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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.

Bust or Not? Seasonal Hurricane Forecasts for 2018

Predicting a hurricane season is risky business, and a few egos may have taken blows this past season. That is, at least until April when the majority of 2019 Atlantic Named Storm forecasts will be made and the 2018 Atlantic season becomes a distant memory.
Almost all hurricane predictions from spring (including mine) failed, as they called for normal to below normal Atlantic Named Storm activity. Even the early August forecasts, which account for a good chunk of the hurricane season, failed to deliver.

Most recent tropical cyclone forecasts from each of the forecasting centers. NCSU seems to be the only forecast shop that wins the hurricane numbers game for the 2018 season. Many others missed the total number of hurricanes that formed. Source: http://seasonalhurricanepredictions.bsc.es/

In total, there have been 15 Named Storms (30-year average is 12.1 Named Storms) – 8 hurricanes (6.4) and 2 major hurricanes (2.7). Accumulated Cyclone Energy (ACE) was about 124% of average seasonal activity. With four Named Storms resulting in nearly 10 billion dollars of insured loss so far, it was no doubt a costly season. When also considering the human toll along with too many broken meteorological records to mention, this season will be remembered for decades to come.

So what happened?
It appears that there are three leading reasons for this forecast bust, two residing in the oceans and one in the upper atmosphere.

If you recall, there was a lot of talk about how cold the sea surface temperatures (SST) were across the Atlantic Ocean, particularly in the Main Development Region (MDR), from April through July. A lot of the seasonal forecasts believed that these notably cooler than average ocean waters in the tropical Atlantic would be likely to persist into the heart of hurricane season and keep the Cape Verde named storm activity in check, resulting in lower named storm counts overall. Instead, Atlantic SSTs warmed suddenly back to near normal in August. While still nowhere near as favorable as conditions in 2017 or 2005, this warming gave just enough lift to peak-season African easterly waves like the one that spawned Florence.

I would say the next reason would be on the failure for El Niño to fully develop in the central Pacific Ocean. If a stronger El Niño had developed, it would have helped increase the vertical shear over the Gulf and Caribbean. However, the SST stayed in neutral territory before lurching suddenly towards El Niño in early fall, which was a few weeks too late to spare the Florida Panhandle the worst of Hurricane Michael’s fury as it strengthened right up until landfall.

Above are the SSTs from the beginning of June (Left) and end of August (Right). Highlighted in the boxes are the areas of SST anomaly over the Atlantic Ocean and the Pacific Ocean, which show the warming of SST in the Atlantic and the overall lack of SST change in the Pacific (warmer waters would favor El Niño).

Lastly, looking back at the BMS Tropical Outlooks that were issued this past spring, they really pushed the fact that the Madden-Julian Oscillation (MJO) would be the key to the season, and pulses of activity would be key to new Named Storm development. It seems that the final factor contributing to the poor forecasting season would have to be the bad luck the MJO played in the timing of the overall Atlantic basin pattern. One of these strong MJO pulses coincided with both the primary climatological peak of hurricane season in early September and the secondary historical peak in early and mid-October. These MJO pulses explain why the 2018 season felt so “lumpy,” with long quiet periods punctuated by dizzying, multi-storm bursts of activity.

As the peak of the Atlantic Hurricane Season neared, the MJO come to an active period as highlighted by the black circled areas.

Lessons Learned:

There are many lessons to learn from the 2018 Atlantic Hurricane Season. One that might tie in well with the forecast bust is that there can be incredible variability during a hurricane season, which is why there needs to be less focus on the seasonal forecast numbers and more focus on interseasonal forecast, which can capture variables like the MJO and help define where storms may track when the activity starts. These interseasonal forecasts are performing well on a three-week time frame and can provide the insurance industry with insight on whether the period will be busy or quiet.

Speaking of forecasting, this past season was a great example that even the best forecaster in the world can’t nail down hurricane intensity even in a short-term forecast. Hurricane Florence and Hurricane Michael showed hurricane intensity forecasting has a long way to come. Three days before Florence made landfall, it was forecasted to be a gigantic Category 3 hurricane but ended up being a large slow-moving Category 1. Michael was only a tropical depression three days before landfall, and at the time was only forecasted to be a weak Category 1 hurricane. That’s a long way from the storm that ensued, which was one of the strongest on record.

However, maybe all of this focus on the category of a storm should be another lesson to learn, as we experience time and time again that this focus can be too narrow. Insured impacts don’t revolve around the Saffir-Simpson Hurricane Wind Scale (SSHWS). As the name indicates, the familiar category scale is based only on a hurricane’s maximum wind speed, and thus sometimes fails to capture the true danger of large, slow-moving storms. When Florence dropped to Category 1 on its approach to North Carolina, some residents took the storm less seriously as a result, despite no decrease in flood risks. Alternatives to the SSHWS have been proposed, but in my opinion, all attempts to compress a hurricane down to a single number will have problems with oversimplification. Rather than discarding the venerable SSHWS, the answer could be as simple as expanding the role for overall hurricane threat and impact forecasts, which is the general purpose of the many BMS Tropical Updates provided before a storm makes landfall. The BMS Tropical Updates often try to break down the insured impacts of wind, surge, rain, and tornado risks that, with any hurricane, can range from minimal to extreme.

Another thing to remember and consider is that the forecast of a below normal or an above normal season doesn’t necessarily map to low or high chances of a hurricane landfall. With four named storms making landfall this past season, the insurance industry needs to keep its sights on the overall risk of named storm impacts. The catastrophe models are an important gauge to the overall risk during any given season. Seasonal hurricane prediction is an inexact science, and likely always will be. No matter what the numbers say for 2019, you need to look at the long-term risk and make slight risk management adjustments during the interseasonal forecast periods.

Resources:

Summary of 2018 Atlantic Tropical Cyclone Activity by Colorado State University

https://tropical.colostate.edu/media/sites/111/2018/11/2018-11.pdf

Hurricane Michael  Damage Assessment

http://windhazard.davidoprevatt.com/hurricane-micheal-10-oct-2018-preliminary-assessment-by-steer/10/2018/

Hurricane Florence Damage Assessment

http://windhazard.davidoprevatt.com/steer-early-access-recon-report-hurricane-florence/09/2018/

Good Tweet Thread on the  end of of the hurricane season by Michael Lowry

 

 

A Second Severe Weather Season

Severe weather outbreaks are synonymous with the spring season, but there is an ever-so-slight increase in activity in the fall as well. As the days grow shorter and the weather turns cold, the insurance industry needs to remain on guard, as this is the height of the second severe weather season.

Spring marks the shift from brutal cold to relentless heat, and the United States is often sharply divided between warm and humid weather in the south and cold and dry conditions to the north. The steep temperature gradient allows the jet stream to dip farther south, creating more opportunities for severe weather outbreaks to unfold.
As the country becomes uniformly and increasingly warmer in the summer, the relative lack of a temperature gradient usually pushes the jet stream far enough into Canada that it tends to only affect the northern part of the United States. This retreat of the jet stream allows the severe weather season to calm down – not completely, of course – but usually prevents the intense outbreaks of severe weather often experienced in April, May and June.

When fall rolls around and the country again starts to experience wild swings in temperature, the jet stream dips south once more and allows weather systems to develop and interact with the warmth and humidity. This results in spring-like severe weather outbreaks complete with a second spike in tornado activity, which is often accompanied by other types of severe weather.

Monthly U.S. Tornado Count from 2008 – 2017. Source: NOAA/NWS Storm Prediction Center (SPC) Storm Reports

The chart above shows monthly tornado reports between 2008 and 2017. To help illustrate this second season of severe weather, the overall monthly reports have been capped at a maximum value of 300. While total tornado activity varies widely from year to year, every spring produces a pronounced spike in tornado activity which is why we have capped the graph above at 300. This spring peak also provides the insurance industry with its primary season for severe weather loss. However, in each fall season between 2008 and 2017, highlighted in the red arrows, a clear secondary spike in tornado activity has occurred. While some of these fall twisters are a result of landfalling named tropical storms, most of the outbreaks are the consequence of the same processes we see during spring severe weather events.

Some of the fall tornadoes can be particularly strong. In 2013, several tornadoes impacted Illinois, including an EF-4 tornado that hit the small town of Washington. This round of severe weather caused almost $1B of loss to the insurance industry. This case was unusually rare as, typically, severe weather takes aim at the southeast, and the overall fall losses to the insurance industry are much smaller in total value.

Closing the Books on 2018 Severe Weather

Typically, by the end of October, 98% of the 10-year average annual insurance industry loss in the U.S. has developed. Similar to the trend in severe weather reports, there is a small, but noticeable, increase in secondary severe weather insured loss data for both the 10-year average annual loss and the number of events for the month of October.

The second season has been quite active this year, with several notable bursts of severe weather activity.

The most active tornado report day of 2018 (so far) was Halloween night, with 61 tornadoes occurring, breaking the previous record of 51 which occurred on April 13. Of course, an exceptionally quiet spring season likely helped to contribute to this unique scenario. What is also unusual is that, thus far, Property Claims Services has yet to issue a Catastrophe Bulletin for this outbreak from October 31 – November 2.

Below is a look at when severe weather associated with tornadoes happened this past year.

Here are the annual anomalies of 2018 tornado days to-date. Tornado alley, as it’s popularly defined geographically, is entirely below-average, but parts of Louisiana and most of the East Coast of the U.S. have been above-average.

Tornado Day Anomalies that correlate well with general severe weather days. Source: Sam Lillo Meteorology PhD student at Oklahoma University-

In fact, almost as many tornadoes have occurred this year in New England (19) as in Oklahoma (22), which adds to the noteworthy severe weather year that has transpired. Preliminary data suggests the state of Connecticut has had nine tornadoes this year – the most on record. The tiny state of Rhode Island has had one tornado, which tied for the most to have ever occurred during a calendar year. In Pennsylvania, 31 tornadoes were reported, which is the highest annual number in 20 years.

The U.S. is currently in a major tornado drought. There has never been a year since 1950 that has passed without an EF-4 or EF-5 tornado occurring, but this scenario is appearing likely this year as, currently, the U.S. is in its longest stretch without a violent EF-4 tornado and closing in on the longest stint without a destructive EF-5 tornado.

Summary:

This year’s severe weather looks to be completely average when compared to the last 10 years in terms of insured loss, barring any major severe weather outbreak over the remaining 48 days in 2018. After a quiet spring, tornado activity has been playing catch-up during an active second season, with severe storm reports of wind following the 2005 – 2015 average count. However, hail reports, which are not as common in the second season and over the winter months, will likely end up being well below the 2005 -2015 average report count.

With the impending El Niño for the winter of 2018 – 2019, one should expect an active storm track across the southern states with greater-than-normal severe weather across the Southeast including Florida. Although we are already potentially seeing this pattern of severe weather, not all El Niños are the same. As details emerge, more insight will be provided on what to expect for the winter and spring severe weather seasons across the Southeast states which could be more active than normal.

BMS Wildfire Update Nov 9th

California’s typical wildfire season takes place in the fall, with the majority of large insured loss events occurring in October. Of the 27 large insured wildfire losses occurring in California since 1964, 16 have occurred in the months of October, November and December, and have accounted for 87% of the total losses over that time span. After an already long and destructive wildfire season for much of the western United States (which includes the Carr Fire and the Mendocino Fire Complex in California in July and August) that has resulted in over $1.3 billion of insured loss, major fires have again ignited in California on Thursday, November 8th. Much of the state is under an elevated fire risk, with almost 10,000 square miles under critical fire conditions according to the National Weather Service. Red flag warnings have also been issued, which represent conditions of very low humidity and high winds that tend to result in extreme fire behavior.

The cause of the Camp Fire has yet to be determined, but it started in the early hours of November 8 near the Plumas National Forest. The first firefighters to arrive found about 10-15 acres burning. Wind gusts of nearly 50 miles per hour helped accelerate its growth and spread it into the town of Paradise, CA.

BMS iVision has a direct feed of the current fire perimeters. These perimeters use the IRWIN (Integrated Reporting of Wildland-Fire Information) system. Perimeters are collected in the field by a variety of means, including infrared flights, and by using a GPS unit to map the perimeter. BMS clients can use these maps to see if any risks are exposed to the fires.

Initial reports suggest well over 2,000 residential and commercial structures have been destroyed by the fast moving fire which quickly spread embers into the center of town. The fire is currently encroaching on Chico, CA, and Highway 99 and several thousand other structures are still threatened by this fire. It should be noted that typically when fires burn over 1,000 structures, it’s safe to say that the insured loss will likely be above $1 billion.

List of the largest damaging wildfires in North America, ranked by # of structures destroyed. Note most fires with over 2,000 structures are often over $2 billion in insured loss. Fire Source: http://www.fire.ca.gov

Elsewhere across the state, the Hill and Woolsey fires ignited Thursday in southern California near the Thousand Oaks, CA community and began spreading rapidly. Evacuations have been issued this morning for the entire coastal community of Malibu, CA. Damage has been reported from the Hill fire, but the full magnitude is currently unknown. Just to the south, the Woolsey fire has jumped the 101 highway and has destroyed multiple structures according to Ventura County Fire Department. The Malibu area is under mandatory evacuation due to both of these fires, as authorities expect they could burn all the way to the coast and clearly there is major exposure in the current evacuation area.

In total, there are 13 known fires currently burning in California. With extreme fire conditions occurring, many of these fires will be difficult to contain and it is expected that several insured loss events could result from any of these fires. BMS iVision does have active wildfire layers, such as the current satellite derived hot spots and when issued, the integrated reporting of wildland fire information perimeters will be shown. Both of these resources allow the user to access the scenario based tools within iVision to understand the exposure and damage potential from these fires.

BMS Tropical Update: 10/11/2018 11 AM CDT

Hurricane Michael became the most intense hurricane on record to strike the Florida Panhandle when it made landfall at 1:00 p.m. CDT on Wednesday. It will also be among the most intense hurricanes to ever have hit the U.S. At landfall, the storm’s 155 mph peak winds ranked fourth highest on record for a hurricane hitting the continental U.S., and the pressure was ranked as the third lowest (the lower the pressure, the stronger the storm), even below what was recorded during Hurricane Andrew in 1992.

Table of the 10 strongest continental U.S. landfalling hurricanes on record, ranked by maximum sustained winds. Source: Philip Klotzbach CSU

This is truly a historic event. As I mentioned yesterday, this storm was only a marginal threat six days ago when it first appeared on some of the long-range model guidance, which illustrates that the scientific community has a lot of work to do in terms of intensity forecasts. In fact, Michael’s rapid deepening, which is defined as less than or equal to a pressure drop of 42 mb in 24 hours, is rare. Only 23 hurricanes in the last 38 years have done this, and Michael was the only hurricane to have this occur right at landfall.

Location of rapidly deepening hurricanes from 1979 – 2017.  Source: Sam Lillo

Hurricane Michael made landfall in Mexico Beach, FL, about 20 miles southeast of Panama City, as a high-end Category 4 hurricane, and I would not be surprised if it was upgraded to a Category 5 when the National Hurricane Center (NHC) conducts its final review of the data.

As the storm crashed ashore, winds gusted to as high as 129 mph along the coast from Panama City to Port St. Joe. The highest storm surge reading that has been observed so far was an inundated level of just over 8.57 feet in Apalachicola, FL – which is the 3rd highest on a new record.  Other areas likely recorded their record highest.

Preliminary wind gust observations from Hurricane Michael. Source:  Here 

Much of the news coverage during landfall was in Panama City Beach, FL. However, the impact at this location was a picnic compared to what occurred just miles east and southeast down the coast where the eye of Michael made landfall. The heaviest damage appears to be in the towns of Callaway, Parker, Springfield, Mexico Beach, Port St. Joe and southeast Panama City, FL. This would suggest that the radius of maximum winds was relatively narrow at landfall (22 miles) and, thankfully, just inland from landfall, Michael tracked over a large sparsely populated area of mostly agricultural land and forest. However, that does not mean that some of the smaller towns or rural households did not see damage. For example, In Donaldsville, GA, which is 82 miles inland from Panama City, FL there was a recorded wind gust of 115 mph that still needs to be verified, but at least a 79 mph gust was reported . Blountstown, FL seems to have been hit particularly hard which is about 40 miles inland. The weather station in Albany, GA recorded a wind gust of 74 mph just before transmission failure occurred.  In fact, to get an idea of where the worst of the damage might be, one just has to look at the lack of surface weather observations due to an absence of site reporting and power outages.

Weather surface observations showing a large gap in observations as a result of very strong wind taking down many of the observations sites. Source: NOAA

 

BMS iVision allows clients to run risks to better understand various impacts from Michael. This is the newest 3 sec wind speed gust in MPH from Verisk Weather Solutions.  There will be some adjustment to this as Verisk Weather Solutions will incorporate surface observations over the next few days for intensity.

There are several reports of weather station anemometers breaking in the high winds, which is why it is possible that wind speeds of greater than 129 mph may have occurred near the landfall location. Given the data that has already been collected, it is plausible that Hurricane Michael will be a design-level event, especially at the immediate coastline and barrier islands along the Florida Panhandle.

Based on an examination of the catastrophe modeling stochastic events that closely match Michael’s landfall location and intensity, insurance industry losses should be in the single-digit billions of dollars. But, as we have seen with past events in Florida, there can be some loss creep, so how high remains uncertain. The big unknown in the modeling at this point is how much property damage occurred in the rural communities inland as Michael tracked into Georgia.

Storm Chaser Accounts
A good gauge of Hurricane Michael’s severity is to get firsthand accounts from the storm chasers who travel the world into the heart of the strongest hurricanes, typhoons and cyclones. Their observations really tell the story of what the hardest hit areas are dealing with in the wake of Michael.
Hurricane storm chaser Josh Morgerman (icyclone) likely has the world record for experiencing the most intense hurricanes all over the world. Those who follow him know he is not prone to exaggeration. Here is his account of the situation in Callaway, FL, via Twitter: “It’s hard to convey in words the scale of the catastrophe in Panama City. The whole city looks like a nuke was dropped on it. I’m literally shocked at the scale of the destruction.”

 


Mark Sudduth, another experienced storm chaser, tweeted similar thoughts: “Drove from Panama City almost to Mexico Beach and I can tell you this is the worst damage from wind that I have ever seen! Absolutely catastrophic! You will not believe your eyes when you see it.”

Michael’s End Game
Hurricane Michael is far from over. Heavy rain and strong winds are still forecasted to sweep through the Carolinas today before exiting the Mid-Atlantic coast Friday morning. Currently 35 miles south southeast of Charlotte, NC, tornado risk is now the biggest threat with local wind gusts capable of bringing down tree limbs.

As we look into next week, we begin to move past this early October period of enhanced Atlantic Basin activity. We can’t entirely rule out new named storm development next week, but, the very good news is that the risk for tropical storms and hurricanes in the Atlantic Ocean is expected to decrease sharply over the coming weeks as a hybrid El Niño winter pattern begins to take hold.

BMS Tropical Update: 10/10/2018 11 AM CDT

Based on the National Hurricane Center’s (NHC) 5:00 a.m. advisory, Hurricane Michael’s pressure had fallen 36 millibars in 25 hours and the wind speed had increased 46 mph over the same timeframe. Having moved into an ideal environment for maximum intensity, with little wind shear, warm water, and a moist air mass with little dry air intrusion, such strengthening was expected, but the extent is still unknown. Michael is currently a Category 4 hurricane with a central pressure of 923, and a maximum wind speed of 150. For a hurricane, Michael is moving fairly quickly to the northeast at 14 mph and is currently 60 miles South Southwest from Panama City, FL.

Given that the hurricane is a few hours from making landfall just southeast of Panama City, FL, the question is, how much more strengthening may occur before landfall? There is a chance that an eyewall replacement cycle could result in a similar or slightly lower intensity, but if an eyewall replacement cycle occurs immediately before landfall, there is a chance that Michael could be an even stronger storm with a larger radius of maximum wind.

Michael arriving as a Category 4 hurricane puts it in a rare group of only four historical Category 4 hurricanes to make landfall during the month of October (Unnamed, Louisiana, Oct. 2, 1893, Unnamed, Georgia, Oct. 2, 1898, King, Florida, Oct. 18, 1950 and Hazel, Carolinas, Oct. 15, 1954). In total, only 28 U.S. landfalls of Category 4-strength storms have occurred since 1850, and there has never been a Category 4 or 5 hurricane to make landfall in the Florida Panhandle. With Michael’s impending landfall as a Category 4 storm, it would be the fourth Category 4 hurricane in just 15 months to hit the U.S. The previous record for the shortest timespan of four Category 4 U.S. landfalls was 1947 – 1950. Needless to say, the long period without a major hurricane making U.S. landfall is starting to correct itself in a big way.

Given the change in the overall intensity forecast, most of the catastrophe model guidance issued yesterday will need to be adjusted upward to account for the stronger storm at landfall, as most guidance issued did not contemplate this scenario. However, there are plenty of stochastic events for comparison, and there should not be an issue of limited matching, like some of the more recent U.S. landfalling hurricanes.

Damage Specifics
I have already touched on the likelihood of massive tree loss in the last few updates, but clearly the increased intensity at landfall confirms that treefall will lead to larger insured losses and will lengthen expected power outages. Unfortunately, this scenario is not handled well in the catastrophe models.

Estimated Poweroutages. In some places it is 100% Source: http://ioe-guikema.engin.umich.edu/Hurricane_Michael.html

Michael’s strength is now at the upper end of what building codes can handle and, while Florida has the best building codes in the country, most structures were built before these codes were enacted, and retrofits have been limited.

While Florida has the best building codes in the state, most structures were built before they were enacted, and retrofits have been limited. Source: David Roueche

 

Wind Swath
Using Verisk Weather Solutions forecasted wind swath allows BMS clients to better understand wind impact to specific risks. Currently, the wind swath suggests a radius of maximum winds to be about 26 miles wide, which is fairly tight for a hurricane. Shortly after landfall, frictional effects rapidly weaken the maximum wind speeds inland. In addition, Tallahassee should be spared any hurricane-force winds, which is a bit of better news, as insured loss will be limited in this large metro area. But, some damage and power outages could still occur.

BMS iVision allows clients to run risks to better understand various impacts from Michael. This is the newest 3 sec wind speed gust in MPH from Verisk Weather Solutions. There will be some adjustment to this swath over the next few days as Verisk Weather Solutions incorporates surface observations.

Storm Surge
There is no doubt that record storm surge will be recorded, as storm surge values of four feet are already showing up in Apalachicola, FL. The next high tide will be just after 6:00 p.m., which should be a few hours after landfall, so, fortunately, Michael is not coming ashore during high tide.
The NHC is suggesting the following storm surge levels:

  • Tyndall Air Force Base, FL to Aucilla River, FL: 9 to 14 feet
  • Okaloosa/Walton County Line, FL to Tyndall Air Force Base, FL: 6 to 9 feet
  • Aucilla River, FL to Cedar Key, FL: 6 to 9 feet
  • Cedar Key, FL to Chassahowitzka, FL: 4 to 6 feet

    Source: NHC

Rural Areas
It appears that, like some of the other devastating Category 4 hurricanes, Michael will also target an area of relatively lower population. However, Panama City has a large amount of exposure and will be the main driver of loss and, like most other U.S. coastal cities, has experienced a tremendous amount of growth over the last 30 years. Most of the other targeted areas inland remain very rural, however.

]Panama City, FL development since 1985.  Source: Walker Ashley

The NHC Cone of Uncertainty overlayed with Census block Household data showing many block areas have less than 600 households.

Here we take the details of the iVision wind swath with the aerial imagery applied to the base map. The radius of maximum winds is forecasted to be about 22 miles at landfall. The strongest winds are forecasted to impact the first 14 miles of coastal exposure as indicated by the first short green line, with the red line indicating areas of higher development. Most of the strongest winds will be over Forest or Agriculture land. Click on image for more detail.

The building codes inland are not as strong as in the coastal areas, such as Panama City, Fl. The older age of the homes inland, coupled with the potential for tree fall, make for uncertain loss estimates. Hurricane Irma illustrated that there are clearly loss creep issues occurring across the state, which will also add to the overall uncertainty around potential losses to the insurance industry.  An early look at some of the catastrophe model guidance suggests a mid to high single-digit billion dollar loss event, but the impacts to Panama City need to be watched closely.

Never Judge a Book By Its Cover
Remember to never judge a hurricane season until it’s over and in the books. This recent uptick in activity is putting the current season back into the “above normal” category, as we now have the development of Tropical Storm Nadine in the East Atlantic, along with Leslie returning to hurricane status on its 19th day of spinning up ACE in the middle of the Atlantic. And, of course, to close out the story, we have a surprise Category 4 hurricane in the Gulf of Mexico. I think that the scientific community needs to provide more accurate seasonal forecasts and move away from the numbers game, which often leads to false impressions of a season. More attention needs to be focused instead on landfall activity. It is no longer acceptable to believe, as the old insurance industry saying goes, that it “only takes one,” since this year there has been two. Hopefully, I made this message clear at the beginning of the season. The good news is that this may be the end game for this season in terms of U.S. landfalls, as a less favorable pattern for new development takes hold across the Atlantic later next week.