New analysis by catastrophe risk modelling and management firm RMS, reveals that rising sea levels signal a potential rise in economic and insured losses from hurricane-driven storm surge across the U.S. coastline.
The new study examines six U.S. coastline cities’ current exposure to storm surge activity and how this is expected to change through to the year 2100, so the next 85 years.
The cities included were Baltimore, Boston, Miami, New Orleans, New York and Tampa and, the study focuses on the potential for each region to experience a storm surge event that will cause at least $15 billion in economic losses in a given year.
Currently, notes RMS, Tampa has a 1-in-80 chance of experiencing economic losses of at least $15 billion from such an event, the most likely of the cities in the research and followed by Miami, which has a 1-in-125 chance.
Next comes New York with a 1-in-200 chance and then New Orleans, which is currently predicted to have a 1-in-400 chance of experiencing economic losses of this level from hurricane-driven storm surge. Both Baltimore and Boston have a slimmer than 1-in-1 million chance of witnessing such an event currently, and through to 2100, states the report.
Only in relatively recent times has the insurance, reinsurance and insurance-linked securities (ILS) industry began to understand just how dangerous and costly a storm surge could be. Often with a hurricane the powerful winds and resulting storm surge can occur far from the actual storm, frequently causing more economic and insured losses than the actual hurricane itself.
And now, as sea levels continue to rise along with asset and property values along U.S. coastline cities, the potential threat in coming years appears to be significantly growing.
By the year 2100, predicts RMS, Tampa and Miami will have a 1-in-30 chance of experiencing a storm surge event causing economic losses of least $15 billion. This is followed by New York, which shows a 1-in-45 chance, and then New Orleans, which has a 1-in-315 chance of experiencing a $15 billion storm surge.
With New Orleans as the exception, due to advanced flood defence systems that are in place, which RMS has incorporated into its predictions to improve along with rising sea levels, the potential increase in likelihood for the other cities is significant.
Chief Research Officer at RMS, Dr. Robert Muir-Wood commented; “Looking forward, New Orleans is faced with a double-whammy. The land on which the city is built is sinking, even faster than the sea levels are rising. As a result, the rise in flood heights is much faster than at any other city along the U.S. coast.”
But as noted earlier, advanced flood prevention systems in the region mean that a $15 billion storm surge event is far more likely in Tampa, New York and Miami.
Highlighting just how damaging a storm surge can be, and echoing the point made earlier about a surge potentially being more costly and dangerous than the storm itself, Muir-Wood said; “Hurricane Katrina was the first time in decades that more than 50 percent of losses from a hurricane resulted from storm surge.
“Katrina can be seen as a milestone in the long-term shift from ‘wind’ to ‘water’ as the main driver of hurricane loss. In 2012, Superstorm Sandy had more than 60 percent of its losses caused by storm surge flooding.”
From the analysis RMS predicts that by the year 2100 storm surge will account for more than half of economic losses that result from hurricanes across U.S. hurricane-exposed states, which represents an opportunity for the insurance, reinsurance, ILS and cat bond sector.
Catastrophe modelling advances surrounding storm surge are beginning to emerge, with the release of a number of new storm surge models for the U.S. in recent years.
And as modelling capabilities improve and investor and market understanding and acceptance of storm surge as a stand-alone and hurricane-driven risk improve also, so to should the ability and willingness of re/insurers and ILS players to innovate and provide adequate coverage for such events.