Category Archives: Flood

The Age of Innocence

Professor Ilan Noy holds a unique ”Chair in the Economics of Disasters” at the Victoria University of Wellington, New Zealand. He has proposed in a couple of research papers that instead of counting disaster deaths and economic costs, we should report the “expected life-years” lost, not only for human casualties but also for the life-years of work that will be required to repair all the damage to buildings and infrastructure.

The idea is based on the World Health Organization’s Disability Adjusted Life Years (DALYs) lost through disease and injury (WHO 2013). The motivation is to escape from the distortion introduced by measuring the impact of global disasters in dollars, as loss from the richest countries will always dominate this metric. Noy’s proposal converts injuries into life-years lost, based on how long it takes for the injured to return to complete health, while also factoring the degree of permanent disability multiplied by its duration. This is topped up by a “welfare reduction weight” for all those exposed to a disaster. The final component of the index attempts to capture how many years of human endeavor is lost to recovering the buildings and assets destroyed in the disaster.

There is plenty to argue over in terms of how deaths, injury and damage should be combined. In particular, the assumption that additional work to rebuild a city, is the same as a shortened life, seems somewhat reductive.

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Northern California: Fire and Water

From major wildfires just over four months ago, and now major flooding, Northern California seems to leap from one perilous state to another. This time, rainfall from a “potent atmospheric river”, as described by the National Weather Service, caused flooding to over 3,000 properties in Sonoma County. This atmospheric river – a flowing column of condensed water vapor pumped up from the Tropics which can be up to 375 miles (603 kilometers) wide – started delivering rain and snow into the region late on Sunday, February 24.

The small town of Guerneville (pop. ~4,500) fared worst, reporting nearly 21 inches (529 millimeters) of rainfall in just 72 hours by 5 p.m. local time on Wednesday, February 27. The source of the town’s flooding was the Russian River, which flows from Mendocino County through to Sonoma County, reaching a maximum level of 45.5 feet (13.9 meters) at Johnson’s Beach, near Guerneville. This exceeded the defined 40 feet (12.1 meters) threshold for a major flood at this point, with local media reports stating that this is the worst flooding since New Year’s Day in 1997, when the river rose to 45 feet (13.7 meters). The nearby Napa River also crested at 26 feet (7.92 meters), one foot above the flood stage.

The town of Guerneville, which was originally built on a meander in the river, on February 27 was declared by the Sonoma County Sheriff’s Office “… [as] officially an island …” as all roads in an out of the town were flooded. 4,000 residents in both Guerneville and Monte Rio (pop. ~1,200) were under evacuation orders until Friday, March 1.

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Townsville in the Trough

Two people died and thousands of properties in the North Queensland coastal city of Townsville (pop. ~168,000) have been flooded, following an unprecedented rainfall event for the region, driven by a very active monsoon trough that is refusing to budge and a slow-moving tropical low dragging moist air down from the equator.

According to the Australian Government Bureau of Meteorology (BoM), Townsville has experienced record rainfall, with 1,153 millimeters (45 inches) – equivalent to a year’s worth of rainfall, falling over a seven-day period up to Monday, February 4.

To add to the city’s problems, on Sunday, February 3, the Ross River Dam at the mouth of Lake Ross, just five miles (eight kilometers) from the center of Townsville, reached 247 percent of its typical capacity, and a record-breaking height of 42.99 meters. With the river running through the city, the dam’s flood gates were opened allowing 1,900 cubic meters of water per second to flow downstream in order to prevent catastrophic dam collapse. Local authorities suggested this could have affected up to 2,000 homes in Townsville. More heavy rain is still forecast for the next few days and while the rainfall rate has eased the event is not over yet.

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Why Long-term NFIP Reform Is a Must

In my recent article in Reactions entitled Why Long-term NFIP Reform is a Must, I looked back at the flood events of 2018 through the lens of the need to reform the National Flood Insurance Program (NFIP). I made the argument that the NFIP is not effectively covering communities at risk or supporting the development of a private market that support that same goal.

Looking at Hurricane Florence, its impacts exemplify the type of event from which our communities need to recover from by leveraging the NFIP and a more robust private market. Both North Carolina and South Carolina each broke records for the amount of rainfall caused by a tropical cyclone. While the flooding due to storm surge was significant in areas such as New Bern, the majority of the flood damage was driven by that record rainfall in the inland areas.

The areas most impacted had the lowest take-up rates for flood insurance – the take-up rate for NFIP policies is less than two percent in the inland counties of North Carolina and South Carolina, while take-up rates in most coastal counties generally range from 10 to 25 percent. As a result, RMS analysis found that Florence caused US$3 billion to US$6 billion in uninsured losses, or about 4-5 times the losses expected to be incurred by the NFIP.

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Will California be “Puerto Rico” or “New Orleans”?

It is now exactly a quarter of a century, on January 17, 1994, since the last significant U.S. earthquake disaster. A previously unknown blind thrust ruptured beneath Northridge, in the San Fernando Valley north of Los Angeles. Casualties were fortunately modest (57 deaths) because the Mw6.7 shock happened at 4.30 a.m. local time, but the damage was significant – estimated as at least US$30 billion in 1994 prices, as the fault lay directly underneath the city.

Sooner or later California will experience another Mw6.7-7.5 earthquake disaster, in the highly populated San Francisco Bay Area or under sprawling greater Los Angeles. Year-on-year, while the probability rises, the proportion of the affected population with any previous disaster experience dwindles. When it happens, in all senses of the word – it will be a great shock.

One prediction is inevitable: after the next big Bay Area or LA earthquake, there will be large numbers of uninsured homeowners, landlords and small business owners looking for compensation. Given the high deductible and low take-up rates for earthquake insurance, as much as 90 percent of the residential losses will not be covered by insurance payouts: a far higher percentage than in 1994.

And the question is then, will the Federal Government response match that which followed Hurricane Maria, or can we expect it to be more like the aftermath of Hurricane Katrina. Or to put it another way: will California be “Puerto Rico” or “New Orleans”?

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U.S. Flood Insurance: Top Five Things You Should Know From 2018

As we move full steam in to 2019, it is worth remembering that some good progress was made during 2018 with regards to advancing the private flood insurance market in the U.S. – even though Congress struggled with reform of the National Flood Insurance Program (NFIP).

Here’s five takeaway points from the past year:

1. Extending the Extension: The NFIP saw numerous extensions and a few short lapses. Just before the end of the year, Congress reauthorized the NFIP until May 31, 2019 right before the government shutdown commenced on December 22, 2018. But decisions by FEMA during the last week of the year brought uncertainty to the housing and insurance industry as it dealt with changing guidelines on whether policies could be sold or renewed during the shutdown. Ultimately, the NFIP is still operating, but the back and forth of 2018 did not bolster confidence in the stability of the program and left many asking … will 2019 be the breakthrough year?

2. FEMA Boosts the Private Flood Market: Although Congress struggled to act on the NFIP, FEMA did, with technical changes that came into force on October 1, 2018, to attract new private carriers and help existing carriers who participate in the NFIP “Write Your Own” (WYO) program.

First – removing a “non-compete” clause for carriers operating within WYO, now allows WYO carriers to offer their own private flood coverage as well as NFIP policies, with the condition that these businesses are kept separate. Second – policyholders can now cancel their NFIP policy mid-term, before its expiration date when a policyholder has obtained a duplicate policy. In combination, these steps removed hurdles that were hindering carriers from offering new flood products and making it difficult for consumers to purchase those products from the private market.

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De-risking the City

I am in Wellington, New Zealand, looking out from a rainy hotel window high over the city, admiring the older wooden houses on the forested slopes. Below there are four to eight story office and retail buildings, a number of which are shrouded in scaffolding, still repairing damage from the 2016 Kaikoura earthquake. The earthquake epicenter was some distance from the city, but the pattern of fault ruptures propelled long period ground shaking into the heart of Wellington.

In 1848, only eight years after the city was founded, a Mw7.5 earthquake on the far side of Cook Strait, shattered the town’s brick buildings. The Lieutenant Governor, Edward Eyre, forgetting his official role as colonial booster, declared the “… town of Wellington is in ruins … Terror and despair reign everywhere. Ships now in port … (are) crowded to excess with colonists abandoning the country.” However, the tremors declined, and the town survived.

Many ordinary houses were rebuilt using wood instead of brick. As a result, they suffered far less damage from a larger and closer Mw8.2 earthquake in 1855, that struck at the end of a two-day public holiday to celebrate the fifteenth anniversary of the city’s formation. This ruined all the remaining brick and stone commercial buildings including churches, barracks, the jail, and the colonial hospital. However, the earthquake delivered a tectonic bounty, raising the city by one to two meters (3.2 to 6.5 feet), turning the harbor into new land for development.

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The Sum of Its Parts: Wildfire in Multi-Peril Catastrophe Bonds

Water, wind, and wildfire. It’s been a devastating three months for the U.S.

Total insured losses from Hurricanes Florence and Michael, and the Camp and Woolsey wildfires are estimated by RMS in the range US$18.6 billion to US$28 billion (see table below):

September 1 Hurricane Florence $2.8 – $5.0 billion
October 8 Hurricane Michael $6.8 – $10.0 billion
November 8 Camp Wildfire $7.5 – $10.0 billion
November 8 Woolsey Wildfire $1.5 – $3.0 billion
TOTAL INSURED LOSSES   $18.6 – $28 billion

While California wildfires may seem far removed from Atlantic storms, for capital markets investors the fires may make the difference to how 2018 is remembered. Insurance Linked Securities (ILS) eyes are now trained on multi-peril aggregate catastrophe bonds.

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Opportunities Ahead: A Review of the U.S. Private Flood Insurance Market

It is evident that the opportunities presented by the U.S. private flood insurance market are attracting attention across the industry, and interest in this market is growing. I was recently invited by insurance financial ratings specialist Demotech to be a panelist on their U.S. flood insurance webinar to give an overview and delve into these issues. Joseph Petrelli, president of Demotech was our host, with contributors Fred Karlinsky, co-chair of law firm Greenberg Traurig, and Meg Glenn, consulting actuary at Merlinos and Associates.

The webinar is definitely worth a viewing. Fred started the discussion with an overview of the current state of the private U.S. flood insurance market. The National Flood Insurance Program (NFIP) has towered over the market for the past 50 years, reporting US$3.5 billion of written premium and some 5.1 million flood policies as at the end of September 2018. Florida has 35 percent of all NFIP policies, followed by Texas with 12 percent, and Louisiana with ten percent, with NFIP policies in force in all U.S. states.

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The Lessons From “Last Year’s” Catastrophes

Catastrophe modeling remains work in progress. With each upgrade we aim to build a better model, employing expanded data sets for hazard calibration, longer simulation runs, more detailed exposure data, and higher resolution digital terrain models (DTMs).

Yet the principal way that the catastrophe model “learns” still comes from the experience of actual disasters. What elements, or impacts, were previously not fully appreciated? What loss pattern is new? How do actual claims relate to the severity of the hazard, or change with time through shifts in the claiming process?

After a particularly catastrophic season we give presentations around ”the lessons from last year’s catastrophes.” We should make it a practice, a few years later, to recount how those lessons became implemented in the models.

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