Hurricane season 2021: in the eye of the storm

23-12-2021

Hurricane season 2021: in the eye of the storm

Rajkiran Vojjala, vice president, model development; Jeff Waters, senior product manager, RMS

The 2021 hurricane season is set to be one of the re/insurance’s industry costliest on record. Bermuda:Re+ILS reports.

Heading into the 2021 Atlantic hurricane season there were plenty of warnings from the re/insurance markets and analytics firms that this year was likely to produce a series of devastating and costly storms.

Since 2016, the market has experienced ever-increasing above-average hurricane seasons, and this year has been no different—the number of named storms has topped 20 including the deadly Hurricane Ida.

The advent of yet another increasingly costly and damaging hurricane season has prompted a serious rethink of how the industry approaches such risks, particularly as climate change has surged to the top of the global agenda.

The impact of climate change on the hurricane season is almost undisputed at this point within the industry, and there is a recognition that things will have to change if the market is to continue to provide affected regions with appropriate coverage in the coming years at an economic rate.

Coming on top of a swathe of other natural catastrophe losses from so-called “secondary” perils such as the flooding which hit large parts of Europe during the summer and claims stemming from rampant wildfires in California and elsewhere—not to mention the COVID-19 pandemic—this hurricane season could prove a turning point for the market as a whole.

With talk of widespread rate increases at the coming 1.1 renewals and a growing concern about the future of the market, where do things go from here? Here is a breakdown of the major storms of the 2021 Atlantic hurricane season

“We expect a sizable portion of the overall insured losses from Ida to be associated with post-event loss amplification.” Rajkiran Vojjala, RMS

Hurricane Ida

Among the 21 named storms to make landfall and cause significant insured losses in 2021, Hurricane Ida has been by far and away the most devastating.

The category 4 storm became the second most destructive on record to hit the state of Louisiana after only Hurricane Katrina, building from a Tropical storm into a full-blown hurricane over three days in late August before it made landfall on August 29.

That storm alone, which ravaged large swathes of the Gulf of Mexico coastal regions in Louisiana and Mississippi with winds up to 150mph before its remnants headed up the eastern coast of the US, causing yet more damage, is estimated to have led to the deaths of 115 people, causing $65 billion.

Of that total economic loss, between $31 billion to $44 billion is estimated to have hit US insurance markets, the majority of which was due to wind surge in the Gulf region.

“We expect a sizable portion of the overall insured losses from Ida to be associated with post-event loss amplification. A combination of COVID-19 related impacts, including rising construction costs, labour shortages, and fewer loss inspections could contribute to economic demand surge as repairs are undertaken in the coming months,” says Rajkiran Vojjala, vice president, model development, RMS.

“That, along with prolonged power outages will lengthen recovery and repair times, all of which may lead to increased overall claim costs in this event.”

Hurricane Nicholas

The second hurricane to make landfall in the US and cause significant damage and financial loss during the 2021 season was Hurricane Nicholas.

The category 1 storm made landfall in mid-September in Texas, becoming the 14th named storm of the season and the sixth hurricane, and hitting many areas of the Gulf Coast including some still recovering from Hurricane Ida with heavy rainfall and high winds.

RMS estimated that the total US insured losses from the event could be between $1.1 and $2.2 billion, of which the National Flood Insurance Programme was likely to take losses of between $200 and $500 million.

Wind and surge-related losses were expected to total between $700 million and $1.4 billion, with private inland flood losses of around $200 to $300 million.

“A notable impact from this event is the rainfall, especially in Louisiana, where many towns and cities are still in the early stages of recovery after Hurricane Ida. RMS event response teams estimate roughly 40 percent of postal codes in Louisiana that were impacted by flooding in Nicholas were also impacted by flooding from Ida a few weeks earlier,” says Jeff Waters, senior product manager, RMS North Atlantic Hurricane Models.

“We expect the overlapping nature of these two storms to further amplify losses, including the risk of rainfall infiltration, and to prolong the claims settlement process.”

Other major storms this season included Hurricane Elsa, a category 1 storm which made landfall in Florida before weakening and tapering up the eastern US coast, causing an estimated more than $1 billion in damage, and Hurricane Grace which hit the island of Hispaniola just days after a devastating earthquake.

Overall, the 2021 Atlantic hurricane season, while it proved quieter from September onwards, was still the fourth costliest on record, behind 2017, 2005, and 2012, with estimated total economic damages of over $70 billion, the majority stemming from Hurricane Ida.

“A notable impact from this event is the rainfall, especially in Louisiana.” Jeff Waters, RMS

The path ahead

With each year seemingly worse than the next and well above the historical average, it is becoming clear that climate change is having an impact on the Atlantic hurricane season.

While there remains a split over whether the increase is one of frequency or severity of storms, carriers are acutely aware that things are changing.

According to a report by catastrophe modelling specialist Karen Clark & Co, global warming has already driven an 11 percent increase in insured wind losses and those losses will grow by an additional 10 to 19 percent by 2050.

“Because the force applied by wind on structures increases exponentially with the wind speed, insured property losses respond non-linearly to an increase in hurricane intensity,” the report says.

“Sensitivity studies show that a 2 percent increase in wind speeds leads to a 10 to 12 percent increase in losses, for example.”

With climate change top of the industry’s minds and price increases likely at forthcoming renewals, in addition to a fundamental reassessment of catastrophe modelling, there remain plenty of challenges for the re/insurance market to tackle ahead of next year.

RMS, Hurricanes, COVID-19, Catastrophe, Insurance, Reinsurance, Rajkiran Vojjala, Jeff Waters, North America, Bermuda, Global

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