Hurricane track above Earth; photo courtesy of The Atlantic
Feeling a bit apocalyptic out there? Four back-to-back Category 4 hurricanes (Harvey, Irma, Jose, and Maria), coupled with wildfires and earthquakes, have left many North Americans, in particular, wondering is this the new norm? Or, is this what we should have expected from the 2017 hurricane season? (Read on and tweet us @spatialkey to cast your vote).
Based on estimates, 2017 is already the second costliest hurricane season since 2005 (Hurricane Katrina), and it’s not over yet. No matter which side of the coin you’re on—new norm or not-so-surprising—making sure you have the right data and analytics solution at your disposal is paramount. Underwriting hurricane risk has always been, well, risky. But as the game changes, insurers are realizing that, “...when underwriting business assets in the 21st century, not only are the dice no longer square, they are probably weighted and possibly magnetised. And the dots have been obliterated.”
Not-so-surprising...remember Hurricane Katrina in 2005?
The 2005 hurricane season tends to put a giant hole in the “new norm” theory. In 2005, Katrina caused $108 billion in damages—$41 billion in insured losses—and still holds the record as the costliest hurricane in U.S. history. The 2017 season has many people—not just insurers—paying attention to hurricanes and severe weather, as this is the most severe season we’ve seen in some time. But despite what it feels like, it’s important to remember that we’ve been here before. In fact, the 2005 hurricane season bears a number of similarities to the current season:
*Estimates based on data from accuweather.com
While these similarities are staggering, the season doesn’t end until late November. With that in mind, here’s how 2017 is trending against the 2005 season:
*As of November 7, 2017
Proponents of “not-so-surprising” would maintain we should have seen this coming...remember the 2017 hurricane forecast? It called for 16 named storms, 8 hurricanes, and 3 major hurricanes (Category 3 or higher), which is mostly on par with the actual 2017 numbers (although, we have experienced double the number of major hurricanes forecasted).
Or, is this volume of major hurricanes actually the “new norm”?
While we’ve come to expect these events, the frequency and severity does seem to be on the rise, especially considering how close together Harvey and Irma (in particular) were, occurring just a week apart. An article by Raconteur explores the issue of climate change, stating, “The meteorological models of the past cannot predict the extent, intensity and frequency of extreme events in the future, and this presents a problem.” Now, on the heels of several record-setting events, including one 1,000-year flood event (Harvey) and three more Category 4 hurricanes (Irma, Jose, and Maria), this statement appears truer than ever.
While climate change doesn’t necessarily hinder our ability to forecast events, it does create more uncertainty in terms of severity. The constant fluxes in frequency and severity often make it difficult to pick up the pieces from the last event before the next one occurs. That rings true, especially when events that were once considered “one-in-a-hundred-year” storms now have a repeat interval of around 17 years (in 2017, it feels like that repeat interval is becoming every other week). On top of that, ClimateWise estimates that there is now a $100 billion annual protection gap in the insurance market as a direct result of climate change. And, sea levels are rising at an exponential rate, along with rising ocean temperatures, with both attributed to climate change. Hurricanes thrive over warm water and strengthen in intensity, with sea level rise contributing to worsening storm surge levels. So while climate change may not be causing these storms, it is surely exacerbating the risks posed by them.
Multiple major hurricanes brewing in the Atlantic, courtesy of NOAA/NCDC
New norm or not, action is required…
So, is this the new norm? Or, is this what we should have expected based on the 2017 hurricane forecast? Only time will tell. What we do know, however, is that the frequency and severity involved in these types of 100-, 500- or 1000-year storms, calls for a new generation of data and analytics to increase response time, mitigate the risk as best as possible, and ultimately write better risks upfront to avoid claims downstream. As Maurice Tulloch, chairman of Global General Insurance at Aviva and chair of ClimateWise points out, “This [$100 billion] protection gap, between exposure to climate risk and insurance coverage, means the insurance sector must adapt or face the consequences.” So, whether or not this is the new norm, the severity and frequency of these storms calls for action and evaluation of current data and analytics practices. Mr. Tulloch goes on to say, “The insurance industry’s role as society’s risk manager is under threat. Our sector will struggle if response is limited to avoiding, rather than managing, exposure to climate risk.”
But what action can you take?
It seems we can’t look at historical events to inform frequency and severity in the future with any certainty. So the question becomes: What are you doing to adapt and support greater resilience—to create more confidence in increasingly uncertain times?
- Is your solution able to support and consume next-gen datasets?
- Does it bend enough to integrate new datasets on the fly?
- Do you have all of the data you need, at your disposal, in a single system, and at the point of underwriting?
- Are you getting the information you need when Houston is 50 inches underwater, or are you waiting on your provider to get back to you?
It may be time to rethink how you’re leveraging data and analytics to manage risk. Technology exists now to create greater resilience. Speed to actionable insight, a breadth of hazard and event datasets on demand, and a flexible analytics platform can be available to you in times like these. And, they need to be. Because ultimately, writing better risks upfront is the most effective way to avoid claims downstream. Making sure you have the best data and a flexible analytics platform at the right time will ensure you’re managing your risk, and that of your insureds, as best as you can—making you the hero of the insurance apocalypse.
New norm or not, tweet us @spatialkey using the hashtags #SKNewNorm or #SKNotSoSurprising to to tell us what you think.
To learn more about the 2017 hurricane season, and how you can leverage expert flood, wind, and storm surge data to prepare for the 2018 season, reach out today.