As work continues to address the harm inflicted by Hurricane Helene, researchers at Colorado State University (CSU) warn that the next two weeks “will be characterized by [tropical storm] activity at above normal levels.”
The CSU researchers define “above normal” by accumulated cyclone energy (ACE) of more than 10. This level of hurricane intensity has been reached in less than one-third of two-week periods in early October since records have been kept.
Hurricane Kirk, they wrote, is “extremely likely” to generate more than 10 ACE during its lifetime in the eastern/central Atlantic. Tropical Depression 13 has just formed and is likely to generate considerable ACE in its lifetime across the Atlantic. The National Hurricane Center is monitoring an additional area for formation in the Gulf of Mexico that should be monitored for potential U.S. impacts.
“Hurricane Kirk is forecast to track northwestward across the open Atlantic over the next few days, likely becoming a powerful major hurricane in the process,” said CSU research scientist and Triple-I Non-resident Scholar Phil Klotzbach. “The system looks to generate approximately an additional 20 ACE before dissipation, effectively guaranteeing the above-normal category for the two-week period.”
With more than 160 people confirmed dead in Florida, Georgia, South Carolina, North Carolina, Virginia, and Tennessee, Helene is now the second-deadliest hurricane to strike the mainland United States in the past 55 years, topped only by Hurricane Katrina in 2005.
Reinsurance broker Gallagher Re predicts that private insurance market losses from Helene will rise to the mid-to-high single-digit billion dollar level, higher than its pre-landfall forecast of $3 billion to $6 billion, according to Chief Science Officer and Meteorologist Steve Bowen.
As always – and with particular urgency in the wake of Helene’s devastation – Triple-I urges everyone in hurricane-prone areas to stay informed, be prepared, and follow the instructions of local authorities. We also ask that people be mindful of the potential for flood danger far inland, as reflected in the experiences of many non-coastal communities during Hurricane Ida and Helene.
Analysis based on precise, granular data is key to fair, accurate insurance pricing – and is more important than ever before in an era of increased climate-related risks. In a recent Executive Exchange discussion with Triple-I CEO Sean Kevelighan, a co-founder of Norway-based 7Analytics discussed how his company’s methodology – honed by use in the oil and gas industry – can help insurers identify opportunities to profitably write flood coverage in what might seem to be “untouchable” areas.
7Analytics uses hydrology, geology, and data science to develop high-precision flood risk data tools.
“We are four oil and gas geologists behind 7Analytics,” said Jonas Torland, who also is the company’s chief commercial officer, “and between us we’ve spent 100 years chasing fluids in the very complicated subsurface.”
Torland believes his firm can bring a new level of refined expertise to U.S. insurers seeking to pinpoint pockets of insurability against flood.
“Instead of analyzing faults and carrier beds, we’re now analyzing streams and culverts and changing land-use features,” Torland told Kevelighan. “I think the approach we bring is brilliant for problems related to climate and population migration and urban pluvial flooding in particular.”
Torland said he hopes his company can help close the U.S. flood protection gap by giving private insurers the comfort levels and incentives they need to write the coverage. While more insurers have been covering flood risk in recent years, the National Flood Insurance Program (NFIP) still underwrites the lion’s share of flood risk.
NFIP’s recently reformed pricing methodology, Risk Rating 2.0 – which aims to make the government agency’s premium rates more actuarially sound and equitable by better aligning them with individual properties’ risk – has created concerns among policyholders whose premiums are rising as rates become more aligned with principles of risk-based pricing.
As the cost of participating in NFIP rises for some, it is reasonable to expect that private insurers will recognize the market opportunity and respond by applying cutting-edge data and analytics capabilities and more refined pricing techniques to seize those opportunities. This is where Torland believes 7Analytics can help, and he noted that the company had already had some positive test results in flood-prone Florida.
Kevelighan agreed that solutions like those provided by 7Analytics are what is needed to help private insurers close the flood insurance gap. Insurers are telling Triple-I as much.
“I think we can all agree that the current way we review flood risk is antiquated,” Kevelighan said. “So we’ve got to bring that new technology, that new innovation to begin changing behaviors and changing how and where we develop and how we live.”
Hurricane Beryl’s rapid escalation from a tropical storm to a Category 5 hurricane does not bode well for the 2024 Atlantic Hurricane season, which is already projected to be of above-average intensity, warns Triple-I non-resident scholar Dr. Philip Klotzbach.
“This early-season storm activity is breaking records that were set in 1933 and 2005, two of the busiest Atlantic hurricane seasons on record,” Dr. Klotzbach, a research scientist in the Department of Atmospheric Science at Colorado State University, recently told The New York Times.
The quick escalation was a result of above-average sea surface temperatures. A hurricane that intensifies faster can be more dangerous as it leaves less time for people in its path to prepare and evacuate. Last October, Hurricane Otis moved up by multiple categories in just one day before striking Acapulco, Mexico, as a Cat-5 that killed more than 50 people.
After weakening to a tropical storm, Beryl made landfall as a Cat-1 hurricane near Matagorda, Texas, around 4 a.m. on July 8, according to the National Hurricane Center, making it the first named storm in the 2024 season to make landfall in the United States. Beryl unleashed flooding rains and winds that transformed roads into rivers and ripped through power lines and tossed trees onto homes, roads, and cars. Restoring power to millions of Texans could take days or even weeks, subjecting residents who will not have air conditioning to further risk as a sweltering heatwave settles over the state.
Extreme heat was just one climate-related topic addressed by Triple-I Chief Insurance Officer Dale Porfilio in an interview with CNBC’s “Last Call” on July 9. While most farmers are insured against crop damage due to heat conditions and homeowners insurance typically covers wildfire-related losses, Porfilio noted, a “more subtle impact is on roofs that we thought were built to a 20-year lifespan.”
When subjected to extreme heat, roofs can become more brittle and prone to damage from wind or hail.
“So, you have to think about the roof coverage on your home insurance policy,” Porfilio said.
He also pointed out that flood risk represents “one of the biggest insurance gaps in this country. Over 90 percent of homeowners do not have the coverage.”
Many people incorrectly believe homeowners insurance covers flood damage or that they don’t need the coverage if their mortgage lender does not require it.
In an interview on CNBC’s “Squawk Box,” Triple-I CEO Sean Kevelighan discussed the potential impact of the predicted “well above-average” 2024 season on the U.S. property/casualty market.
“This is what the insurance industry is prepared for,” Kevelighan said. “It keeps capital on hand after writing policies to make sure that those promises can be kept.” The P/C industry has $1.1. trillion in surplus as of March 31, 2024.
Kevelighan pointed out that the challenges to the industry go beyond climate-related trends, explaining how legal system abuse, regulatory environments, shifting populations, and inflation are impacting insurers’ loss costs.
In Florida, for example, “you’ve got over 70 percent of all homeowners insurance litigation residing in that state, whereas it represents less than 10 percent of the overall claims.”
He pointed out that Florida’s insurance market has improved – with homeowners insurance premium growth flattening somewhat – as a result of tort reform legislation and added that Louisiana’s legislature addressed insurance reform during its most recent session.
“In California, insurers can’t catch up with inflationary costs because of regulatory constraints,” Kevelighan noted. “They are not able to model [climate risk] and are not able price reinsurance into their policies.”
California’s wildfire situation is complex, and the state’s Proposition 103 has hindered insurers’ ability to profitably write homeowners coverage in that disaster-prone state. In late September 2023, California Insurance Commissioner Ricardo Lara announced a package of executive actions aimed at addressing some of the challenges included in Proposition 103. Lara has given the department a deadline of December 2024 to have the new rules completed.
This wildfire season is expected to be less intense than normal, but people in high-risk areas should be aware of and prepared for potential damage, according to Craig Clements, a professor of meteorology and climate science at San José State University.
“There are days people really need to be careful,” said Dr. Clements, who directs the Wildfire Interdisciplinary Research Center and is a Triple-I non-resident scholar. “High fire days are typically hot, dry, and windy. If there’s ignition, these fires can spread quickly, depending on the fuel type.”
Despite record-breaking conflagrations across the Northern Hemisphere in recent years, U.S. wildfire frequency (number of fires) and severity (acres burned) have been declining in recent years and in 2023 were among the lowest in the past two decades.
While that trend is positive – reflecting progress in prevention of human-ignited wildfires – it isn’t a reason for complacency. Another long-term trend has been the doubling of the share of natural catastrophe insured losses from wildfires over the past 30 years, according to Swiss Re. This reflects the impact of a growing number of people living in the wildland-urban interface – the zone of transition between unoccupied and developed land, where structures and human activity intermingle with wildland and vegetative fuels.
A 2022 study in the journal Frontiers in Human Dynamics found that people are moving to areas that are increasingly vulnerable to catastrophic wildfires.
“They’re attracted by maybe a beautiful, forested mountain landscape and lower housing costs somewhere in the wildland-urban interface,” said University of Vermont environmental scientist Mahalia Clark, the paper’s lead author. “But they’re just totally unaware that wildfire is something they should even think about.”
To prepare, people should keep an eye out on the National Weather Service, social media, or watch the news, to ensure they are ready for any potential risks, and be on the lookout for Red Flag Warning days.
Dr. Clements also recommends referring to the National Interagency Fire Center website, which is updated daily for fire risks in particular regions. Triple-I suggests looking into the Wildfire Prepared Home designation program, which helps homeowners take protective measures for their home and yard to mitigate wildfire risks.
It’s also important for homeowners to remember that, following wildfires, rains can result in landslides and debris flows that often are not covered by insurance policies. It’s especially important to understand the difference between “mudslides” and “mudflow” and to discuss your coverage with an insurance professional.
Flood risk is not only one of the most destructive perils facing property owners; it is among the most complicated forms of coverage for property/casualty insurers to underwrite. For decades, the private market wouldn’t cover flood risk, which is why the National Flood Insurance Program had to be established.
But improved data collection and the availability of practically unlimited computing power have changed the equation for insurers, according to Anil Vasagiri, senior vice president for property solutions at Swiss Re. In a recent Executive Exchange with Triple-I CEO Sean Kevelighan, Vasagiri discussed the developments that have helped turn flood from a nearly untouchable peril to a burgeoning area of opportunity for insurers.
Over 90 percent of natural catastrophes involve flood in some way or another. Vasagiri said the ability to use multiple data sources in understanding flood conditions of specific properties helps insurers more accurately underwrite flood and help policyholders proactively address their own exposure to the peril.
“Increased information leads to increased capacity,” Vasagiri said – a fact that bodes well for improving insurance availability and affordability and evidenced by the increased number of private insurers writing flood coverage since 2016.
The timing of the private market’s increasing appetite for flood risk is fortuitous, as it coincides with Risk Rating 2.0, NFIP’s new pricing methodology that aims to make the government agency’s flood insurance premium rates more actuarially sound and equitable by better aligning them with individual properties’ flood risk. As NFIP rates become more aligned with principles of risk-based pricing, some policyholders’ prices are expected to fall, while many are going to rise.
In the Executive Exchange, Vasagiri discussed the Swiss Re’s acquisition of Fathom – a U.K.-based company specializing in water-related risks – as part of the company’s ongoing commitment to helping close the flood protection gap.
Legislative reforms put in place in 2022 and early 2023 to address legal system abuse and assignment-of-benefits claim fraud in Florida are beginning to help the state’s property/casualty insurance market recover from its crisis of recent years, according to a new Triple-I Issues Brief.
Claims-related litigation is down, the “depopulation” of the state’s insurer of last resort continues apace, and underwriting profitability – while still in negative territory – has improved significantly. Insurers also benefited from a relatively mild 2023 Atlantic hurricane season and a meaningful increase in investment income, posting a net profit for the first time in seven years.
But it’s important to remember that the crisis wasn’t created overnight and that it will take time for the reforms and other developments to be reflected in policyholder premiums. Homeowners should not expect their rates to decline in 2024, despite the improved industry performance, although some regional insurers have filed for small decreases.
“Rates may moderate some compared to prior years,” said Mark Friedlander, Triple-I director of corporate communications, “but rising replacement costs – combined with expected higher reinsurance costs for the June 1 renewals – are going to continue to drive average premiums upward in 2024.”
One factor keeping upward pressure on rates is fraud and legal system abuse. With only 15 percent of U.S. homeowners insurance claims, the state accounts for nearly 71 percent of the nation’s homeowners claim-related litigation, according to Florida’s Office of Insurance Regulation.
There are early signs that recent legislative reforms are beginning to bear fruit. In 2023, Florida’s defense and cost-containment expense (DCCE) ratio – a key measure of the impact of litigation – fell to 3.1, from 8.4 in 2022, according to S&P Global.
But the catastrophe-prone state faces a number of natural challenges, from a projected “extremely active” 2024 hurricane season to wildfires, flooding, and severe convective storms.
“Hurricanes get the most media attention,” Friedlander said, “but severe convective storms inflict comparable losses. And it only takes one bad hurricane season to wipe out the benefits of one or more mild years.”
The 2024 U.S. wildfire season is expected to be more damaging than 2023 but below the historical average in terms of the number of fires and acres burned, according to AccuWeather.
AccuWeather’s wildfire team predicts fires across the country will burn between 4 and 6 million acres of land in 2024, below the historical average of around 7 million acres. Last year, U.S. wildfires in the United States burned 2,693,910 acres – the fewest acres burned since 1998, when around 1.3 million acres were scorched, according to the National Interagency Fire Center.
“Stormy weather lingering over the Northwest into the latter part of spring will put a lid on both wildfires and the measures humans take to suppress the fire danger,” AccuWeather reported. “Prescribed burns may be put on hold in the Northwest during May and early June due to above-average precipitation.”
California has been home to some of the worst fires in the United States over the past decade, but – thanks to a wet and stormy winter – AccuWeather says wildfires will likely be limited until later in the summer.
At the same time, AccuWeather meteorologists said the Texas Panhandle and other nearby areas of the southern Plains face a high to extreme risk of significant fires in 2024.
The annual monsoon is a key factor affecting wildfires across the southwestern United States.
“Monsoon-induced thunderstorms can be a double-edged sword,” AccuWeather says. “Downpours and an uptick in humidity can help crews battle and contain wildfires, while lightning strikes can trigger new infernos.”
AccuWeather says the start of the monsoon season in 2024 is likely to be slow at first before picking up in July and August.
Residents and police gather outside of homes in Newark, N.J., that were damaged by a 4.8 magnitude earthquake on April 5. (Photo by Spencer Platt/Getty Images)
Last week’s earthquake in Lebanon, N.J. – the strongest to hit the state in more than 200 years and which halted activity in New York-area airports and was felt from Washington, D.C., to Maine – highlighted the importance of earthquake preparedness, mitigation, and insurance in areas traditionally not associated with damaging seismic activity.
Earthquake insurance is not covered under a standard homeowners policy. According to A.M. Best, $250 million in direct premiums written for earthquake coverage was in force in Connecticut, New Jersey, and New York in 2023, accounting for less than 5 percent of U.S. earthquake coverage premiums.
Claims from last week’s event are not expected to be excessive.
“Insurers may be anticipating small claims from owners of businesses,” said Janet Ruiz, Triple-I director of strategic communication. “For example, grocery stores, where glass bottles may have fallen from shelves. But the insurance impact is likely to be limited.”
The most significant impact occurred in Newark, N.J., where three multifamily row homes were declared uninhabitable because of potential structural damage, displacing dozens of residents. However, on Saturday morning, the properties were declared structurally safe and residents were allowed to return.
Earthquakes large enough to be felt by a lot of people are relatively uncommon on the East Coast. Since 1950 there have been about 20 quakes with a magnitude above 4.5, according to the United States Geological Survey. That’s compared with over 1,000 on the West Coast.
In 2011, a 5.8 magnitude quake near Mineral, Va., shook East Coast residents over a wide swath from Georgia to Maine and even southeastern Canada. The USGS called it one of the most widely felt quakes in North American history. The quake cost $200 to $300 million in property damages, including to the Washington Monument in D.C., much of it uninsured.
Just as floods can inflict damage in areas not designated by FEMA as “flood zones,” any property where a quake can happen can undergo significant damage. Unlike in earthquake-prone states like California, however, structures typically are not designed or built with seismic events in mind. Homeowners would be well advised to discuss with their insurance professionals whether earthquake coverage is right for them.
Last week’s temblor also should drive awareness of the need for Congress to reauthorize the National Earthquake Hazards Reduction Program (NEHRP) – a federal program that helps mitigate earthquake damage to buildings and communities. The NEHRP expired in September 2023. Bipartisan legislation to reauthorize the program was introduced in January 2024.
“I’ve seen what happens when communities aren’t prepared and haven’t mitigated,” said Dr. Lucy Arendt, a professor with St. Norbert College and Chair of the NEHRP Advisory Committee on Earthquake Hazards Reduction, in a March 7 congressional briefing hosted by the National Institute of Building Sciences (NIBS). “People are displaced from their homes. Schools are closed. Businesses shutter. There’s a lot of trauma.”
Arendt said investment in knowledge, time, and money prior to a severe disaster is significantly less than the cost to help communities recover from a major threat.
“There is a resilience gap between where we are today and where we should be as a resilient nation,” said Daniel Kaniewski, a former FEMA deputy administrator and member of the NIBS Multi-Hazard Mitigation Council. “I saw firsthand the collapse of infrastructure. These are things you might not see because it’s buried underground. But without water and power, that community cannot recover. Lifeline infrastructure needs to be restored quickly and efficiently.”
Most of the built environment is not designed to withstand earthquakes. Communities with weak building codes, older housing stock, unreinforced masonry buildings, and unmitigated hazards will fare worse than others, Kaniewski said.
“This, combined with the potential severe human toll, means that any U.S. earthquake could have catastrophic consequences that would reverberate well beyond the impact zone,” he added. “Damage to manufacturing facilities, transportation nodes, and communications networks and disrupted supply chains would be among the long list of cascading failures. Massive government spending would be necessary” to repair in the aftermath of such an event.
Colorado State University hurricane researchers predict an “extremely active” Atlantic hurricane season in their initial 2024 forecast. The team cites record-warm tropical and eastern subtropical Atlantic sea surface temperatures as a primary factor for their prediction of 11 hurricanes this year.
Led by senior research scientist and Triple-I non-resident scholar Phil Klotzbach, Ph.D, the CSU Tropical Meteorology Project forecasts 23 named storms, 11 hurricanes, and five major hurricanes during the 2024 season, which starts on June 1 and continues through Nov. 30. A typical Atlantic season has 14 named storms, seven hurricanes, and three major hurricanes.
The 2023 season produced 20 named storms and seven hurricanes. Three reached “major hurricane” intensity. Major hurricanes are defined as those with wind speeds reaching Category 3, 4 or 5 on the Saffir-Simpson Hurricane Wind Scale.
“We anticipate a well above-average probability for major hurricanes making landfall along the continental United States coastline and in the Caribbean this season,” Klotzbach said. “Current El Niño conditions are likely to transition to La Niña conditions this summer/fall, leading to hurricane-favorable wind-shear conditions. Sea surface temperatures in the eastern and central Atlantic are currently at record-warm levels and are anticipated to remain well above average for the upcoming hurricane season. A warmer-than-normal tropical Atlantic provides a more conducive dynamic and thermodynamic environment for hurricane formation and intensification.”
One hurricane and two tropical storms made continental U.S. landfalls last year. Category 3 Hurricane Idalia struck Florida’s Big Bend region near Keaton Beach on Aug. 30 with wind speeds of 115 mph. It was the third hurricane, and second major hurricane, to make a Florida landfall over the past two seasons. Idalia caused storm surge inundation of 7 to 12 feet and widespread flooding in Florida and throughout the Southeast.
“The widespread damage incurred from Idalia last year highlighted the importance of being financially protected from catastrophic losses – and that includes having adequate levels of property insurance and flood coverage,” said Triple-I CEO Sean Kevelighan. “Beyond Florida, we saw significant impacts from Idalia in southern Georgia and the Carolinas. All it takes is one storm to make it an active season for you and your family, so it is time to prepare as the 2024 Atlantic hurricane season’s start nears.”
With this forecast in mind, now is ideal time for homeowners and business owners to review their policies with an insurance professional to ensure they have the right amount and types of coverage. That includes exploring whether they need flood coverage, which is not part of a standard homeowners, condo, renters or business insurance policy.
Homeowners also can make their residences more resilient to windstorms and torrential rain by installing roof tie-downs and a good drainage system. Installation of a wind-rated garage door and storm shutters also boost a home’s resilience to a hurricane’s damaging winds and may generate savings on a homeowner’s insurance premium.
Private-passenger vehicles damaged or destroyed by either wind or flooding are covered under the optional comprehensive portion of an auto insurance policy.
Property owners in Lee County, Fla., could lose their flood insurance premium discounts under the National Flood Insurance Program (NFIP) Community Rating System (CRS), according to a recent announcement by FEMA.
CRS is a voluntary program that recognizes and encourages community floodplain management practices that exceed NFIP minimum requirements. Over 1,500 communities participate nationwide.
FEMA informed leaders in the affected communities – which include Cape Coral, Bonita Springs, Estero, Fort Myers Beach, and unincorporated Lee County – that they would begin losing their discounts starting October 1. Under CRS, these communities currently receive discounts of up to 25 percent. Unincorporated Lee County and the City of Cape Coral get the biggest benefit due to their Class 5 ratings. Rates will increase by approximately $300 annually for the 115,000 homeowners impacted by FEMA’s decision.
“This retrograde is due to the large amount of unpermitted work, lack of documentation, and failure to properly monitor activity in special flood hazard areas, including substantial damage compliance,” FEMA said in a statement.
FEMA officials told the Miami Herald that the problems began shortly after Hurricane Ian in 2022, when federal teams visited the communities hit the hardest and looked at the properties they thought were most likely to be substantially damaged, including older homes built in flood zones, some with previous flood damage.
“What the team found, unfortunately, is there was a lot of unpermitted work, lack of documentation,” said Robert Samaan, the regional administrator for FEMA’s Region 4, including Florida. “It was just a failure to properly monitor the activity in the special flood hazard area.”
FEMA shared with the Herald three letters it sent Lee County in 2023 — one in February, one in June and one in December — asking for information on the number of damaged homes and warning that not providing the information could result in the county losing its flood insurance discounts.
In recent months, a number of Florida communities, including Miami-Dade County, have benefited from lower flood insurance premiums as a result of improved CRS scores that reflect resilience-related investment. CRS has become particularly beneficial as NFIP pricing reforms – known as Risk Rating 2.0 –that more closely align premium rates with property-specific risks – have contributed to rising premiums for some property owners. Before these reforms, it was not uncommon for lower-risk owners to be subsidizing higher-risk ones through their premium rates.
Rising NFIP rates have been accompanied by another trend: increased involvement by private insurers in the flood insurance market.
“Florida has the most robust private flood insurance market in the United States, which provides consumers with numerous options for coverage,” said Mark Friedlander, director of corporate communications for Triple-I. “Nearly a third of Florida flood policies are written by private carriers, and many private flood insurers offer better pricing and more robust policies than NFIP. It’s worth taking the time to shop for coverage and obtain multiple quotes.”
As recently as 2018, private insurers provided only 3 percent of flood coverage in Florida.
This growth mirrors a national trend. Between 2016 and 2022 the total flood market grew 24 percent – from $3.29 billion in direct premiums written to $4.09 billion – with 77 private companies writing 32.1 percent of the business, up from 18 companies writing 12.5 percent. Private insurers are accounting for a bigger piece of a growing pie.
Florida’s Office of Insurance Regulation has heavily promoted the availability of private flood insurance in the state over the past several years, and many private flood insurers are domiciled in the state, Friedlander said.
“We are committed to helping these communities take appropriate remediation actions to participate in the Community Rating System again and work towards future policy discounts,” FEMA said in its statement.
Earlier this year, Sea Isle City, N.J., had its Class 3 rating restored after a brief demotion in 2023. Sea Isle City and Avalon are the only towns in the state to have Class 3 ratings.
