Today marks the official start of the 2011 hurricane season, and forecasts indicate that activity levels will remain above the long-term historical average as a result of warmer than average sea surface temperatures (SSTs) in the Atlantic Ocean. Warmer SSTs increase the probability of hurricane formation—and given the string of catastrophe events in the first half of 2011, many wonder if hurricanes will once again wreak havoc on the U.S. coastline this season. What might the consequences be for the insurance industry?

New research that RMS released ahead of this season within its v11.0 hurricane model shows that while the immediate coastline is, by far, most vulnerable to hurricane-driven losses, properties located farther inland are at greater risk than previously recognized. Hurricane Ike’s extended damage path through Texas in 2008 brought a greater awareness to this fact. Recent research findings also confirm that this was not an anomaly but rather a wake-up call for property and casualty (P&C) insurers.

Steering Ahead

In addition to elevated sea surface temperatures, low levels of wind shear are essential for tropical cyclone formation and development, and the warmer the oceans and the lower the wind shear, the more activity there will be. However, 2011 is not expected to be a “hyperactive year,” as the recent La Niña conditions, which bring particularly low wind shear to the Atlantic, are expected to be over by the most active part of the hurricane season.

Once hurricanes have formed, the relative positions of weather patterns such as high- and low- pressure systems across the East Coast of the U.S. and the Atlantic Ocean are the main factors influencing hurricane landfalls. These systems create “steering currents” in the atmosphere. These steering currents alternately push or block hurricanes, determining the path a hurricane takes, and generally lasting from a few days to a maximum of a few weeks. For example, strong steering currents coming off the East Coast of the U.S. can block hurricanes from making landfall over the U.S, and keep them out at sea, such as what occurred during 2010. Conversely, the position of the so called “Bermuda High” over the central Atlantic Ocean during the 2004 and 2005 hurricane seasons steered many of the hurricanes that formed to make landfall.

Unfortunately, weather patterns of this scale cannot be accurately predicted months or even weeks in advance. Thus, at the start of the season, it is virtually impossible to estimate the exact number of landfalls that may occur in any given year. What we do know, however, is that while large losses can occur in any year, the probability of large losses are increased when SSTs and activity levels are above the long-term average, as is expected to be the case in 2011.

Storm Decay

Once a hurricane makes landfall, its inland impact—and the extent of resulting claims—is driven primarily by how rapidly the storm weakens over land. This phenomenon is known as “inland filling,” as the central pressure increases, and the eye of the storm “fills in” after being cut off from the warm ocean waters.

RMS recently released the results of a 3-year research project conducted in partnership with the University of Miami, within its v11.0 U.S. hurricane model. The project was designed to further the industry’s understanding of how inland filling is impacted by specific characteristics of a hurricane’s structure, as well as the location-specific factors such as regional geography and the hurricane’s position (over water or land). The study identified as many as eight characteristics of a hurricane and how the location of makes landfall influences the rate of inland filling more than has previously been understood.

Size and forward speed are key factors, but so is the proportion of the wind field over water (hurricanes with part of their wind field over water retain more energy and fill more slowly). Storms that predominantly travel over rough terrain will, on average, decay faster than those that travel over smooth terrain.

The research project also revealed that differences in inland filling by region require different modeling approaches. For example, the rate at which Florida hurricanes weaken differs from that of mid-Atlantic Coast hurricanes, even if the landfall characteristics are the same. The use of region-specific models—coupled with detailed satellite data on land-use characteristics that affect wind speeds—provide an updated view of the gradient of risk moving inland from the coast following hurricane landfall.

Building Vulnerability

Similar to inland filling, understanding the vulnerability of various properties to different wind speeds requires a region-specific approach. In addition to differences in construction quality, regional variations in climate can significantly impact the claims sustained following an event. However, while a given building’s vulnerability can be determined through a detailed understanding of construction quality and changes in building codes by region and over time, the impact of climate-driven deterioration is still largely unknown. For example, the Gulf Coast is subject to higher humidity and greater variation in annual rainfall than the northeast U.S., which drives more rapid deterioration of certain roofing types (such as petroleum-based products) and enclosed wooden roof spaces than would occur in other regions.

Working with external roofing engineers, RMS identified the difference in vulnerability between the immediate coastline and inland areas. In general, greater attention is given to design and construction near the coast, because of higher awareness of the risk.

Surge-Related Loss

Storm surges can penetrate far inland along waterways and canals, creating threats to properties on the immediate coastline. The potential for catastrophic storm surge was highlighted in 2005 by Hurricane Katrina, and again in 2008 by Hurricane Ike. Flooding from Ike’s storm surge penetrated 30 miles inland from the coast, along inland waterways. The big issue for the insurance industry is how much of the surge loss will be paid by wind policies in cases where no flood coverage is in place, which is most likely outside the highest-risk flood zones.

RMS’ U.S. hurricane model now allows users to define how much coverage for storm surge losses they think could leak into wind policies. Risks to properties located away from the immediate coastline are now known to be greater than previously understood—both from an increased probability of being affected by strong winds or storm surge, and relatively high vulnerability compared to properties built at the coast. The research underlying this latest model can help prepare P&C insurers for probable consequences of any landfalls before the hurricane season is in full swing.

Dr. Claire Souch is vice president of Natural Catastrophe and Portfolio Solutions at RMS. She may be reached at RMS.pressoffice@rms.com.

Special Reports /

A Refined Approach to Modeling U.S. Hurricane Risk

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