Category Archives: Risk Modeling

EXPOSURE Magazine: Essential Insight for Changing Times

I invite you to explore the latest digital edition of EXPOSURE Magazine, which also hit the streets of Monte Carlo as a print edition for those attending Les Rendez-Vous de Septembre, and will be available at RMS events over the coming months.

There is a clear mission for EXPOSURE, which is “… to provide insight and analysis to help insurance and risk professionals innovate, adapt and deliver.” And change is in the air for all businesses in the industry, whether it is developing new opportunities, getting products to market faster, being more agile and efficient, or using data-driven insight to transform decision making.

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Equifax Data Heist: Patching Up a Familiar Problem

The recent Equifax incident was by all measures a significant cyberattack. As the press statement released by Equifax on September 8 highlighted, the data theft potentially impacted approximately 143 million U.S. consumers. To put this into perspective this represents nearly 70 percent of the U.S. working population.

However, we should not be surprised. RMS tracks data theft among other types of cyber events on an ongoing basis, and we have seen numerous events of this magnitude or larger over the last few years. This Equifax breach would have ranked just #7 on the list of the largest data breaches in the 2017 RMS Cyber Risk Landscape report.

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Is “Hurricane Fatigue” Set to Continue?

The midway point of the Atlantic hurricane season has just passed, and despite a relatively tame start, we have already witnessed two major U.S. hurricane landfalls — Harvey and Irma — in quick succession. It is the first calendar year on record where two hurricanes of Category 4 strength or greater have made landfall in the contiguous U.S. To add insult to injury, Maria has quickly intensified and is expected to be the fourth major hurricane of the season as it tracks through the Leeward Islands, an area left devastated by Irma less than two weeks ago.

With 13 named storms, seven hurricanes, and three major hurricanes, we have already met the National Oceanic and Atmospheric Administration (NOAA) definition of an above-average full Atlantic hurricane season. It is understandable that many in the insurance industry may be suffering from “hurricane fatigue” well before the calendar flips over to October.

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Irma: From What Could Happen to What Did Happen…

17:00 UTC Tuesday, September 12

Emily Paterson, director – Model Product Management, RMS

Irma has now dissipated to the relief of many, not least those who experienced the storm’s wrath. The actuality of Irma was not nearly as bad as feared, as discussed in my colleague Tom Sabbatelli’s blog yesterday. Irma’s final path spared the major population centers of Miami and Tampa from the storm’s most damaging winds and storm surge.

Prior to and immediately after landfall, before we could see the final path and the actual impact of Irma, the best that anyone can do is look at the range of possible losses — as the final actual loss can only be known after an event is fully over and the details become clear.

To help our clients understand the potential magnitude of Irma’s insured loss during the storm’s approach, RMS provided guidance around what the distribution of potential wind losses looked like. But although we can have a good level of confidence in potential wind scenarios ahead of time, it is only part of the equation. As the hurricane approaches, we can provide guidance on the risk and identify areas that could be affected by storm surge and flooding, but the distribution of potential losses from these perils is uncertain as these losses are highly sensitive to the nuances of the storm’s final track and wind field structure.

Remember that the Saffir-Simpson scale no longer advises on the expected levels of storm surge following Hurricanes Katrina and Ike — storms that disproved the conventional understanding of the links between a hurricane’s intensity and its storm surge potential.

Now that Irma has gone, observations and imagery have started to come in that reveal the storm’s true impact. We are now able to shift our focus from “what could happen” to “what did happen”, from postulating potential wind loss distributions to delving into the hazard — including storm surge and flood — and damage observations to inform our final reconstructions of the event. Ultimately our understanding of the totality of losses from Irma will account for all loss drivers, including those which were too uncertain to estimate ahead of time. Storm surge, flood and other complicating factors, such as the evacuations, business interruption, and the prolonged and extensive power outages, among others, will all play a part in the final outcome.

While Irma has only dissipated very recently, what is already very clear is that Irma is a very complicated and complex event. How the interplay between wind, storm surge and flood plays out in terms of losses, and adding on top the impact of the complicating factors listed above, will ultimately dictate what the final losses will be.

Wind and surge observations from anemometers and gauges go a long way in helping us to better understand the hazard experienced on the ground, and are crucial as we look to reconstruct the hazard from Irma – our first step to understanding the full loss.

Satellite and drone imagery helps us go one step further and gives us a “birds eye view” of the damage experienced, helping to provide a fuller picture of both the type and level of damage, as well as a good indication of the extent. As we inspect the imagery we are looking for things that will help us refine our understanding of losses from this event — how far inland can we see surge damage? Is there roof damage from winds over a large area? We can use these observations to help refine and validate our understanding of loss. Another advantage of leveraging imagery is that it helps inform where we should focus our field reconnaissance efforts.

Figure 1. Map showing Key West Naval Base with photo image of residential area in the top right corner.  Source: OpenStreetMap

Figure 2: Residential area near Key West Naval Base, pre-event image from Google Earth, post-event aerial image acquired by NOAA on September 11, 2017

Our “boots on the ground” field reconnaissance approach really helps us refine our understanding with more detailed information. Not only does it help validate hazard observations with damage observations, but conversations with home and business owners, as well as those working on the recovery efforts, gives us insight into the prolonged effects impacting the affected communities, such as lengthy closures of businesses and insight into the types of internal and contents damage experienced by homeowners.  Our field reconnaissance plans are already underway and as those field observations come in, they will be fed into our process as well. The more information we have about the damage on the ground, the better our understanding of the full totality of losses from an event will be.

The Meteorology of Irma

20:00 UTC  Monday, September 11

Michael Kozar, senior modeler – Model Development, RMS

Steering the Storm

The synoptic patterns that steered Hurricane Irma this past week were complex. Like many intense storms that originate from an African easterly wave, Irma was steered westward across the tropical North Atlantic by the subtropical high to its north. As the storm moved into the Caribbean, a deep mid-latitude trough was sliding eastward across the East Coast of United States. The trough lifted poleward as Irma approached and a ridge steered Irma further to the west through the Turks and Caicos and the southern Bahamas, rather than allowing the storm to turn to the northwest towards the Mid-Atlantic United States.

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Irma’s Landfall in Florida Could Have Been Worse

19:00 UTC  Monday, September 11

Tom Sabbatelli, hurricane risk expert – RMS

Irma is a hurricane no more: following a Category 3 strength second Florida landfall near Marco Island, south of Naples, the storm’s intensity rapidly faded as it traveled to the north and west overnight. Irma now only maintains tropical storm strength as it crosses northern Florida. Expect to see further commentary on the storm’s rapid decay from my colleagues in the RMS HWind team later today.

Irma’s landfall and overnight track has allowed RMS to narrow yesterday’s stochastic event selection. A landfall eliminates offshore track scenarios that produce lower levels of onshore wind but higher levels of storm surge hazard along Florida’s west coast. Irma’s passage to the east of Tampa reduces the risk of significant storm surge levels and loss near Tampa Bay.

Initial damage reports indicate that damage may not be as severe as once feared, despite sizable roof damage in Naples and the Florida Keys.

As per the RMS Event Response process, our attention shifts from the regular, reactive stochastic event selections to a comprehensive interrogation of all causes of loss, both modeled and unmodeled. During Hurricane Harvey, my colleague Michael Young explained that one of the biggest challenges we face is collecting enough wind observations to create a complete picture of a storm’s wind field. Although our RMS HWind team have been collecting and processing data every three hours, we face these challenges with Irma as well. More data will become available in the coming days, which will enhance the accuracy of our wind field and surge modeling.

As part of our event response service, we have the following activities underway:

  • Reconnaissance will help us narrow the uncertainty around what could be a potentially significant contribution to loss from storm surge and flooding. These efforts do not need to wait for boots to hit the ground, though; we have teams already scouring high-resolution satellite images to detail the exact extent of the flood waters and the underlying exposure at risk.
  • Our RMS Field Recon team, fresh off their trips to Texas following Hurricane Harvey, are reactivating their reconnaissance plans. In the days ahead, their visits to cities across Florida will help reveal the depth of the flood waters and the extent of wind damage observed throughout the state.

You may have already seen that our colleague, Victor Roldan, has been documenting his experience riding out the storm from his home in Miami. Victor has reported that basements are flooded along Brickell Avenue, and area that was hard hit in Wilma, but wind damage is minimal.

Following a hurricane, power outages predominantly contribute to heightened business interruption and post-event loss amplification, which is possible in an event of this magnitude. As many as seven million customers in Florida may have been without power at one time, almost triple the peak outage observed during Hurricane Matthew.

Caribbean Impacts

Let’s not forget about the Caribbean islands left in Irma’s wake, still cleaning up and attempting to restore power and telecommunications several days after the storm’s initial impact. For instance, as many as one-quarter of customers in Puerto Rico remain without power four days after Irma’s passage. This prolonged restoration may prove to be a figure that could compound insured losses across the island. During their comprehensive review of the event’s lifecycle, RMS modelers will refine projections of the insured loss across all Caribbean islands, which is assumed will contribute materially to the total industry loss.

As the Event Response team now transitions from producing real-time event updates, they have many existing key data sources from which they can draw these critical observations. Ultimately, these insights will inform our official insured industry loss estimate, targeted for publication in approximately two weeks’ time.

Irma in Miami: A Personal Perspective

19:00 UTC  Sunday, September 10

Victor Roldan, regional director – Caribbean and Latin America, RMS

I live in Brickell, in the Financial District of Miami, in a condominium block of some 30 stories on Brickell Bay Drive and SE 12th Street, very close to downtown Miami. The block faces the waterfront, four blocks from the Four Seasons, with the Mandarin Oriental just over the water on Brickell Key. This is an area that the insurance industry knows well, with many RMS clients operating their Latin American and Caribbean business from offices in and around a square mile from here.

I have lived in Miami for the past 15 years, and it is a great city. Similar to most Miami residents, I have experienced hurricanes, I know the difference between a hurricane and a major storm, and in my view here from my block some ten floors up, and despite of being 130 miles away from the eye, this is the worst I have ever seen. My family is safe, they are out of the state.

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Set to Impact Entire West Coast of Florida, Irma Raises Significant Storm Surge Concerns

14:30 UTC  Sunday, September 10

Tom Sabbatelli, hurricane risk expert – RMS

As Hurricane Irma makes landfall in the Florida Keys as a Category 4 storm, the range of the storm’s possible future tracks in the latest RMS HWind forecast product is rapidly narrowing. It is now certain that Irma will track along Florida’s west coast and impact all major population centers from Naples to Tallahassee.

What is less certain is the length of time Irma’s center will remain over water, with some scenarios projecting a landfall near Fort Myers and others delaying the landfall until Irma reaches the state’s Big Bend region.

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Irma: Westward Forecast Shift Creates Déjà Vu With Matthew

15:00 UTC  Saturday, September 9

Tom Sabbatelli, hurricane risk expert – RMS

The westward-moving trend of recent Hurricane Irma forecasts continues, with the Florida Keys, southwest Florida, and Tampa potentially within Irma’s sights. Although the National Hurricane Center forecast “cone of uncertainty” still covers much of south Florida, 83 percent of the individual forecasts analyzed by the RMS HWind forecast product bring the hurricane within 50 nautical miles of Key West, indicating that the Miami metropolitan region may be spared the worst of Irma’s winds. 75 percent of these forecasts also indicate a passage within 50 nautical miles of Tampa (see “Selected Probabilities” in the figure below).

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Hurricane Irma: Latest HWind Track Probability Analysis

07:00 UTC  Saturday, September 9

Michael Kozar, senior modeler – Model Development, RMS

The latest track probability analysis of the current model forecasts has been released by the RMS HWind team, based on forecast models initialized at 12:00 UTC Friday, September 8. This new proprietary track forecast probability product from RMS HWind provides unique insight into the likelihood of where a storm might go, to help deliver insights beyond what is available from public sources.

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