Category Archives: Drought

EXPOSURE Magazine: Looking Back, Looking Forward

The latest edition of EXPOSURE is essential reading for risk professionals, as we look back at what can be learned from last year’s events and look forward to the future including new challenges faced by the global risk management community and new opportunities to capitalize on.

EXPOSURE offers a unique perspective with a clear mission “… to provide insight and analysis to help insurance and risk professionals innovate, adapt and deliver.” And with a new North Atlantic hurricane season nearly upon us, and memories of HIM (Hurricane Harvey, Irma and Maria) fresh in the industry’s collective consciousness, EXPOSURE talks to the industry and paints a picture of a mature, responsible insurance sector that managed HIM with certainty and confidence. Cyber has also demonstrated its potential as a global systemic risk, and EXPOSURE looks at how events such as an outage of a major cloud services provider could generate economic losses as high as Superstorm Sandy.

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The Politics of Basis Risk

Imagine you are a government minister responsible for disaster response. Five days have passed since the hurricane hit your country, and the floods have still not receded. Tens of thousands of your citizens have been made homeless. In the eyes of the people, the government is simply moving too slowly, and the press is baying for action. There is some reassurance though, as you know that over many years your country has paid premium into an international pooling scheme designed to provide substantial funds quickly when such a disaster strikes, to help pay some of the costs of recovery.

But then you hear from the regional multi-state insurance pool to which your finance minister has been contributing hard-fought annual premiums for the past decade. Your country is not going to receive a pay-out. In the scheme’s parametric formula, the value is below the threshold. You have discovered the toxic politics of basis risk.

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EXPOSURE Magazine Snapshots: Water Security – Managing the Next Financial Shock

This is a taster of an article published by RMS in the second edition of EXPOSURE magazine.  Click here and download your full copy now.

18 Apr 2017 Exposure Drought image

 

EXPOSURE magazine reported on how a pilot project to stress test banks’ exposure to drought could hold the key to future economic resilience, as recognition grows that environmental stress testing is a crucial instrument to ensure a sustainable financial system.

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“Super” El Niño – Fact vs. Fiction

The idea of a “super” El Niño has become a hot topic, with many weighing in. What’s drawing all of this attention is the forecast of an unusually warm phase of the El Niño Southern Oscillation (ENSO). Scientists believe that this forecasted El Niño phase could be the strongest since 1997, bringing intense weather this winter and into 2016.

Anomalies represent deviations from normal temperature values, with unusually warm temperatures shown in red and unusually cold anomalies shown in blue. Source: NOAA

It’s important to remember the disclaimer “could.” With all of the information out there I thought it was a good time to cull through the news and try to separate fact from fiction regarding a “super” El Niño. Here are some of the things that we know—and a few others that don’t pass muster.

Fact: El Niño patterns are strong this year

Forecasts and models show that El Niño is strengthening. Meteorologist Scott Sutherland wrote on The Weather Network that there is a 90 percent chance that El Niño conditions will persist through winter and an over 80 percent chance that it will still be active next April. Forecasts say El Niño will be significant, “with sea surface temperatures likely reaching at least 1.5oC (2.7oF) above normal in the Central Pacific – the same intensity as the 1986/87 El Niño (which, coincidentally also matches the overall pattern of this year’s El Niño development).”

A “strong” El Niño is identified when the Oceanic Niño Index (ONI), an index tracking the average sea surface temperature anomaly in the Niño 3.4 region of the Pacific Ocean over a three-month period, is above 1.5oC. A “super” El Niño, like the one seen in 1997/98, is associated with an ONI above 2.0oC. The ONI for the latest May-June-July period was recorded as 1.0oC, identifying El Niño conditions present as of “moderate” strength with the peak anomaly model forecast consensus around 2.0oC.

Fiction: A “super” El Niño is a cure-all for drought plaguing Western states

Not necessarily. The conventional wisdom is that a “super” El Niño means more rain for drought-ravaged California, and a potential end to water woes that have hurt the state’s economy and even made some consider relocation. But, we don’t know exactly how this El Niño will play out this winter.

Will it be the strongest on record? Will it be a drought buster?

Some reports suggest that a large pool of warm water on the northeast Pacific Ocean and a persistent high-pressure ridge over the West Coast of the U.S., driven by dry, hot conditions, could hamper drought-busting rain.

The Washington Post has a good story detailing why significant rain from a “super” El Niño might not pan out for the Golden State.

And if the rain does come, could it have devastating negative impacts? RMS’ own Matthew Nielsen recently wrote an article in Risk and Insurance regarding the potential flood and mudslide consequences of heavy rains during an El Niño.

Another important consideration is El Niño’s impact on the Sierra snow pack, a vital source for California’s water reserves. Significant uncertainty exists around when and where snow would fall, or even if the warm temperatures associated with El Niño would allow for measureable snow pack accumulation. Without the snow pack, the rainwater falling during an El Niño would only be a short-term fix for a long-term problem.

Fact: It’s too early to predict doomsday weather

There are a vast number of variables needed to produce intense rain, storms, flooding, and other severe weather patterns. El Niño is just one piece of the puzzle. As writer John Erdman notes on Weather.com, “El Niño is not the sole driver of the atmosphere at any time. Day-to-day variability in the weather pattern, including blocking patterns, forcing from climate change and other factors all work together with El Niño to determine the overall weather experienced over the timeframe of a few months.”

Fiction: A “super” El Niño will cause a mini ice age

This theory has appeared around the Internet, on blogs and peppered in social media. While Nature.com reported some similarities between ice age and El Niño weather patterns to an ice age more than a decade ago you can’t assume we’re closing in on another big chill. The El Niño cycle repeats every three to 10 years; shifts to an ice age occur over millennia.

What other Super El Niño predictions have you heard this year? Share and discuss in the comments section.

The California Drought: A Shift in the Medium-Term View of Risk

Indications are growing that there is a shift underway in the risk landscape in California that may last several years, prompted by the ongoing severe drought.

It’s no secret that California is a region prone to drought. History shows repeated drought events, and there is emerging consensus that the current drought has no end in sight. In fact, there are indications that the drought could just be getting started.

The situation could be exacerbated by climate change, which is increasing the rates of water evaporation in western regions of the U.S.

We also learned recently that the groundwater levels in Colorado have been depleted by a “shocking” amount, which affects California as a significant amount of water used in the state’s agricultural industry comes from the Colorado basin.

California’s abundant agricultural industry has been fueled by its high sunshine input and the availability of water from the Colorado basin.The state produces nearly half of U.S.-grown fruits, nuts, and vegetables, according to statistics from the California Department of Food and Agriculture.

The sustainability of the agricultural industry is now in question given the emerging information about the security of the water supply, with long-term implications for food production—and therefore prices. While the threat is not to the California economy as farming accounts for little more than two percent of the state’s $2 trillion economy, implications will be to broader food prices and food security issues, as well as the security of those employed to work in this industry.

From a natural catastrophe perspective, we can expect the severity and frequency of wildfire outbreaks to increase significantly for several years to come if current indications prove true. In addition, we can expect that more areas will be impacted by wildfires.

The insurance industry needs to pay close attention to methods for estimating wildfire risk to ensure the risk landscape is accurately reflected over the coming years, just as it adapted in the late 2000s to a forward-looking, medium-term view of the probability of landfalling hurricanes accounting for multi-decadal cycles of increased and decreased hurricane activity in the Atlantic basin relative to the long-term average – and the subsequent consequences for the medium-term risk landscape.