RMS releases U.S storm surge dataset. Useful to cat bonds?

Risk Management Solutions (RMS) has announced the release of its U.S. Storm Surge Hazard Dataset today which will allow underwriters to better determine properties at risk of storm surge. Data is available across all 21 U.S. states with exposure to hurricanes and tropical storms and Washington D.C. and RMS say this will help underwriting decisions on pricing and risk selection be more confidently made.

“Our new storm surge data couldn’t be more relevant for the market at this time,” said John Kapitan, senior vice president of Underwriting and Data Solutions at RMS. “The Storm Surge Dataset is an indispensable tool at each stage of underwriting, from automated processing for personal lines to high-touch large commercial and industrial applications, and will help insurers make quick, well-informed decisions on storm surge risk.”

Interestingly the data will allow re/insurers to identify properties at risk of storm surge on average every 100, 250, 500 and 1,000 years for multiple different bands of flood depth. The dataset is derived from the latest RMS U.S. hurricane model (Version 11.0) and is provided at detailed resolution of up to 100 meters.

“Used in combination with other hazard data, our Storm Surge Dataset enhances the risk selection process and provides a more complete view of risk,” Mr. Kapitan added. “This unique perspective gives our clients a more detailed understanding of the drivers of hurricane loss and, because the information is based on the same data, provides consistency from hazard information through to modeled loss.”

RMS say that the data can be used to identify and monitor storm surge accumulation “hot spots”. This is where it could have applications for the catastrophe bond market. It seems that this dataset would allow a sponsor to identify areas where the risk of storm surge is so high that it would be more likely to reach trigger points on an insurance-linked securities transaction. This could allow cat bonds to be structured with much more focus on storm surge risk, which has in the past been considered a bit of an unknown and even been excluded from certain transactions which focus on windspeed and the resulting damage.

In order to be able to really cover hurricane risks, cat bonds should attempt to cover storm surge risks and this new dataset should help ILS issuers and structuring firms to make more informed decisions when it comes to coverage. Of course a quality storm surge model could also allow for a cat bond to be issued which only covered storm surge inundation risk and ignored the wind aspect of a storm. As our climate warms, and if reports are to be believed, storm surge risk could rise significantly over coming decades making this an even more important risk to manage.