as the ’93 Superstorm. The 1993 Superstorm still ranks as one of the costliest winter storm events of the 20th century, creating an  adjusted loss of nearly $3B. Meteorological data can often provide straightforward guidance to differentiate winter weather events from other perils, as needed to follow the “occurrence” definitions in the applicable policies or reinsurance contracts, which can vary. This is where it is important to be your own weather historian and understand how past winter weather has impacted your portfolio, which, in turn, can contribute to the efficient deployment of capital, and the alignment of rates and reinsurance capacity with risk profile and management of portfolio concentrations.   If you don’t want to be a weather historian, feel free to contact us or me personally so we can help you understand winter storm events.

Summary of Loss Trends

It’s nearly that time of year again when report after report will be issued summarizing the insured losses and economic impact that we saw in 2018. In fact, just last week Munich Re released its annual Natural Catastrophe Review showing that 2018 saw substantial disasters with large costs. However, global insured losses from natural catastrophes were at $80 billion USD according to Munich Re, which, depending on context, may not be as bad as it sounds. According to AIR Worldwide, the global insured average annual loss is about $86 billion USD and the 1% aggregate exceedance probability insured loss (or the 100-year return period loss) from catastrophes worldwide is nearly $271 billion. The 2018 named storm season will be seen as statistically unusual though. Named tropical cyclone activity levels across the world’s different ocean basins were all above the long-term average counts, including a higher number of typhoons that hit Japan and two direct major impacts to the U.S. mainland. There was also the often overlooked but major impact of Super Typhoon Yutu on the U.S. Territory of Saipan. The destruction resulting from the 2017 and 2018 named storm seasons, along with so many other catastrophic events often seen in the media, are raising questions on how trends in extremes are changing and impacting losses.

Well, another paper, yet again, has been published on this very topic. With so many questions about the overall weather/climate variable and hurricane impacts in today’s warmer world, there is one thing that is not changing – the communities sitting in the path of the wind and water are not getting any smaller. That is likely the main reason why storms are more destructive today than before.

This new paper released in Nature Sustainability in late November, 2018 has many of the names that are familiar in this line of research, such as Chris Landsea, Ryan Crompton, Philip Klotzbach, Roger Pielke Jr. and up-and-coming researcher, Jessica Weinkle, who is the lead author in this newly updated normalized hurricane damage paper (Weinkle et al., 2018).

Similar to what other papers have expressed in the past, it is clear that a shift toward vulnerable regions, but not necessarily an increase in storm frequency or severity, is what is causing the rapid increase in apparent destructiveness. The key word here is “apparent.” When one normalizes losses, rather than simply doing a basic inflation adjustment, the trends are different. A true normalization study adjusts for societal changes such as increases in housing or population over time. In fact, in the latest study by Weinkle et al., 2018, an apparent trend in destructiveness is nonexistent. Normalization studies like this one should not be used to determine trends in weather and/or climate. To get a better understanding of whether hurricanes are getting any worse, it might be best to understand the official stance of the NOAA from its overview of global warming and hurricanes:

“It is likely that greenhouse warming will cause hurricanes in the coming century to be more intense globally and have higher rainfall rates than present-day hurricanes.”

However, these expected increases in more intense storms and rainfall have been limited in studies that try to address the future frequency increase in intense hurricanes due to natural variability, which includes the Atlantic Multidecadal Oscillation, the dominant cause of the warming trend in the Atlantic since the 1970s. Storm surge is also likely to become worse as sea levels rise, but, again, it is difficult to find studies that account for this without factoring in other geological changes to storm surge impacted areas. An example of this would be the removal of wetland areas and other natural shoreline changes. Although data suggests that there is a small rise in the number of high-category storms, this is probably due to how the observation of such storms has changed over time. In fact, NOAA’s summary says, “there’s only low confidence that the increase in major hurricanes within the Atlantic basin is of statistical significance.”

The bottom line is that the link between hurricanes, ocean temperatures and a changing climate is complex. Clearly, if there are changes in climate and ocean temperatures, there is the possibility of changes to hurricane tracks and where they ultimately strike land, which is of greatest importance to the insurance industry.

Now that we have discussed hurricanes specifically, let’s highlight another publication that was recently published: “Loss and Damage from Climate Change” (Mechler, R. et al., 2018).

In Chapter 3, Lauren Bouwer from the Climate Service Center Germany (GERICS), Hamburg, takes a look at the current understanding of how observed and projected extreme weather events impact loss and damage. Much of the publication references past work by the Intergovernmental Panel Climate Change (IPCC), as they are still the most trusted body in the aggregation of the latest research in this area. Within the publication, two tables best sum up the current knowledge around observed changes in weather extremes, damage/losses, and attribution that will occur in a warmer world caused by humans, shown in Tables 3.1 and 3.2 below.

One noticeable feature is that much of the research above generally ends around 1999 or the early 2000s, so there may be new questions as to whether recent events have influenced the trend. However, generally a new decade of data should not drastically alter the trend in extreme events since they are, due to their nature, extreme and likely need a longer period of record to determine trend.

In Bouwer’s review of the loss trends, he illustrated similar findings to Weinkle et al., 2018 – most studies that found increasing trends in loss from past extreme weather events determined that the most important drivers in the increasing exposure are socioeconomic factors and climate change. This would include both anthropogenic climate change, as well as natural climate variability that could play an additional role, but this role was not substantiated according to Mechler, R. et al., 2018.

Table 3.2 provides a comprehensive overview of scientific studies on types of extreme weather and the trends of normalized losses associated with them. As the IPCC has stated in the past, there could be some detected trends at regional or national levels, but the overall conclusion is that very few studies show upward trends in loss after normalizing for changes in socioeconomic factors.

One thing pointed out by Lauren Bouwer that is often overlooked is how vulnerability changes play an important role and can ultimately complicate the historical loss adjustments. As a general rule, as societies become wealthier, they are likely to start investing more in risk reduction and adaptation, thereby reducing impacts from weather-related hazards. This should result in reduced losses over time. However, the question is just how significant these changes in vulnerability are when compared to the very rapid increase in exposure. There are very few of these types of studies over time to pinpoint these impacts.

In summary, the book is still being written on just how a warmer climate influences hurricanes and other types of extreme weather events. We do know, however, that extreme weather events are much worse in terms of resulting damage to the coastal United States because of an increase in exposure. Maybe vulnerability changes are not keeping up with the exposure. Ultimately, one should not solely rely on loss data to determine a trend in weather/climate as it is extremely complex. However, all of the latest research suggests that we can’t blame nature solely for the increase in losses, as we also need to factor in human involvement – where we are building and, perhaps, how we are doing it.