Experts warn against complacency as U.S. endures hurricane drought

by Artemis on May 6, 2015

It’s been nine years since a Category 3 or higher hurricane last made landfall on the U.S. coast, a prolonged absence the country hasn’t witnessed since the 1860s, but experts have warned against the dangers of complacency.

A new report, co-authored by NASA Goddard Institute for Space Studies researcher, Timothy Hall and Kelly Hereid, a researcher at reinsurer ACE Tempest Re, has been published in Geophysical Research Letters, examining the long, benign major hurricane activity that has consumed the U.S. in recent years.

“The longest period with no major hurricanes before this was 8 years in the 1860s,” explained Hall.

The study concludes that a drought of this length occurs roughly every 177 years, and “that the nine years drought is largely dumb luck,” adding that the chance of a major hurricane making U.S. landfall the following year is “a little bit like tossing a coin. Sort of a weighted coin, but we compute the odds of a major hurricane in any given year is just about 40%.”

To conduct the research Hall and Hereid used a computer model that accounts for the major factors known to create or subdue a hurricane, then, simulated a thousand times the years 1950-2012 to see the number of times hurricane drought or landfall conditions impacted 19 U.S. coastal states.

Despite a lack of major hurricanes making landfall in the states, less intense storms that induce potentially devastating storm surge have occurred, most notably with Hurricanes Issac and Sandy in 2012, notes the report.

And this is where potential problems can arise explains Hall, “It’s complacency,” he advised.

It’s no secret that ample capacity and intense competition in the global reinsurance market has caused rates across various business lines to soften, “but it is likely that a long period without costly wind-driven losses has helped depress premiums and rates by causing a perception of reduced U.S. Hurricane hazard,” stresses the report.

This raises an interesting and important point. To avoid losing a share in the market insurance, reinsurance and catastrophe bond players are forced to either lower their rates or exit the market, as customers call for reduced premiums amidst perceptibly lower risks than previously thought.

However, as international asset values increase and migration to coastal regions across the U.S. spikes, the threat of large insured losses, even from a Category 1 storm, hikes too.

“If this perception is misplaced, then a new major landfall will cause disproportionate hardship,” explains the report.

Forecasters have predicted another below-average Atlantic hurricane and tropical storm season for 2015, as we reported recently at Artemis, but as highlighted by Hall and Hereid’s study and also in a recent report by ratings agency Standard & Poor’s (S&P), factors such as rising sea-levels, migration and increased asset values can ensure high damages from weaker storms.

So it’s clear from the study that there isn’t “a major regime shift that’s protecting the U.S.,” from hurricanes, explained Hall. And that, as far as the research suggests, the benign hurricane season is purely chance.

But the warning against complacency is a valid one, and equally as important. After nearly a decade without any major storms making landfall in the U.S. some people may be tempted to fall into a false sense of security.

Either refusing to purchase protection with the belief that a significant sized storm simply won’t happen, or doesn’t happen anymore from a consumer perspective, or lowering rates so much to fight off competition that when a large event does make landfall the resulting costs are fatal.

But studies like Hall and Hereid’s; along with advanced catastrophe risk modelling tools are vital for increasing the world’s understanding of natural perils and the resulting consequences to societies and economies globally.

A greater understanding of the threat posed by hurricane risk and whether lull’s in activity are the new normal, or simply chance, are vital to reinsurance and ILS players, who need to be as well-informed as possible in order to allocate capital to U.S. wind risk.

And it’s important to remember that less frequent, severe storms doesn’t necessarily mean lower insured/economic losses, particularly in an increasingly interconnected and developed world.

Also read:

Local factors could intensify hurricanes in 2015, despite low forecasts.

2015 Atlantic hurricane season forecasts well below averages.

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