As 2016 natural catastrophe headlines funnel in from various media outlets and insurance publications, a theme of negative highlights quickly emerges. Few headlines point out the positives that occurred. In this post, I want to highlight a few of the 2016 insurance industry positives that might otherwise be lost in the sea of negative news as it relates to natural catastrophes.
When the calendar flipped to 2017, a switch seemed to turned on for US severe weather season: severe weather impacted the Gulf Coast states with 31 tornadoes on January 2 (PCS 1711). Just two weeks into the year, 2017 already has 4.4 times more than the normal number of tornadoes. However, the great news is that 2016 ended with lower reported tornado numbers, and the preliminary numbers suggest that 2016 ended up as a year with the fewest tornadoes since 1954 (when records started).
This might not seem remarkable given the US has experienced five years a row of below near term normal tornado reports (2005 – present year) since the near record high year of 2011. So the good news is the US continues to see lower tornado counts for several years in a row now and is currently in what some scientist call a “tornado drought.” The other good news is that, as a matter of luck, the tornadoes that did occur did not result in large insured loss events. There were many close calls like this major tornado that occurred just 3 miles south of Dodge City, Kansas.
Various reports point out that 2016 produced the highest severe weather-related losses since 2011, but along with the lower tornado count, 2016 also produced hail reports below the 11-year average. As a matter of a different kind of luck however, these hail events targeted several populated regions across the state of Texas which produced most of the 2016 severe weather-related loss. The overall good news is that hail events across the other states were at or below average.
It is easy to highlight devastating 2016 U.S. flood events, but given the current flood take-up rates, these events were mostly uninsured. But the good news is the federal government and uninsured homeowners and business are taking steps to protect themselves from future flood events. And there’s more positive 2016 flood news: Since 1965, 60% of U.S. measured locations have seen a decrease in flood magnitudes according to the newest EPA study. Finally, no significant trend in major flood events seems to be emerging when looking at historical major flood events as defined by FEMA.
Named Tropical Storms
On average, 87 named tropical storms occur worldwide in any given year. 2016 saw 79 tropical storms, and just 42 were hurricanes (which is again below the average of 48). It should also be noted that so far for the 2016/2017 Southern Hemisphere named storm season (starts July 1), only 2 named storms and 0 hurricanes have formed to date (an average of eight named storms and four hurricanes occur at this point in the season), which equates one of the slowest starts to that basin in history.
However, what the insurance industry cares most about is landfalls, and in 2016 global landfalls were spot-on average: 14 hurricane-force storms made landfall, and five of them were major. Two of those 14 hurricane-force storms impacted the U.S. coastline: Hermine and Matthew both produced isolated impacts that could have resulted in much worse impacts for the insurance industry (considering that one cat modelling company estimates the average annual loss for U.S. hurricane is $15B). The modelling company’s average annual loss number might seem high due to the lucky streak the US has experienced in recent decades: a continued record period without a major hurricane making US landfall.
Undoubtedly there will always be major catastrophes in any given year, and the media will focus on these events. Undoubtedly some insurance and reinsurance companies suffered in 2016. But all in all, 2016 was a great year and could have been much worse for many more organizations within the insurance industry if the trends mentioned above were reversed. 2017 could likely change the trend of these natural perils which is why it’s best to understand exposures to all natural catastrophes.
For other great news in 2016, check out this tweet string by astronaut Chris Hadfield:
With celebrity death and elections taking the media by the nose, it’s easy to forget that this year saw a great many positives. Let’s look.
— Chris Hadfield (@Cmdr_Hadfield) December 31, 2016