How Insurers Can Help Customers Mitigate Hurricane Risk
As climate change increases the frequency of extreme weather events, there is a greater risk of coastal and inland flooding and an increasing risk of structural damage. Hurricanes pose a significant threat in parts of the US, and as their occurence and severity increase property losses will continue to rise. The insurance industry has a key role to play in reducing losses from catastrophic risks, with customers now more than ever turning to insurers for expert advice.
August tends to be the heart of the Atlantic hurricane season, which is forecasted to be an above-average year in 2022.
Following the very active hurricane seasons of the past two years, credit ratings agency Fitch Ratings suggests forecasts predict that the North Atlantic Basin will experience above-average hurricane frequency in 2022.
A recent report published by global property information, analytics and data-enabled solutions provider, Core Logic highlighted the impact of the 2021 Atlantic hurricane season. It was the third most active season on record with US$80 billion in damages and the third costliest season on record.
In 2021 Hurricane Ida, one of the costliest natural disasters on record, evolved into a Category 4 storm before reaching land near Port Fourchon in Louisiana in August of that year. It recorded wind speeds exceeding 145 mph and as a result of the flooding there was severe damage to property.
We advocate for and are continually investing in advancing climate analytics and climate modeling capabilities — and localizing and highlighting key impacts of climate change for individual customers and communities.
According to Ming Li, managing director and global head of catastrophe modelling at Acrisure Re current forecasts suggest that the 2022 season may not be as active as previous years.
Ming Li said: “With an above-normal Atlantic sea surface temperature and weaker wind shear due to the absence of El Nino weather pattern, the 2022 Atlantic hurricane season is expected to be another active season.
"Current readings of various weather metrics do suggest that 2022 might not be as active as 2020 or 2021. However, it is important to keep in mind that all it takes is one major storm making landfall in the wrong place to take a significant toll on humanities and economies."
Natural catastrophe losses, especially hurricane-related events, represent a significant source of risk to property and casualty (P&C) insurers.
Chris Grimes, director of insurance at Fitch Rating said: “The sharp increase in economic inflation presents an additional challenge to property insurers in the event of a landfalling hurricane, but large (re)insurers remained well positioned to absorb the loss costs of a large event.
“Industry policyholders’ surplus now exceeds US$1 trillion, giving P&C insurers more than enough cushion to absorb near-term large insured losses from what’s being described as another above-average hurricane season.”
The increasing frequency of hurricanes poses a threat to residences along the Gulf and Atlantic coasts that are at moderate or greater risk from the damaging winds of a hurricane.
Core Logic undertook an evaluation of the storm surge and hurricane wind risk levels for both single-family and multifamily residences along the Gulf and Atlantic coasts for the 2022 hurricane season.
It identified more than 31 million single-family homes and almost one million more homes in multi-unit buildings that were at risk.
Over 7.5 million of these homes had direct or indirect coastal exposure and subsequent risk from coastal storm surge and damage from hurricanes.
Li explained while customers at risk of hurricane damage need to ensure they have the right insurance cover in place, they can also prepare themselves ahead of an extreme weather event.
He said: “Before the hurricane season starts, the customers with potential hurricane exposure should get prepared by taking prevention steps, which can include making an evacuation plan in case of emergency and checking their insurance policies to make sure the proper coverage is in place. It would also be a good time to strengthen their homes by making roof repairs, cleaning up the gutters, trimming the trees, etc.
Before the hurricane season starts, the customers with potential hurricane exposure should get prepared by taking prevention steps, which can include making an evacuation plan in case of emergency and checking their insurance policies to make sure the proper coverage is in place.
“When a hurricane is forecast to make an impact, it may be time to take additional steps to strengthen their homes, such as installing hurricane shutter and bringing any loose items into the house.”
A recent report published by proptech company Arturo 'Hurricane Exposure: The State of Gulf Homes', highlighted an issue with the inability of some homes across the southeast region of the US to withstand strong winds from hurricanes.
It found 71.9% of rooftops in the analyzed states are asphalt shingle, which can only withstand wind speeds up to 110 mph, or Category 3 force winds. While older or degraded asphalt may only withstand winds up to 50 mph.
The report also identified that metal roofs are more wind-resistant and are able to withstand winds up to 160 mph (Category 5), but they only make up six percent of roofs in the region.
The insurance industry can ensure it manages natural catastrophe risk by understanding the potential risks before they even happen through catastrophe modelling. It analyses risk and loss more effectively and enables insurers to make informed business decisions and assess their risk management strategies.
Li said: “The seasonal forecast of Atlantic hurricanes provides useful information to the insurance industry as to the upcoming hurricane activities. The study of various predictors used in the forecast models, especially when put in retro-perspective by comparing previous season forecast results with actual experience, can pave the way to better understanding of the mechanics of complicated storms and lead to better forecast models.
“Above normal hurricane activities do not always correlate with higher insurance losses, and there is significant uncertainty to a single season forecast. Nevertheless, the forecasting models can help the industry make more informed business decisions to prioritize resource deployment, such as claims adjusters.
"With the last six years enduring above-average hurricane activities, and 2022 is projected to be another one, the industry will continue to evaluate its risk management strategies, including risk mitigation techniques.
“Some research has linked climate change to more intense storms, and more pro-longed and wetter storms. It is important for any risk mitigation approach to take into consideration not just wind gust, but also the duration and precipitation of the storms.”
The sharp increase in economic inflation presents an additional challenge to property insurers in the event of a landfalling hurricane, but large (re)insurers remained well positioned to absorb the loss costs of a large event.
For individuals and businesses with potential exposure to extreme weather events, the insurance industry can provide expert advice to ensure they have the right protections in place. In the case of commercial property, collaboration between buyer, broker and carrier is fundamental in risk prevention.
Kelly Hereid, director of catastrophe research and development, enterprise risk management at Liberty Mutual said: “Insurance has always been about helping people and businesses recover from difficult events, like extreme weather, and we are equally committed to implementing risk resilience practices to improve our customers’ ability to better withstand these events ahead of time.
"In addition to the tragic loss of life and disruptions to communities, the increasing frequency of hurricanes and other severe weather drives commercial property and other losses.
“Our customers are relying on our expertise now more than ever to help them navigate uncertainty and assess new threats, including risks from climate change. There are clear steps commercial property owners can take to strengthen their facilities and operations to withstand and respond to such severe weather events. A close partnership between buyer, broker and carrier should build a strategic risk mitigation and management plan.”
She added: "We advocate for and are continually investing in advancing climate analytics and climate modeling capabilities — and localizing and highlighting key impacts of climate change for individual customers and communities.
"We are also collaborating with peers, government entities and others to collectively focus on building a more resilient future through public and private partnerships.”