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Formerly Moody’s RMS
Future hurricanes are going to cost the U.S. more money and, if we don’t act to address this, it will leave the government struggling to cope. That is the finding of a recent Congressional Budget Office (CBO) report which put it starkly:
“…over time, the costs associated with hurricane damage will increase more rapidly than the economy will grow. Consequently, hurricane damage will rise as a share of gross domestic product (GDP)…”
The CBO identified two core drivers for the escalating costs: climate change, which will drive just under half of the potential increases in hurricane damages while just over half of damages will come from coastal development. The four main four variables that would have the most impact were identified as:
Using Catastrophe Models to Calculate the Future Cost of Hurricanes
To inform the CBO’s research and creation of a range of possible hurricane scenarios based on future changes to the four key variables, RMS hurricane and storm surge risk experts provided the CBO with data from the RMS North Atlantic Hurricane Model and Storm Surge Model.
Through RMS’ previous work with the Risky Business Initiative we were able to provide state specific “damage functions” which were used to translate possible future hurricane events, state-specific sea levels and current property exposure into expected damaged. While we usually produce loss estimates for catastrophes, we didn’t provide the CBO with estimated losses ourselves – rather we built a tool so the CBO could “own” its own assumptions about changes in all the factors – a critical aspect of the CBO’s need to remain impartial and objective.
Solutions to Increase Coastal Urban Resilience
The CBO’s report includes suggested policies that could decrease the pressure on federal spending. The polices range from global initiatives to limit greenhouse gas emissions to more direct mechanisms that could shift costs to state and local governments and private entities, as well as investing in structural changes to reduce vulnerabilities. Such approaches bring to the forefront the role of local resilience in tackling a global problem.
However, therein lies the challenge. Many of the options open to society to increase resiliency against catastrophes, could have a less positive effect on the economy. It’s an issue that has been central to the wider debate about reducing the impacts of climate change. Limiting greenhouse gas emissions has direct effects on the oil and gas industry. Likewise, curbing coastal development impacts developers and local economies. It has led states such as North Carolina to ban the use of future sea level rise projections as the basis for policies on coastal development.
Overcoming Political Resistance
Creating resiliency in U.S. towns and communities needs to be a multi-faceted effort. While initiatives to fortify the building stock and curb global climate change and sea level rise are moving ahead there is strong resistance from the political arena. To overcome the resistance, solutions to transition the economy to new forms of energy must be found, as well as ways to adapt the current workforce to the jobs of the future. City leaders and developers should partner to find sustainable growth initiatives for urban growth, to ease the fears that coastal cities will wither and die under new coastal use restrictions.
Initiating these conversations will go a long way to removing the barriers to success in curbing greenhouse gas emissions and limiting coastal growth. With an already polarised political debate on climate change this CBO report may provoke further controversy about how to deal with the factors behind the increase in future hurricane damage costs. Though one conclusion is inescapable: catastrophe losses are going up and we will all be footing the bill.
This post was co-authored by Paul Wilson and Matthew Nielsen.
13:30 UTC Thursday, September 7 Paul Wilson, vice president – Model Development, RMS This morning, the RMS Event Response team has started to assess major damage in the Caribbean caused by Hurricane Irma, which has become the strongest Atlantic hurricane on record. Our preliminary modeling for the Caribbean provides insights into the potential range of damage outcomes for each island that we understand to be impacted, including Antigua and Barbuda, British Virgin Islands, Anguilla, Saint Maarten and Saint Martin. It is already clear that damage ratios are high, particularly in Barbuda. As well as the devastating loss for these islands and their communities, RMS insurance industry clients will be focused on estimating the insured losses. Based on our analysis, RMS estimates the total insured values (TIV) in Anguilla to be around US$1.6 billion, with preliminary modeling indicating the potential for 50 percent damage. Barbuda has lower insured exposure, at less than US$200 million, but has experienced even more severe damage, potentially upwards of 90 percent. Saint Maarten and Saint Martin have approximately US$6.6 billion TIV together, and could have experienced a 30 percent loss. Of course, this is all preliminary and information from the ground remains uncertain. More information will come to light in the near term as reconnaissance efforts continue and the islands and their communities begin the long recovery process. RMS believes that due to the continuing and frequent evolution of the forecasts and uncertainty around an eventual U.S. landfall later this weekend, it is too early to begin specifically modeling Irma’s potential industry-wide impact on the U.S. However, RMS clients will be able to use our analytics to assess how the hurricane will affect their specific book of business and areas of exposure concentration, relative to the current forecast. Clients wishing to do this are advised to refer to earlier Irma-related posts on this blog, which provide guidance on analyzing the range of possible outcomes. RMS is keen to provide modeling for U.S. impacts as early as possible. At this stage, we anticipate that the situation and forecasts will be sufficiently clear by tomorrow (Friday) for this to happen. Stay tuned.…
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. 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.…
Paul Wilson is a vice president in the RMS model development team leading the ongoing development of the RMS North Atlantic Hurricane and Storm Surge Models. Paul has a MSc. in Physics and a Ph. D. in Atmospheric Physics both from Imperial College London where his research focused on the application of extreme value statistics in the climate system and the impact of long‐ranged correlations on extreme events.
