The state of Florida remains the most exposed to hurricane driven storm surges, with a huge 2.9 million homes in the state considered exposed which together have a combined reconstruction cost value of a stunning $603 billion.
As a result, Florida is naturally not just ground zero for reinsurance risk premiums and competition in this market, it is for exposure to the peak peril of hurricane related risks as well.
Across the United States hurricane storm surge risks see 7.3 million homes at risk of damage, together amounting to an enormous $1.8 trillion in potential reconstruction costs, according to the latest storm surge report from Corelogic.
In insurance and reinsurance terms, the market’s exposure to storm surge is significant, with some hurricanes seeing a considerable proportion of their damages attributed to surges.
Storm surge exposures are also covered by catastrophe bond transactions and other insurance-linked securities (ILS) or collateralised reinsurance arrangements, making the growing coastal value-at-risk something the market needs to keep tabs on.
“It is essential to understand and evaluate the total hazard exposure of properties at risk of storm surge prior to a hurricane event, so insurers can better protect and restore property owners from financial catastrophe,” commented Dr. Tom Jeffery, senior hazard scientist at CoreLogic. “Damage from storm surge and inland flooding has proven to be far more destructive than wind in recent years, so we cannot rely on the hurricane category alone to give us a sense of the potential loss. A Category 5 hurricane in an area with few structures may be far less devastating than a Category 1 hurricane in a densely populated area.”
The eastern and southeastern seaboard holds the lions share of the storm surge exposure, with 57% of homes at risk of storm surge flooding and 62.7% of the total reconstruction cost value (RCV) located on the Atlantic coast, accounting for over 4.1 million homes at risk of storm surge with an RCV of more than $1.1 trillion.
The Gulf Coast, meanwhile, is home to 43% of the homes at risk and 37.3% of the total RCV, or almost nearly 3.1 million homes that are considered at risk from hurricane storm surges amounting to more than $668 billion in potential exposure to total destruction damage.
Florida remains ground-zero though, when it comes to storm surge exposure, with its 2.9 million homes at risk with a reconstruction cost value amounting to $603 billion.
Louisiana is the state that is second most exposed to storm surge flooding, with over 847,000 at-risk homes and the third highest RCV at in excess of $202 billion.
New York is third, as the density of the residential population near the coast makes it particularly vulnerable to flooding despite hurricane events being less frequent. New York ranks has the third highest number of homes at risk (over 564,000) and comes second in terms of RCV (over $240 billion).
Texas is fourth, with more than 561,000 at-risk homes and the fifth-highest RCV at over $113 billion.
In terms of metropolitan areas, New York City and Miami hold the greatest exposure to storm surge.
The New York, Newark and Jersey City metro area has more than 831,000 homes at risk and a combined RCV of over $330 billion.
Demonstrating the importance of property values, although the number of homes at risk in NYC is similar to Miami, the RCV for NYC homes at risk is double Miami’s metro area RCV.
The Miami, Florida metro area, which includes Miami, Fort Lauderdale and West Palm Beach, Florida, is second with 827,000 homes at risk and an RCV of $166 billion.
The overall exposure of homes to storm surge is up $200 billion in a year, from $1.6 trillion in Corelogic’s 2018 report to $1.8 trillion this year, thanks largely to an additional 400,000 properties being added as the firm now reports on multi-family structure exposure as well.
Of course, no single hurricane is going to generate a storm surge that could create the losses implicated by the reconstruction cost values, but they do provide a useful indicator for where reinsurance and ILS market underwriters need to be focusing on ensuring the premiums they write business at are commensurate with the level of risk they could face.
With rising sea levels a widely accepted side-effect from climate change and an expectation that with these the storm surge risk from hurricanes will increase as well, it’s expected that insurance and as a result reinsurance will become more costly in the most exposed regions and to the lowest-lying properties that carry the greatest storm surge risks.
With the 2019 Atlantic hurricane season officially starting this weekend and underwriters still finishing off their June 1 reinsurance renewals in Florida, it’s important to keep informed on these exposure changes in the state.
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