Tag Archives: sea-level rise

After Matthew: Putting a Value on Natural Coastal Defenses

As coastal communities in the U.S. continue to clear up and count the costs following Hurricane Matthew, we already know things could have been much worse. So, had the storm not weakened and veered off into the Atlantic but made direct landfall as a major hurricane would the infrastructure and coastal defenses along the south-east coast of the U.S. have held up? Or could we have been better prepared? One element often overlooked is that of natural coastal defenses, such as salt marshes and wetlands.

While it’s still early days, it’s clear these natural ecosystems played a role in shielding Georgia and the Carolinas from some of the damage that Matthew inflicted. We can see these effects in the details of our reconstructions of Matthew’s storm surge footprint, but also because of some related research we’re publishing just today that for the first time puts an actual economic value on the protective effect of natural coastal defenses.

Matthew’s surge was greater than 6 feet (1.8m), according to the National Weather Service, when it made landfall about 55km northeast of Charleston on October 8 as a Category 1 storm. Wetlands – such as those around Savannah and Charleston – would have taken the brunt, slowing down the force of the water and offering urban areas some protection against inundation from the sea. Because of the new study we’re now able to express the value of this protection in dollars.

Hurricane Sandy flooding

The study, Coastal Wetlands and Flood Damage Reduction was led by the University of California, Santa Cruz, The Nature Conservancy, and the Wildlife Conservation Society in partnership Guy Carpenter, Lloyd’s, and RMS. We contributed cutting-edge modeling expertise. The research looks back to Hurricane Sandy, which hit New York and New Jersey particularly hard in 2012, although its effect was felt across large swathes of the Eastern Seaboard. The study concluded that:

  • Over $625m in property damage was avoided, with coastal wetlands providing a 10% reduction in property damages across states on average;
  • In New Jersey, wetlands prevented an estimated $425m in losses;
  • The protective value of wetlands during Sandy was nearly 30% in Maryland.

Although the protections offered by features such as wetlands, salt marshes and barrier reefs are already captured by RMS catastrophe models, this was the first time we’d extracted, isolated and measured their unique role. This capacity to better understand and quantify the economic value of natural defenses is a critical tool for policymakers, conservationists and the insurance industry, particularly in regions where wetlands are being degraded.

At RMS we anticipate that macro trends, such as sea level rise, will inevitably elevate the role of natural wetlands in the future. While the jury is still out on how climate change will impact the frequency and severity of hurricanes in the North Atlantic, the Intergovernmental Panel on Climate Change (IPCC) anticipates we will see more weather extremes by the end of the century.

In its 2013 report the IPCC predicted that it was “more likely than not” that the number of the most intense storms will increase in certain parts of the world. And even without any significant change in windstorm severity, sea level rise can be expected to drive up coastal storm losses.

According to Risky Business: The Economic Risks of Climate Change in the United States, a 2014 initiative led by former New York Mayor Michael Bloomberg and former U.S. Treasury Secretary Henry Paulson (and supported by RMS modeling), higher sea levels combined with storm surge will increase the average annual cost of coastal storms along the Eastern Seaboard and the Gulf of Mexico by $2 billion to $3.5 billion in just 15 years.

Better understanding the financial benefits of natural coastline features will ultimately help communities build greater resilience to future storms and floods and to attract more funding for sea defense conservation and restoration. The necessary response may be driven by science and gradual sea level rise. Or it may come only after major catastrophes have done their damage in the future.

Calculating the cost of “Loss and Damage”

The idea that rich, industrialized countries should be liable for paying compensation to poorer, developing ones damaged by climate change is one that has been disputed endlessly at recent international climate conferences.

The fear among rich countries is that they would be signing a future blank check. And the legal headaches in working out the amount of compensation don’t bear thinking about when there are likely to be arguments about whether vulnerable states have done enough to protect themselves.

The question of who pays the compensation bill may prove intractable for some years to come. But the scientific models already exist to make the working out of that bill more transparent.

Some context: in the early years of climate negotiations there was a single focus—on mitigating or (limiting) greenhouse gas emissions. Through the 1990s it became clear atmospheric carbon dioxide was growing just as quickly, so a second mission was added: “adaptation” to the effects of climate change.

Now we have a third concept: “Loss and Damage” which recognizes that no amount of mitigation or adaptation will fully protect us from damages that can’t be stopped and losses that can’t be recovered.

Sufficient self-protection?

The Loss and Damage concept was originally developed by the Association of Small Island States, which saw themselves in the frontline of potential impacts from climate change, in particular around sea-level rise. By some projections at least four of the small island countries (Kiribati, Tuvalu, the Marshall Islands, and the Maldives) will be submerged by the end of this century.

Countries in such a predicament seeking compensation for their loss and damage will have to answer a difficult question: did they do enough to adapt to rising temperatures before asking other countries to help cover the costs? Rich countries will not look kindly on countries they deem to have done too little.

If money were no object, then adaptation strategies might seem limitless and nothing in the loss and damage world need be inevitable. Take sea level rise, for example. Even now in the South China Sea we see the Chinese government, armed with strategic will and giant dredgers, pumping millions of tons of sand so that submerged reefs can be turned into garrison town islands. New Orleans—a city that is 90% below sea level—is protected by a $14 billion flood wall.

But, clearly, adaptation is expensive and so the most effective strategies may be beyond the reach of poorer countries.

Calculating the cost with models

Through successive international conferences on climate change the legal and financial implications of loss and damage have seen diplomatic wrangling as richer and poorer nations argue about who’s going to foot the bill.

But we can conceptualize a scientific mechanism for tallying what that bill should be. It would need a combination of models to discriminate between costs that would have happened anyway and those that are the responsibility of climate change.

Firstly, we could use “attribution climate models” which run two versions of future climate change: one model is based on the atmosphere as it actually is in 2016 while the other “re-writes history” and supposes there’s been no increase in greenhouse gases since 1950.

By running these two models for thousands of simulation years we can see the difference in the number of times a particular climate extreme might happen. And the difference between them suggests how much that extreme is down to greenhouse gas emissions. After this we will need to model how much adaptation could have reduced loss and damage. An illustration:

  • A future extreme weather event might cause $100 billion damage.
  • Attribution studies show that the event has become twice as likely because of climate change.
  • Catastrophe models show the cost of the damage could have been halved with proper adaptation.
  • So the official loss and damage could be declared as $25 billion.

While hardly a straightforward accounting device it’s clear that this is a mechanism—albeit an impressively sophisticated one—that could be developed to calculate the bill for loss and damage due to climate change.

Leaving only the rather thorny question of who pays for it.

Mangroves and Marshes: A Shield Against Catastrophe?

“We believe that natural ecosystems protect against catastrophic coastal flood losses, but how can we prove it?”

This question was the start of a conversation in 2014 which has led to some interesting results. And it set us thinking: can RMS’ models, like the one which estimates the risk of surge caused by hurricanes, capture the protective effect of those natural ecosystems?

The conversation took place at a meeting on Coastal Defenses organized by the Science for Nature and People Partnership. RMS had been invited by one of our leading clients, Guy Carpenter, to join them. The partnership is organized by The Nature Conservancy, the Wildlife Conservation Society, and the National Center for Ecological Analysis and Synthesis.

We were confident we could help. Not only did we think our models would show how biological systems can limit flood impacts, we reckoned we could measure this and then quantify those benefits for people who calculate risk costs, and set insurance prices.

RMS’ modeling methodology uses a time-stepping simulation, which relies on a specialist ocean atmosphere model, allowing us to evaluate at fine resolution how the coastal landscape can actually reduce the storm surge—and in particular lower the height of waves. In many buildings the real weakness proves to be the vulnerability to wave action rather than just the damage done by the water inundation alone.

The first phase of RMS’ work with The Nature Conservancy is focused on coastal marshes as part of a project supported by a Lloyd’s Tercentenary Research Foundation grant to TNC and UC Santa Cruz. Under the supervision of Paul Wilson, in the RMS model development team, and working with Mike Beck who’s the lead marine scientist for The Nature Conservancy, the project is focused on the coastlines, which were worst impacted by the surge from Superstorm Sandy. The irregular terrain of the marsh and resulting frictional effects reduce the surge height from the storm. Our work is showing that coastal marshes can reduce the flood risk costs of properties, which lie inland of the marshes by something in the range of 10-25%.

Tropical Defenses

So, that’s the effect of coastal marshes. But what about other biological defenses such as mangrove forests and offshore reefs (whether coral or oyster reefs)? Further research is planned in 2016 using RMS models to measure those likely benefits too.

But here’s a rather intriguing (if unscientific) thought: is there a curious Gaia-like principle of self-protection operating here in that the most effective natural coastal protections—mangroves and coral reefs—are themselves restricted to the tropics and subtropics, the very regions where tropical cyclone storm surges pose the greatest threat? Mangroves cannot withstand frosts and therefore in their natural habitat only extend as far north along the Florida peninsula as Cape Canaveral. And yet in our shortsightedness humans have removed those very natural features, which could help protect us.

Paradise Lost?

Between 1943 and 1970 half a million acres of Florida mangroves were cleared to make way for smooth beaches—those beautiful and inviting stretches of pristine sand which have for decades attracted developers to build beachfront properties. Yet, paradoxically, that photogenic “nakedness” of sand and sea may be one of the things, which leaves those properties most exposed to the elements.

With the backing of The Nature Conservancy it seems mangroves are making a comeback. In Miami-Dade County they’re examining a planting program to protect a large water treatment facility. Of course biological systems can only reduce part of the flood risk. They can weaken the destructive storm surge but the water still gets inland. To manage this might require designing buildings with water-resistant walls and floors, or could involve a hybrid of grey (manmade) and green defenses. And if we can reduce the destructive wave action, that might allow us to build earth embankments protected with turf in place of expensive and ugly, but wave-resistant, concrete flood walls.

On March 28, 2015 The Nature Conservancy organized a conference and press briefing in Miami at which they announced their collaboration with RMS to measure the benefits of natural coastal defenses. The coastline of Miami-Dade, already experiencing the effects of rising high tide sea levels, presents real opportunities to test out ways of combatting hurricane hazards and stronger storms through biological systems. Our continued work with The Nature Conservancy is intended to develop metrics that are widely trusted and can eventually be adopted for setting flood insurance prices in the National Flood Insurance Program.

Water, Water Everywhere: The Effect of Climate Change on Florida

Climate change has been a hot topic in Florida for quite some time. Just last week, President Obama visited the Everglades to discuss the need to address climate change now.

RMS partnered with the Risky Business Initiative to quantify and publicize the economic risks the United States faces from the impacts of a changing climate. In Florida, there is a 1% chance that by 2100, 17% of current Florida property value will be underwater, causing a $20.7 billion increase in annual flooding losses, and $681 billion worth of property loss due to sea level rise.

Bob Correll, principal at the Global Environment Technology Foundation leading the Center for Energy and Climate Solutions: Just last week a report commissioned by the G7 was released to the foreign ministers, including Secretary of State John Kerry, titled “A New Climate for Peace: Taking Action on Climate and Fragility Risk.” It outlines seven things we need to worry about as the changing climate becomes more evident, including sea-level rise and coastal degradation.

Brian Soden, atmospheric sciences professor, University of Miami: Sea level rise is the impact of climate change that I’m most worried about. The rate of sea level rise has almost doubled in Miami over the past decade. We are the canary in the coal mine. If you increase sea level by just three feet, which is in the middle of the range of projections, the Everglades would pretty much be gone.

Robert Muir-Wood, chief research officer, RMS: At RMS we attempt to be completely objective about risk. We attempt to take the full scientific understanding and translate it into information about risk and the associated cost. Financial markets are smart. Future risk is already starting to affect the current value of property.

Matthew Nielson, senior director of global governmental and regulatory affairs, RMS: Regulations generally fall into two buckets: curbing emissions so we can temper this problem and thinking about future development and planning to account for future sea level rise.

But what do we do now? There are a lot of things to think about – one is drainage issues. Another is access to fresh water.

Paul Wilson, senior director of model development and lead modeler for the Risky Business Initiative, RMS: It will be interesting to see how things play out – if the response will come as a result of science and gradual sea level rise, or only after a major catastrophe.

Muir-Wood: It’s very hard for communities to take action until they’ve had a disaster. As we’ve seen with Hurricane Katrina and Superstorm Sandy, suddenly there’s all sorts of enlightened thinking about future risk, such as investments in sea defenses. Unfortunately, it often takes a catastrophe to impact on decisions about mitigating risk.

Paul VanderMarck, chief products officer, RMS: You can only build a sea wall so high before it’s not worth living here anymore.

Soden: The biggest question I ask myself is “when do I sell?”

Correll: A year ago the WEF came to us and asked if we would be willing to work with their young global leaders. We had the head of all Shell operations in the Middle East. We had the former head of GE operations in India. They are getting the message. They walked away saying, “we need to rethink our business plans to plan for the future.”

Modeling provides a lot of the underpinnings to make decisions that are outside of the norm. The past is no longer a prologue to the future.

Rising Storm Surge Losses in the U.S. Northeast

Co-authored by Anaïs Katz and Oliver Withers, analysts, Capital Market Solutions, RMS

A recent article in Nature Communications, picked up by the BBC, identified a record mean sea-level rise of 5” (127mm) along the coastline north of New York City during 2009-10. Sea levels fluctuate between years; a swing of this size, however, was unprecedented.

This extreme rise in 2009-2010 has been attributed to the downturn of a major current called the Atlantic meridional overturning circulation (AMOC). As changes to sea levels are sensitive to multiple factors, there is volatility around this increase. The AMOC is one of the ocean’s dynamics that is known to have greatly changed over time. It has been shown that weakening and variation of the AMOC is linked to increases of greenhouse gas emissions.

Sea level rise is one of the most tangible and certain consequences of a warmer climate. Climate models suggest that even if greenhouse gas emissions were reduced sea levels will continue to increase. Such a dramatic fluctuation, as seen in 2009-10, highlights the potential for significantly elevated storm surge risk in the region and raises the question what will the impact of future long-term sea-level rise have on storm risk.

A study by Kopp et al. has attempted to predict probability bands for sea rise. The figure below shows the distribution of expected sea-level rise at New York City’s Battery Park throughout the 21st century. The 50th percentile projection of sea level rise is represented as the red line in the figure. Also shown are the maximum rises in sea levels associated with previous hurricane storm surges.

Based on RMS’ estimate of the impacts from hurricanes on residential and commercial property in the Northeast US (from New Jersey north), the 2010 estimate of storm surge contribution to hurricane losses is about 10%. Even where the activity of hurricanes does not change, sea level rise will increase the damage associated with hurricane storm surges. Based on Kopp’s estimates of sea level rise, by 2100 surge losses would contribute about 25% of total hurricane losses.

The largest recent hurricane loss occurred on October 29th 2012, when Superstorm Sandy made landfall near Atlantic City, NJ. Based on the RMS best loss estimate, Sandy caused insured losses between $20 and $25 billion, with much of the damage due to storm surge, not wind.

In terms of a simple extreme value analysis, the storm surge caused by Superstorm Sandy combined with the tide at New York City’s Battery Park was approximately a 1-in-450 year return period for that location. Based on sea level rise alone, this surge and tide combination at this location would move closer to a 1-in-100 year event by the end of the century. The figure below shows the return periods for a storm surge as high as Sandy’s occurring at New York City’s Battery Park, under different sea-level assumptions.

A direct result of increasing amounts of greenhouse gases in the atmosphere will be an increase in sea surface temperatures. While increased sea surface temperatures are likely to cause changes to the activities and intensities of hurricanes, there is no consensus among climate modelers as to the magnitude and direction of these changes. For this reason, the figure below does not consider potential changes in hurricane activity, but focuses solely on sea-level rise, for which there is much more of a general agreement.

While the impacts of climate change remain much debated, changes in loss potential will have material effects on the risk to insurers. With the appreciation of the significance of climate change coming to the fore, the next decades will pose a research challenge for the insurance industry, as to how to incorporate evidence for changes in the level of risk.

This post was co-authored by Anaïs Katz and Oliver Withers. 

Anaïs Katz

Analyst, Capital Market Solutions, RMS
As a member of the advisory team within capital market solutions, Anaïs works on producing capital markets’ deal commentary and expert risk analysis. Based in Hoboken, she provides transaction characterizations to clients for bonds across the market and supports the deal team in modeling transactions. She has woked on notable deals for clients such as Tradewynd Re and Golden State Re. Anaïs has also helped to model and develop her group’s internal collateralized insurance pricing model that provides mark to market prices for private transactions. Anaïs holds a BA in physics from New York University and an MSc in Theoretical Systems Biology and Bioinformatics from Imperial College London.

RMS and Risky Business: Modeling Climate Change Risk

Earlier this year, RMS partnered with the Risky Business Initiative, a year-long effort co-chaired by former New York City Mayor Michael Bloomberg, former Treasury Secretary Henry Paulson, and Farallon Capital founder Tom Steyer to quantify and publicize the economic risks the United States faces from the impacts of a changing climate.

The report, which launched today, has been widely covered in publications ranging from Fortune and The Wall Street Journal to The Hill. It builds on the best available scientific evidence, including both the Intergovernmental Panel on Climate Change (IPCC) and National Climate Assessments, to highlight the risks and cost a changing climate will bring to the business and financial communities the report addresses.

The report details the impact of climate change at the county, state, and regional level; it is the highly vulnerable coastal regions exposed to rising sea levels and the potential for changes in storm activity where RMS has been privileged to contribute our expertise and modeling.

RMS North Atlantic hurricane and storm surge models are based on a base climatology defined by the historical record of storms and represents the current state of the climate. Sea-level rise will increase the risks associated with storm surges and a changed climate may lead to changes in the frequency and intensity of hurricanes the impact the U.S. East Coast and Gulf States.

To address the potential impacts of such changes, RMS pulled together a cross-functional team from our model development group and consulting teams to implement the changes in storm frequency and sea-level rise in our model and analyze the impacts against our database of U.S. property exposure. The team worked with leading climate and hurricane experts and the Risky Business team to understand the latest scientific thinking and gather the information needed to adjust our model from the peer review literature.

In the space of just a few months, the team developed nearly 20 versions of our storm surge hazard model to reflect the expected increase in sea-level rise through the coming decades up to the year 2100, as well as the range of uncertainty captured by the latest IPCC assessment. In addition, the team developed several hundred alternative scenarios of hurricane frequency to model how hurricane frequency may evolve with different “Representative Concentration Pathways” used by the IPCC to describe possible climate futures, possible depending on how much greenhouse gas is emitted in the years to come.

The results of RMS’ analysis, quantifying the changes in losses to hurricanes and storm surges through the coming century have been fed into the Risky Business econometric modeling to quantify the cost to the U.S. economy.

Our analysis highlights that the sea-level rise alone – one of the most certain aspects of a warmer climate – has the potential to more than double the economic losses to hurricanes and storm surges by the end of the century if left unchecked.

RMS, along with Risky Business, recognizes that the analysis is not definitive; however, the potential costs can be quantified and the risks of in-action assessed. This collaboration has developed an invaluable database of information on the impacts climate change on hurricane risk, and by extension, the U.S. economy as a whole.

Just as the Risky Business Initiative hopes to promote a non-partisan discussion on the risks of climate change within the business and financial communities as a whole, RMS hopes that this work and our continued collaboration with the scientific community will lead to continued dialogue in the (re)insurance and catastrophe loss modeling community on the impact of climate change to our business.

Visit http://riskybusiness.org/ to view the full report.