Today marks the official start of the2011 hurricane season, and forecasts indicate that activity levels will remain above thelong-term historical average as a result of warmer than average seasurface temperatures (SSTs) in the Atlantic Ocean. Warmer SSTsincrease the probability of hurricane formation—and given thestring of catastrophe events in the first half of 2011, many wonderif hurricanes will once again wreak havoc on the U.S. coastlinethis season. What might the consequences be for the insuranceindustry?

New research that RMS released ahead of this season within itsv11.0 hurricane model shows that while the immediate coastline is,by far, most vulnerable to hurricane-driven losses, propertieslocated farther inland are at greater risk than previouslyrecognized. Hurricane Ike’s extended damage path through Texas in2008 brought a greater awareness to this fact. Recent researchfindings also confirm that this was not an anomaly but rather awake-up call for property and casualty (P&C) insurers.

Steering Ahead

In addition to elevated sea surface temperatures, low levels ofwind shear are essential for tropical cyclone formation anddevelopment, and the warmer the oceans and the lower the windshear, the more activity there will be. However, 2011 is notexpected to be a “hyperactive year,” as the recent La Niñaconditions, which bring particularly low wind shear to theAtlantic, are expected to be over by the most active part of thehurricane season.

Once hurricanes have formed, the relative positions of weatherpatterns such as high- and low- pressure systems across the EastCoast of the U.S. and the Atlantic Ocean are the main factorsinfluencing hurricane landfalls. These systems create “steeringcurrents” in the atmosphere. These steering currents alternatelypush 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 ofthe 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 thecentral Atlantic Ocean during the 2004 and 2005 hurricane seasonssteered many of the hurricanes that formed to make landfall.

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

Storm Decay

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

RMS recently released the results of a 3-year research projectconducted in partnership with the University of Miami, within itsv11.0 U.S. hurricane model. The project was designed to further theindustry’s understanding of how inland filling is impacted byspecific characteristics of a hurricane’s structure, as well as thelocation-specific factors such as regional geography and thehurricane’s position (over water or land). The study identified asmany as eight characteristics of a hurricane and how the locationof makes landfall influences the rate of inland filling more than haspreviously been understood.

Size and forward speed are key factors, but so is the proportionof the wind field over water (hurricanes with part of their windfield over water retain more energy and fill more slowly). Stormsthat 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 inlandfilling by region require different modeling approaches. Forexample, the rate at which Florida hurricanes weaken differs fromthat of mid-Atlantic Coast hurricanes, even if the landfallcharacteristics are the same. The use of region-specificmodels—coupled with detailed satellite data on land-usecharacteristics that affect wind speeds—provide an updated view ofthe gradient of risk moving inland from the coast followinghurricane landfall.

Building Vulnerability

Similar to inland filling, understanding the vulnerability ofvarious properties to different wind speeds requires aregion-specific approach. In addition to differences inconstruction quality, regional variations in climate cansignificantly impact the claims sustained following an event.However, while a given building’s vulnerability can be determinedthrough a detailed understanding of construction quality andchanges in building codes by region and over time, the impact ofclimate-driven deterioration is still largely unknown. For example,the Gulf Coast is subject to higher humidity and greater variationin annual rainfall than the northeast U.S., which drives more rapiddeterioration of certain roofing types (such as petroleum-basedproducts) and enclosed wooden roof spaces than would occur in otherregions.

Working with external roofing engineers, RMS identified thedifference in vulnerability between the immediate coastline andinland areas. In general, greater attention is given to design andconstruction near the coast, because of higher awareness of therisk.

Surge-Related Loss

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

RMS’ U.S. hurricane model now allows users to define how muchcoverage for storm surge losses they think could leak into windpolicies. Risks to properties located away from the immediatecoastline are now known to be greater than previouslyunderstood—both from an increased probability of being affected bystrong winds or storm surge, and relatively high vulnerabilitycompared to properties built at the coast. The research underlyingthis latest model can help prepare P&C insurers for probable consequences of anylandfalls before the hurricane season is in full swing.

Dr. Claire Souch is vice president of Natural Catastropheand Portfolio Solutions at RMS. She may be reached [email protected].