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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

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.

First East Coast winter storm of the season

If you have been living under a rock the last few days, you might not know that the first big nor’easter of the 2015/2016 winter season is expected to hit the East Coast of the U.S. this weekend. This storm summary will focus on the insured impacts of and provide a historical context for this intensely forecasted event. However, it should be noted that much uncertainty accompanies the forecasts, so predicted impacts could change as the storm develops over the next two days.

The media hyp-o-meter around this storm is at an all-time high due to the fact that there is good agreement among all the various models we use that a big nor’easter is going to happen, and some of its impacts will be major or even record breaking.


Collapse from weight of snow
The biggest question that everyone wants answered is how much snow is going to fall. No one can accurately answer that question today, unfortunately. What we do know is that a number of factors will contribute to a high-moisture storm. In other words, there will be a lot of snow. It’s just not possible at this point to say where the most of the snow will fall – but plenty of forecasters are trying! I highly suggest following the local National Weather Services office for the most accurate snowfall forecasts.

NWS human-made snowfall grids look great ... continuous like a global model. Totals thru Sat 7 PM

NWS human-made snowfall grids look great … continuous like a global forecast model.  Totals thru Sat 7 PM. Source WeatherBell Ryan Maue

So far, the storm has slowly trended south on the weather models. Additionally, it has a very sharp temperature moisture gradient on the north side. Due to the uncertainties on the northern fringe of this storm, there’s going to be a razor thin margin between major snow and conversational snow. However, due to the lack of existing snow pack, collapse due to weight of snow at this point in the season is unlikely to cause insured losses to buildings with standard structural integrity.
Of course the first significant snowfall of the year also means drivers must adapt to slippery conditions which will result in accidents and higher auto related losses. Finally, the snow, ice and wind from this storm could also cause prolonged power outage which could results in insured losses.


Wind and flood risks
Despite the fact that most of the media coverage is focused on snowfall, potentially destructive wind and coastal flooding often go unreported. This storm is big and slow, and due to the tight pressure gradient, as the storm strengthens off the east coast, it will allow for a strong on-shore flow, which could cause damaging wind gusts and storm surge along the coast. Winds and flooding could cause serious issues for the insurance industry. Depending on its ultimate track, this storm has the potential to become one of the top 5-10 coastal flooding events for folks from the Jersey Shore into Virginia.

A National Weather Service storm surge model forecasts water levels more than 5 feet above normal in parts of New Jersey and New York, rivaling some of the biggest coastal floods in history.

To illustrate the threat posed by this storm, consider that an 8.5 foot tide level would rank in the top 8 tide levels of all time at Cape May, New Jersey. As illustrated by the chart below, the Extratropical water Level Guidance from the National Weather Service, highlights the wind/flood risk associated with storm surge guidance for various cities along the coast. For Cape May, NJ, you’ll see the highest tide cycle for this storm ends up at a water level of about 8.5-8.7 feet.


For historical comparison in the same location, consider that Sandy produced a tide level of 8.9 feet, an October, 2011, storm produced a tide level of 8.7 feet, and a December, 1992, storm produced a tide level of 8.6 feet.


Forecast as of 01/21/2016 9:20: EST (units in feet MLLW)

Insured property along the coast or back bays of New Jersey, Delmarva, and Virginia, are likely to be the most impacted as the storm has the possibility of lasting 2-3 high tide cycles. If the storm track shifts a bit or the intensity changes, we could see these values change. It’s a fluid but serious forecast for the insurance industry: the coast is where the highest winds will hit, and those winds may gust as high as those of a tropical storm. Speaking of winds, expect severe storms to produce wind damage and possibly an isolated tornado across the state of Florida.


Insured Loss Analogs
Historically, the East Coast is no stranger to large nor’easters. In fact, last year’s large snow event and winter time insured losses should be fresh in the insurance industry’s mind given the record breaking snowfall over New England and one of the costliest winters ever for the industry.
On average over a 56-year period, 1.3 nor’easter occur every year, and 2.3 large snow storm events occur as defined by the Northeast Snowfall Impact Scale (NESIS). In the last ten years, these non-inflation adjusted event level losses have averaged out to cost just over $300M per event.
The table below provides a few analog storms that resemble the forecast guidance for the current storm. Right now, the model guidance does not suggest a repeat of the first Superstorm / “Storm of the Century” (March 12 – 15th of 1993) which still stands as the costliest nor’easter to impact the insurance industry.



Are We Done with PCS Winter Storm Losses for 2014?

With February 28 marking the close of meteorological winter (December – February), a mountain of interesting stats are about to be released – so be prepared for media fact overload!

For the most part, these facts should show that points east of the Mississippi have experienced one of the coldest, snowiest winters since the late 1970s – and in some cases, depending on the area, the coldest, snowiest ever or at least since 1917. But, as last spring proved, the weather doesn’t pay close attention to the calendar. As a reminder, the north-central U.S. was cold and snowy with North Dakota having a record cold April and Duluth, MN having its snowiest month ever – helping to contribute to the fifth-largest April U.S. snow cover extent on record. Given the long-range forecasts, the extreme cold and some significant snow will continue in March, which will add to the records and likely create new ones.

The average U.S. temperature anomaly from Dec 1 – Feb 26 (shown below) clearly demonstrates the U.S. as a whole has been colder than the 30-year average. In fact, it would appear the U.S. has experienced 6 – 7 Polar Vortex episodes of cold air, when the nation’s average temperature anomaly dropped below -4 C (25 F). Interestingly, the nation as a whole was colder for a longer period of time during the first Polar Vortex outbreak during the second weekend in December than it was during the main event on January 5 – 8 – which the media dubbed the “Polar Vortex.”

Are we Done with PCS Winter Storm Losses for 2014?

Image Source: – Ryan Maue

To-date, PCS has estimated $1.5B in loss due to the media-dubbed “Polar Vortex.” This freezing, ice, snow and wind event brought blizzard-like conditions to some areas of the country, with cold air producing wind chills as low as -60 F and gusts of up to 45 miles per hour with white-out conditions. The cold temperatures often forced schools and businesses to close and caused water damage from frozen and burst pipes. The frontal system impacted many states as it moved south and east across the United States – including Mississippi and Georgia, which saw extensive damage from the wrath of this extreme event.

So far this meteorological winter season, five PCS Winter Storm events have contributed to $2.1B in loss – and $2B of that has come in 2014. Given that PCS digital records only go back to the 1950s and the PCS definition of a Winter Storm can be multifaceted (potentially including severe weather aspects such as tornadoes and hail) it is difficult to estimate the true Winter Storm component of PCS losses.

So… Have we seen the end of the Winter Storm losses for 2014?

Looking at the PCS Winter Storm data in January and February that include Winter Storm event perils such as snow, wind, ice, flooding and freezing – but exclude Severe Convective Storm  (SCS) event perils such as tornadoes and hail for states east of the Mississippi, the answer is essentially “yes” – with a projected 93% of the loss already incurred based on historical loss development. There are only five years on record when Winter Storm losses occurred in March, with the biggest impacts happening during the historic winter of 1976.

However, if you base the answer on the wider definition of Winter Storm perils, which include SCS events, we are not done yet. The U.S. could easily still 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 PCS event is the March 12 – 14 1993 Storm of the Century, also known as the ’93 Superstorm (1993 PCS #46). The 1993 Superstorm still ranks as one of the costliest Winter Storm events of the 20th century, creating a PCS CPI adjusted loss of $2.8B. Based on the definition of Winter Storm that would include SCS perils, only 71% of losses have occurred thus far in 2014. With March roaring in like a lion and more cold, snow and severe weather forecasted for the eastern half of the nation over the next few weeks, we should anticipate adding yet more losses to the PCS Winter Storm total.