Category Archives: Catastrophes

Catastrophes, Disaster Preparedness, Disaster Resilience, Insurers and the Economy, Regulation, Technology, Wildfire

California Finalizes Updated Modeling Rules, Clarifies Applicability Beyond Wildfire

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California’s Department of Insurance last week posted long-awaited rules that remove obstacles to profitably underwriting coverage in the wildfire-prone state. Among other things, the new rules eliminate outdated restrictions on use of catastrophe models in setting premium rates.

The measure also extends language related to catastrophe modeling to “nature-based flood risk reduction.” In the original text, “the only examples provided of the kinds of risk mitigation measures that would have to be considered in this context involved wildfire. However, because the proposed regulations also permit catastrophe modeling with respect to flood lines, it was appropriate to add language to this subdivision relating to flood mitigation.”

The relevant language applies “generally to catastrophe modeling used for purposes of projecting annual loss,” according to documents provided by the state Department of Insurance.

Benefits for policyholders

As a result, the department said in a press release, “Homeowners and businesses will see greater availability, market stability, and recognition for wildfire safety through use of catastrophe modeling.”

For the past 30 years, California regulations – specifically, Proposition 103 – have required insurance companies to apply a catastrophe factor to insurance rates based on historical wildfire losses. In a dynamically changing risk environment, historical data alone is not sufficient for determining fair, accurate insurance premiums. According to Cal Fire, five of the largest wildfires in the state’s history have occurred since 2017. 

The state’s evolving risk profile, combined with the underwriting and pricing constraints imposed by Proposition 103, has led to rising premium rates and, in some cases, insurers deciding to limit or reduce their business in the state.

With fewer private insurance options available, more Californians have been resorting to the state’s FAIR Plan, which offers less coverage for a higher premium. This isn’t a tenable situation.

“Put simply, increasing the number of policyholders in the FAIR Plan threatens the solvency of insurance companies in the voluntary market,”  California Insurance Commissioner Ricardo Lara explained to the State Assembly Committee on Insurance. “If the FAIR Plan experiences a massive loss and cannot pay its claims, by law, insurance companies are on the hook for the unpaid FAIR Plan losses…. This uncertainty is driving insurance companies to further limit coverage to at-risk Californians.”

“Including the use of catastrophe modeling in the rate making process will help stabilize the California insurance market,” said Janet Ruiz, Triple-I’s California-based director of strategic communication. “Homeowners in California will be able to better understand their individual risk and take steps to strengthen their homes.”

The new measure also requires major insurers to increase the writing of comprehensive policies in wildfire-distressed areas equivalent to no less than 85 percent of their statewide market share. Smaller and regional insurance companies must also increase their writing.

Requirements for insurers

It also requires catastrophe models used by insurers to account for mitigation efforts by homeowners, businesses, and communities – something not currently possible under existing outdated regulations today.

Moves like this by state governments – combined with increased availability of more comprehensive and granular data tools to inform underwriting and mitigation investment – will go a long way toward improving resilience and reducing losses.

Learn More:

Triple-I “Trends and Insights” Issues Brief: California’s Risk Crisis

Triple-I “Trends and Insights” Issues Brief: Proposition 103 and California’s Risk Crisis

Triple-I “State of the Risk” Issues Brief: Wildfire

Triple-I “State of the Risk” Issues Brief: Flood

Catastrophes, Disaster Resilience, Floods, Risk Management, Technology, Webinars

2024’s Nat Cats:
A Scholarly View

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By Lewis Nibbelin, Contributing Writer, Triple-I

Triple-I recently kicked off a new webinar series featuring its Non-Resident Scholars. The first episode focused on the rising severity of natural catastrophes and innovative data initiatives these scholars are engaged in to help mitigate the impact of these perils. 

Moderated by Triple-I’s Chief Economist and Data Scientist Michel Léonard, the panel included:

  • Phil Klotzbach, Senior Research Scientist in the Department of Atmospheric Science at Colorado State University;
  • Victor Gensini, meteorology professor at Northern Illinois University and leading expert in convective storm research;
  • Seth Rachlin, social scientist, business leader, and entrepreneur currently active as a researcher and teaching professor; and
  • Colby Fisher, Managing Partner and Director of Research and Development at Hydronos Labs.

“Wild and crazy”

Klotzbach discussed “the wild and crazy 2024 Atlantic hurricane season,” which he called “the strangest above-normal season on record.”

Abnormally fluctuating periods of activity this year created “a story of three hurricane seasons,” reflecting a broader trend of decreasing storm frequency and increasing storm severity, Klotzbach said.

While Klotzbach and his forecasting team’s “very aggressive prediction for a very busy season” was validated by Hurricane Beryl’s landfall as the earliest Category-5 hurricane on record — followed by Debbie and Ernesto — “we went through this period from August 20 to September 23 where we had almost nothing. It was extremely quiet.”

After extensive media coverage claiming the forecasts were a “massive bust,” along came Hurricane Helene, which developed into the “strongest hurricane to make landfall in the Big Bend of Florida since 1851.” Helene drove powerful, destructive flooding inland – most notably in Asheville, NC, and surrounding communities. Then came Hurricane Milton which was noteworthy for spawning numerous fatal tornadoes.

“Most tornadoes that happen with hurricanes are relatively weak – EF0, EF1, perhaps EF2,” Gensini – the panel’s expert on severe convective storms (SCS) – added. “Milton had perhaps a dozen EF3 tornadoes.”

Costly and underpublicized

Severe convective storms – which include tornadoes, hail, thunderstorms with lightning, and straight-line winds – accounted for 70 percent of insured losses globally the first half of 2024. And in 2023, U.S. insured SCS-caused losses exceeded $50 billion for the first time on record for a single year.

Hailstorms are especially destructive, behind as much as 80 percent of SCS claims in any one year. Yet their relative brevity and limited scope compared to large-scale disasters earns them far less public and industry attention.

“We haven’t had a field campaign dedicated to studying hail in the United States since the 1970s,” Gensini explained, “so it’s been a long time since we’ve had our models updated and validated.”

Data-driven solutions

To rectify this knowledge gap, the In-situ Collaborative Experiment for the Collection of Hail in the Plains (or ICECHIP) will send Gensini and some 100 other scientists into the Great Plains to chase and collect granular data from hailstorms next year. Beyond developing hail science, their goal is to improve hail forecasting, thereby reducing hail damage.

Gensini pointed to another project, the Center for Interdisciplinary Research on Convective Storms (or CIRCS), which is a prospective academic industry consortium to develop multidisciplinary research on SCS. Informed by diverse partnerships, such research could foster resilience and recovery strategies that “move forward the entire insurance and reinsurance industry,” he said.

Rachlin and Fisher echoed this emphasis on enhancing the insurance industry’s facilitation of risk mitigation in their presentation on Hydronos Labs, an environmental software development and consulting firm that utilizes open-source intelligence (OSINT).

The costs and variability of climate and weather information have created “a data arms race” among insurance carriers, and aggregating and analyzing publicly available information is an untapped solution to that imbalance, they explained.

The company’s end goal, Rachlin added, is to promote an insurance landscape centered around “spending less money on [collecting] data and more money using data.”

All panelists stressed the ongoing need for more reliable, comprehensive data to steer industry strategies for effective mitigation. Investments in this data now are less than the costs of post-disaster recovery that will continue to plague more and more communities in our rapidly evolving climate.

Register here to listen to the entire webinar on demand.

Learn More:

Triple-I “State of the Risk” Issues Brief: Hurricanes

Triple-I “State of the Risk” Issues Brief: Flood

Triple-I “State of the Risk” Issues Brief: Severe Convective Storms

Outdated Building Codes Exacerbate Climate Risk

JIF 2024: Collective, Data-Driven Approaches Needed to Address Climate-Related Perils

Climate Resilience and Legal System Abuse Take Center Stage in Miami

Triple-I Experts Speak on Climate Risk, Resilience

NAIC, FIO to Collaborate on Data Collection Around Climate Risk

Catastrophes, Disaster Preparedness, Disaster Resilience, Floods, Homeowners Insurance, Market Conditions, Risk Management, Wildfire

JIF 2024: Collective,
Data-Driven Approaches Needed to Address Climate-Related Perils

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The need for collective action to address the property/casualty risk crisis was a recurring theme throughout Triple-I’s Joint Industry Forum in Miami – particularly during the panel on climate risk and  resilience. The discussion focused heavily on what’s currently being done to address this evolving area of peril.

The panel, moderated by Veronika Torarp – a partner in PwC Strategy’s insurance practice – consisted of subject-matter experts representing a cross section of natural perils, from hurricanes and floods to wildfires and severe convective storms. They were:

  • Dr. Philip Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University;
  • Matthew McHatten, president and CEO at MMG Insurance and chairman of Triple-I’s Executive Leadership Committee;
  • Emily Swift, sustainable business framework senior manager at American Family Insurance; and
  • Heather Kanzlemar, consulting actuary at Milliman.

Part of the reason for this need to build coalitions is the diverse and overlapping causes of climate-related events and the related losses. Torarp cited a PwC study that projects the global protection gap in 2025 at $1.9 trillion, though she acknowledged that number may turn out to be “an understatement”.

Warmer, wetter, riskier

Running through the discussions of the various perils was the dynamic nature of evolving threats and the protection gap. Examples included increased inland flooding, such as the devastation caused in the rural southeast by Hurricane Helene, and damage inflicted by surprisingly intense tornadoes spun off by Hurricane Milton.

Dr. Klotzbach discussed the “very busy” 2024 Atlantic Hurricane season with its surprising impact on Asheville, N.C., and surrounding communities from Helene.

“It’s important to understand that the inland flooding threat is extremely problematic,” he said.

MMG’s McHatten emphasized the complexity of addressing flood risk, given the environmental forces driving it.

“Warmer planet, warmer ocean, more precipitation, more wind,” he said, “as well as this dynamic of atmospheric rivers and what happens to them as they start to hit higher elevations.” He pointed out how such conditions – which led to cataclysmic rains in Ashville as well as in MMG’s home state of Maine and the mountains of Vermont – are exacerbated by population trends.

“People live near water because that’s where economy and commerce was,” he said. “The ability to adapt to dynamic conditions that are changing rapidly is super-difficult. We can’t just say, ‘Raise every house six feet’ that’s near a body of water.”

Hope amid the perils

American Family’s Emily Swift discussed the state of severe convective storm risk, which she said is tending to migrate from its historic domain of the U.S. Midwest toward the Southeast.

“As we’re seeing the impact of hurricanes move further west and severe convective storms move further east, that means a lot more risk exposure to our customers who are living in those regions,” she said. “However, I think there’s a lot of hope.”

Swift talked about emerging partnerships between the insurance industry and academia — particularly work being done through Industry-University Cooperative Research Centers (IUCRC) funded by the National Science Foundation (NSF) to better understand severe convective storms and develop innovative ways of addressing the risks they pose.

“I’m optimistic that, although we don’t know quite the direction where severe convective storms are heading, we at least have diversified our risks to better manage them” – thanks, in part, to the learnings derived from these partnerships, Swift said.

Kanzlemar reinforced Swift’s optimistic tone in discussing Milliman’s work around wildfire risk. In the midst of a growing insurance availability and affordability crisis in fire-prone states – particularly California – Milliman is partnering with the Insurance Institute for Building and Home Safety (IBHS) and and stakeholders in its Wildfire Prepared Home program to gather data to help inform insurance underwriting, as well as mitigation and prevention at the community level.

“Most insurers have data on type of structure, what the roof material is, the number of stories,” Kanzlemar said, “but a lot of the granular data around eave enclosures, ember-resistant vents, that data is typically not available, and almost no insurers had that data at a community level to account for adjacent risk.”

That’s the bad news, she said, but “the good news is in the kinds of solutions we’re working toward. Most insurers were willing to consider a contributory data model like a comprehensive loss-underwriting exchange for [wildland-urban interface (WUI)] data as long as there’s sufficient participation and reciprocity. That’s an effort that we’re calling the ‘WUI Data Commons’. ”

All the panelists agreed that such collaborative, data-driven approaches that respect consumer needs and interests at the community level were going to be key to solving natural catastrophe risk in our rapidly changing future.

Learn More:

Triple-I “State of the Risk” Issues Brief: Flood

Triple-I “State of the Risk” Issues Brief: Wildfire

Triple-I “State of the Risk” Issues Brief: Hurricane

Triple-I “State of the Risk” Issues Brief: Convective Storms

Resilience Investments Paid Off in Florida During Hurricane Milton

Hail: The “Death by 1,000 Paper Cuts” Peril

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

Catastrophes, Coastal Property, Disaster Resilience, Floods, Homeowners Insurance

Resilience Investments Paid Off in Florida
During Hurricane Milton

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By Lewis Nibbelin, Contributing Writer, Triple-I

Babcock Ranch – a small community in southwestern Florida dubbed “The Hometown of Tomorrow” – made headlines for sheltering thousands of evacuees and never losing power during Hurricane Milton, which devastated numerous neighboring cities and left more than three million people without power.

Hunters Point, a subdivision on Florida’s Gulf Coast, remained similarly unscathed during both Hurricanes Helene and Milton. Though the development is only two years old, it’s already been through four major hurricanes. Its homes were designed with an elevation high enough to avoid severe flooding and materials that make them as sturdy as possible in high winds. When the power goes out, each home turns to its own solar panels and battery system.

For residents of both communities, this news comes as no surprise; their flood-resistant infrastructure and solar panel power systems have helped them survive several storms and hurricanes with only minor damages, demonstrating the utility of disaster resilience planning.

Such planning is expensive to implement. Homes in either community can run for over a million dollars. But, as the combined costs of Hurricanes Helene and Milton rise to the tens of billions, it’s hard to overstate the long-term benefits. Every dollar invested in disaster resilience could save 13 in property damage, remediation, and economic impact costs, suggesting risk mitigation and recovery strategies will become even more essential as natural catastrophe severity increases.

Incentivizing investment

The National Flood Insurance Program (NFIP) Community Rating System (CRS) – a voluntary program that rewards homeowners with reduced premiums when their communities invest in floodplain management practices that exceed NFIP minimum standards – aims to encourage resilience. Class 1 is the program’s highest rating, qualifying residents for a 45 percent reduction in their premiums. Of the nearly 23,000 participating NFIP communities, only 1,500 participate in the CRS. Of those 1,500, only two – Tulsa, Okla., and Roseville, Calif. – have achieved the highest rating.

High ratings are difficult to secure and maintain. Homeowners in Lee County, which borders Babcock Ranch, nearly lost their discounts earlier this year due to improper post-Hurricane Ian monitoring and documentation within flood hazard areas.

Discounts in lower-rated jurisdictions, however, still equate to large premium reductions. Miami-Dade County, Fla., for instance, earned a Class 3 rating after extensive stormwater infrastructure upgrades, saving the community an estimated $12 million annually. Residents sustained minimized flooding from Hurricane Milton under these improvements, further justifying their cost.

Local mitigation efforts offer targeted resilience solutions and resources to alleviate community risks. The insurance industry-funded Strengthen Alabama Homes provides homeowners grants to retrofit their houses along voluntary standards for constructing buildings resistant to severe weather. Completed retrofits reduce post-disaster claims and qualify grantees for substantial insurance premium discounts, prompting flood-prone Louisiana to replicate the program.

Other nature-based planning exploits local flora as a source of natural hazard protection. Previous studies support conserving natural wetlands and mangroves to impede the rate and flow of flooding, leading many communities – including Babcock Ranch, which is 90 percent wetlands – to invest in green infrastructure. Reforestation and wetland restoration projects undertaken by the Milwaukee Metropolitan Sewerage District (MMSD) also promise to store or capture millions of gallons of storm and flood water, enabling risk management alongside improved quality of life for citizens.

Most resilience projects are impossible to fund or operate without stakeholder partnerships and advanced data and analytics. Insurers, who have long assessed and measured catastrophe risk utilizing cutting-edge data tools, are uniquely positioned to confront these evolving risks and present a framework for successful preemptive mitigation.

Learn More:

Hurricane Helene Highlights Inland Flood Protection Gap

Removing Incentives for Development From High-Risk Areas Boosts Flood Resilience

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

Legal Reforms Boost Florida Insurance Market; Premium Relief Will Require More Time

Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

Coastal New Jersey Town Regains Class 3 NFIP Rating

Catastrophes, Disaster Preparedness, Disaster Resilience

Hail: The “Death by 1,000 Paper Cuts” Peril

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By Lewis Nibbelin, Contributing Writer, Triple-I

Earlier this year, baseball-sized hailstones in Denver totaled vehicles and pummeled homes and businesses during the second-costliest hailstorm in Colorado history, equating to billions in damages. Melon-sized stones hit Texas the same month, downing power lines and requiring snow plows to reopen roads.

Hail – a sub-peril of severe convective storms (SCS), which also include thunderstorms with lightning, tornadoes, and straight-line winds – is among the most destructive natural catastrophes in the United States, behind as much as 80 percent of SCS claims in any one year. Yet hailstorms remain ill-monitored and highly unpredictable due to a lack of public and industry attention.

“These are death-by-1000-paper-cut perils,” explained Triple-I’s Non-Resident Scholar Dr. Victor Gensini, meteorology professor at Northern Illinois University and leading expert in convective storm research, in an interview for the All Eyes on Research podcast. “In general, we’re seeing hail on 200 out of 365 days of the year.”

While individual SCS events generating losses on the multi-billion-dollar scale of Hurricane Andrew or Katrina don’t happen, over the course of a given year the losses add up quickly.

SCS, which are rising in frequency and severity – accounted for 70 percent of insured losses globally the first half of 2024, at a billion-dollar sum 87 percent higher than the previous decade average. And in 2023, U.S. insured SCS-caused losses exceeded $50 billion for the first time on record for a single year, propelled by thousands of major hailstorms impacting more than 23 million homes.

Gensini – who was motivated to study atmospheric science after a tornado impacted his high school – shifted his focus away from tornadoes “because hail is way more common across the United States every year, and it has a much larger socioeconomic impact – whether you’re talking about agricultural losses…or just rooftop damage to your asphalt shingles,” he told host and Triple-I Economic Research Analyst Marina Madsen.

“When you take a step back and look at the thunderstorm perils producing the greatest number of insured losses, it’s hail.”

Urbanization and inflation drive these losses, as more people populate disaster-prone areas and the value of their assets and the costs to repair them have increased. The expanding presence of solar farms, spread throughout flat, originally uninhabited plains, are especially susceptible to SCS damage, with one 2019 hailstorm causing $70 million in damages to a solar energy project in Texas.

Another explanation for greater hail-related losses is our warming climate. A Climate and Atmospheric Science study led by Gensini projects that, while higher temperatures will melt more hailstorms overall, increasingly large hailstones will become more common. Stronger updrafts fueled by higher temperatures can suspend stones in the air for longer, spurring further growth.

Such trends do not bode well for insurance premium rates, but upcoming research efforts promise actionable insight into hailstorm detection and prediction. The In-situ Collaborative Experiment for the Collection of Hail in the Plains – or ICECHIP – will send Gensini and several other researchers into the Great Plains to chase and collect granular data from hailstorms next year. Backed by the National Science Foundation with more than $11 million in funding, the field study aims to reduce hail risk through improved hailstorm forecasting, enabling residents to better protect themselves and their belongings before a hailstorm touches down.

A newer initiative – the Center for Interdisciplinary Research on Convective Storms, or CIRCS – is a prospective academic industry consortium to develop multidisciplinary research on SCS risk, fostering resilience and recovery strategies informed by diverse stakeholder partnerships.

“As you can imagine, the greatest interest right now in our research is in the insurance and reinsurance verticals,” Gensini said. “Hopefully, as we continue to build relationships…the [CIRCS] center will serve as a hub for information and knowledge creation for industry members. It’s a really unique consortium and a lot of potential lines of business could benefit from it.”

Listen to Podcast: Spotify, Audible, Apple

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance

Hurricane Helene Highlights Inland
Flood Protection Gap

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By Lewis Nibbelin, Contributing Writer, Triple-I

Spanning over 500 miles of the southeastern United States, Hurricane Helene’s path of destruction has drawn public attention to inland flood risk and the need for improved resilience planning and insurance purchase (“take up”) to confront the protection gap.

Extreme rainfall and wind inflicted a combination of catastrophic flooding, landslides, and extreme rainfall and wind gusts dumped an unparalleled 40 trillion gallons of water across Florida, Georgia, North Carolina, South Carolina, Virginia, and Tennessee, causing hundreds of deaths and billions in insured losses.

Most losses are concentrated in western North Carolina, with much of Buncombe County – home to Asheville and its historic arts district – left virtually unrecognizable. Torrential rain and mountain runoff submerged Asheville under nearly 25 feet of water as rivers swelled, while neighboring communities were similarly flattened or swept away.

Rebuilding will take years, especially as widespread lack of flood insurance forces most victims to seek federal grants and loans for assistance, slowing recovery. Compounding these challenges, misinformation about assistance from the Federal Emergency Management Agency (FEMA) has impeded aid operations in certain areas, leading FEMA to issue a fact sheet clarifying the reality on the ground.

A persistent protection gap

Less than 1 percent of residents in Buncombe County had federal flood insurance as Helene struck, as illustrated in the map below, which is based on National Flood Insurance Program (NFIP) take-up rate data. Inland flooding isn’t new, and neither is the inland flood-protection gap.

In August 2021, the National Weather Service issued its first-ever flash-flood warning for New York City as remnants of Hurricane Ida brought rains that flooded subway lines and streets in New York and New Jersey. More than 40 people were killed in those states and Pennsylvania as basement apartments suddenly filled with water.

Then, in July 2023, a series of intense thunderstorms resulted in heavy rainfall, deadly flash floods, and severe river flooding in eastern Kentucky and central Appalachia, with hourly rainfall rates exceeding four inches over the course of several days. Subsequent flooding led to 39 fatalities and federal disaster-area declarations for 13 eastern Kentucky counties. According to FEMA, only a few dozen federal flood insurance policies were in effect in the affected areas before the recent storm. 

“We’ve seen some pretty significant changes in the impact of flooding from hurricanes, very far inland,”  Keith Wolfe, Swiss Re’s president for U.S. property and casualty, told Triple-I CEO Sean Kevelighan in a Triple-I Executive Exchange. “Hurricanes have just behaved very differently in the past five years, once they come on shore, from what we’ve seen in the past 20.”

Need for education and awareness

Low inland take-up rates largely reflect consumer misunderstandings about flood insurance. Though approximately 90 percent of all U.S. natural disasters involve flooding, many homeowners are unaware that a standard homeowners policy doesn’t  cover flood damage. Similarly, many believe flood coverage is unnecessary unless their mortgage lenders require it.  It also is not uncommon for homeowners to drop flood insurance coverage once their mortgage is paid off to save money.

More than half of all homeowners with flood insurance are covered by NFIP, which is part of the FEMA and was created in 1968 – a time when few private insurers were willing to write flood coverage.

In recent years, insurers have grown more comfortable taking on flood risk, thanks in large part to improved data and analytics capabilities. This increased interest in flood among private insurers offers hope for improved affordability of coverage at a time when NFIP’s  Risk Rating 2.0 reforms have driven up flood insurance premium rates for higher-risk property owners.  

New tools and techniques

New tools – such as parametric insurance and community-based catastrophe insurance – also offer ways of improving flood resilience. Unlike traditional indemnity insurance, parametric structures cover risks without the complications of sending adjusters to assess damage after an event. Instead of paying for damage that has occurred, it pays out if certain agreed-upon conditions are met – for example, a specific wind speed or earthquake magnitude in a particular area. If coverage is triggered, a payment is made, regardless of damage.

Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders. Alone, or as part of a package including indemnity coverage, parametric insurance can provide liquidity that businesses and communities need for post-catastrophe resilience.

While localized insurance approaches can support flood resilience, coordinated investments in public education and preemptive mitigation are crucial to reducing risk and making insurance more available and affordable. Intergovernmental collaboration with insurers on development zoning and building codes, for instance, can promote the creation of safer and climate-adaptive infrastructure, lowering human and economic losses.

Learn More:

Removing Incentives for Development From High-Risk Areas Boosts Flood Resilience

Miami-Dade, Fla., Sees Flood Insurance Rate Cuts, Thanks to Resilience Investment

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance

Florida Insurers
Can Weather Another
Big Storm This Season

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Despite warnings from two leading insurance rating agencies that Hurricane Milton weakened or threatened Florida’s recovering home insurance market, the market “can manage losses” from the Category 4 storm “and are ready to cover yet another hurricane,” if one should come this season, according to industry experts who spoke with the South Florida Sun Sentinel.

AM Best and Fitch Ratings each issued reports last week warning that Milton could stretch liquidity of Florida-based residential insurers that are primarily focused on protecting in-state homeowners. But experts closer to Florida’s insurance industry cast doubt on those assertions. One reason is the two companies don’t rate most of the domestic Florida insurers whose financial strength they question, the Sun Sentinel reported.

While cautioning that loss estimates haven’t been released yet from catastrophe modelers, Florida market experts said the state’s insurers have sufficient reinsurance capital to weather not only hurricanes Debby, Helene, and Milton but another Milton-sized storm if one emerges during the latter portion of the 2024 Atlantic season.

Karen Clark, president of catastrophe modeler Karen Clark & Co., told the Sun Sentinel, “Florida insurers and the reinsurers that protect them use sophisticated tools to understand the probabilities of hurricane losses of different sizes.”

Joe Petrelli, president of Demotech – the only rating firm that reviews the financial health of most Florida-based property insurers – said insurers can purchase additional reinsurance capacity if they use up what they purchased to get them through the year.

“Carriers will have catastrophe reinsurance in place for another event, so it should not be an issue,” Petrelli told the Sun Sentinel.

“While we expect Milton to be a larger wind loss event compared to hurricanes Debby and Helene, we do not anticipate it to be near the level of insured losses caused by Hurricane Ian,” Mark Friedlander, Triple-I’s director of corporate communications said.

Ian was a Category 4 major hurricane that made landfall in Southwest Florida in September 2022 and caused an estimated $50 billion to $60 billion in private insured losses. The estimate accounted for up to $10 billion in litigated claims due to one-way attorney fees that were in effect at the time of the storm.

“The market is in its best financial condition in many years due to state legislative reforms in 2022 and 2023 that addressed the man-made factors which caused the Florida risk crisis – legal system abuse and claim fraud,” Friedlander said. “Florida residential insurers also have adequate levels of reinsurance to cover catastrophic loss events like Milton.”

Learn More:

Triple-I “State of the Risk Issues Brief”: Attacking Florida’s Property/Casualty Risk Crisis

Florida Homeowners Premium Growth Slows as Reforms Take Hold, Inflation Cools

Legal Reforms Boost Florida Insurance Market; Premium Relief Will Require More Time

It’s not too late to register for Triple-I’s Joint Industry Forum: Solutions for a New Age of Risk. Join us in Miami, Nov. 19 and 20.

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance

Removing Incentives
for Development From High-Risk Areas Boosts Flood Resilience

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(Photo by Jonathan Sloane/Getty Images)

By Lewis Nibbelin, Contributing Writer, Triple-I

Withdrawing federal subsidies in climate-vulnerable areas can deter development and promote disaster resilience, according to a recent Nature Climate Change study. The study found that these benefits extend beyond the targeted areas.

These findings underscore the utility of land conservation as hazard protection, as well as the critical role financial incentives play in driving – or obstructing – resilience.

A natural experiment

“Empirical research into this question is limited because few policy experiments exist where a clear comparison can be made of ‘treatment’ settings, where incentives for development have been removed, and ‘control’ settings, similar areas where such incentives remain,” the study states. “One such experiment does exist, however.”

The 1982 Coastal Barrier Resources Act (CBRA) rendered more than one million acres along U.S. coasts ineligible for various incentives, including access to flood insurance through the National Flood Insurance Program (NFIP). Though development in these high-risk areas remains legal, the CBRA shifts total responsibility onto property owners to manage that risk.

Decades later, areas under the CBRA have 83 percent fewer buildings per acre than similar non-designated areas, leading to higher development densities in less risky neighboring areas. Subsequent reductions in flood damages have generated hundreds of millions in NFIP savings per year – due not only to NFIP ineligibility in CBRA areas, but also to fewer and less costly flood claims filed in neighboring areas.

Neighboring areas benefit from the natural infrastructure provided by undeveloped wetlands, which can ease flood risk severity by impeding the rate and flow of flooding.

Housing demand a challenge

Despite the evident value of limiting development in high-risk areas, such limitations are challenging to implement during a nationwide affordable housing shortage. Navigating housing demands in tandem with a rise in natural disasters will require a coordinated effort on local, state, and federal levels.

One approach is FEMA’s Community Rating System (CRS), a voluntary program that incentivizes local floodplain management practices exceeding the NFIP’s minimum standards. Class 1 is the highest rating, qualifying residents for a 45 percent reduction in their premiums. Of the nearly 23,000 participating NFIP communities, only 1,500 participate in the CRS. Of those 1,500, only two have achieved the highest rating: Tulsa, Okla., and Roseville, Calif.

While high ratings are difficult to secure, investments in flood planning yield long-term gains via safer infrastructure and more affordable premiums, with discounts in lower-rated jurisdictions still equating to millions in savings.

CRS discounts are especially advantageous following NFIP’s Risk Rating 2.0 reforms and increased private-sector interest in flood risk. Both have contributed to a more representative and actuarially sound flood insurance market that sets rates based on property-specific risks, thereby raising the premiums of riskier property owners.

Concerns about effective climate risk mitigation strategies persist, however – especially in the wake of unprecedented destruction wrought by Hurricane Helene.

While NFIP reforms are making flood insurance more equitable, many homeowners – including many of those most impacted by Hurricane Helene – are unaware that flood coverage is not offered by a standard homeowners policy. Likewise, many believe that flood insurance is necessary only if required by their lenders, leaving inland residents more susceptible to costly flood damages.

This lack of common knowledge about insurance is not a failure of consumers – rather, it represents the insurance industry’s urgent need to provide greater outreach, public education, and stakeholder collaboration.

Incentivizing public-private collaboration has demonstrated success, so removing federal incentives from additional high-risk areas would require extensive multidisciplinary coordination to prevent inadvertently widening the insurance protection gap. Emerging approaches to risk mitigation and resilience – such as community-based catastrophe insurance, New York City’s recent parametric insurance flood pilot, and the nation’s first public wildfire catastrophe model in California – offer opportunities for fairer rates and targeted local resilience.

If paired with policies based on the CBRA, such innovations could help ensure that appropriate risk transfer occurs alongside substantial risk reduction.

Learn More:

Triple-I “State of the Risk” Issues Brief: Flood

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

Miami-Dade, Fla., Sees Flood-Insurance Rate Cuts, Thanks to Resilience Investment

Milwaukee District Eyes Expanding Nature-Based Flood-Mitigation Plan

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

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Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

CSU: Post-Helene, 2 More “Above Normal” Weeks Of Storm Activity Expected

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(Photo by Joe Raedle/Getty Images)

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.

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Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance, Legal Environment, Regulation, Wildfire

Triple-I Experts Speak
on Climate Risk, Resilience

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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.

Learn More:

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IRC: Homeowners Insurance Affordability Worsens Nationally, Varies Widely by State

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CSU Researchers Project “Extremely Active” 2024 Hurricane Season

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