Resilience: Higher Ground in the Face of Disaster
By Scott G. Stephenson
It was a season to remember—with an outcome of loss and destruction that many would rather forget. The season for hurricanes in the United States in 2017 was the first in more than a century in which ten sequential Atlantic storms reached hurricane strength. The now-familiar names Harvey, Irma, Jose, and Maria will be remembered by millions of Americans as life-altering natural catastrophes. Scenes from Maria’s onslaught in Puerto Rico show an island of more than 3 million residents almost completely without power. Images from Harvey’s path through Houston remind us that multibillion-dollar wind and water damages can occur outside the boundaries of flood plains. Across Texas, Florida, and Louisiana, the tale of this season is being told in terms of lives lost, homes and buildings destroyed or damaged, and communities still struggling to recover.
But though 2017 now is waning, our memories should not. We must recognize that another storm-fraught year can happen again, and it’s common sense to maintain that perspective even in calmer seasons. In the wake of 2017, questions are surfacing about how better to prepare for catastrophes and how to respond in their aftermath. This preparation/response concept has become known as resilience, and it’s as relevant for a single storm as it is for multiple events. With disaster costs seeming to spiral and global weather more volatile, it may be that the time for resilience is overdue. In seeking a solution, insurers, emergency managers, and government leaders are taking a closer look at reforms to flood insurance and building codes as well as state-of-the-art weather and catastrophe modeling.
Hurricanes typically result in violent storm surges that can flood residences and businesses. Following Sandy’s surge five years ago and other more recent events, there has been an increase in calls for private market flood insurance alternatives to the National Flood Insurance Program (NFIP). Although the NFIP provides coverage for both residential buildings and personal property—for example, up to $250,000 for a structure of one to four families and $100,000 for its contents—that coverage has certain limitations and may not address other exposures. NFIP policy exclusions preclude coverage for, among other things, personal property located in basements (the area of a structure most susceptible to flooding), temporary living expenses, and damage outside the home (such as septic systems, wells, retaining walls, and decks). The NFIP policy may also limit coverage for costs to comply with revised building ordinances.
The NFIP, which has been providing flood insurance since the 1960s, is now more than $25 billion in debt, primarily due to large payouts from Hurricanes Katrina and Sandy. With the NFIP facing reauthorization this year, Congress and others are hoping to see the program reformed and the private flood insurance market revitalized.
Private Insurance: A Potential Solution
Hurricanes such as Harvey reveal why private industry should be providing flood insurance as part of a potential solution. At its core, private insurance is generally designed to cover certain losses from specific catastrophic events for policyholders (for example, fire). Regarding flood, many residents at risk may not have NFIP coverage, or indeed any coverage, at levels adequate to offset their losses. As such, many stakeholders, including consumers, industries, and municipalities, are at risk of sustaining great financial hardship from such events, and they may likely want more insurance options to help better protect them with respect to these types of events. That’s why many insurers and emergency managers are looking at new ways to help protect against known loss exposures or to mitigate exposures through insurance.
Ultimately, the effects from Harvey may accomplish a few things in the insurance marketplace. For one, there may likely be an increased interest from consumers for new insurance solutions available to help mitigate financial losses during an extreme event. From a regulatory perspective, Congress may look to further encourage the availability of private market flood insurance as it discusses the NFIP reauthorization. On the commercial insurance side, many insurers will likely be looking for relevant analytics to help with accumulation management and overall risk acceptability metrics.
Over the past few years, Florida has passed laws intended to encourage the development of private flood insurance. As the claim process continues in Florida after Irma, people will be looking to see how private market clients faired compared to NFIP clients, primarily in speed of damage recovery. Some states will probably be looking at Florida’s example to determine their ability to encourage and manage private market entrance into flood insurance.
In moving toward resilience, insurers, emergency managers, and government officials may benefit from a sharper forecast of the future. In nearly any given community, advanced computer models can offer a view into scenarios for different perils—the major ones might include wind, flood, earthquake, and wildfire. Such models can give them a basic understanding of potential losses they could experience or are likely to experience. Oftentimes, modeling for perils becomes a wake-up call. In terms of forecasting the impact of weather, for a city prone to inland flooding, insurers and planners might want to run an inland flood model that could help estimate potential losses for certain areas. Often, it’s prudent to run models for other perils as well. In terms of mitigation and preparation, such information can change the resilience conversation significantly.
If, as some scientists suggest, larger and more severe storms may become the “new normal,” then insurers, emergency planners, and others will need better and more accurate predictive models to help cope with the effects of such change. Most scientific research on the influence of climate change vis-à-vis hurricane activity has focused on the relationship between warm Atlantic Ocean conditions and tropical activity in the basin. But what re/insurers may really want to understand is how climate change will likely affect the risk of U.S. hurricane landfalls. Results from general circulation models (GCM) are finally reaching a resolution where storms are occurring with nearly the right frequency and intensity, but long-term simulations are still very time-consuming to run. Extracting insight from the historical record is challenging given the large interannual variability, which makes it difficult to identify impacts from climate change.
Certain data shows that when the Atlantic is warm, basinwide hurricane frequency is, on average, elevated. Can an understanding of the physics and thermodynamics of hurricanes be coupled with research into the effects of warm ocean conditions and years with anomalously warm sea surface temperatures (SSTs)? If we assume that history portends the future and that the Atlantic will continue to warm, we can also assume that basinwide hurricane activity will increase. Yet, we still haven’t answered the question regarding how landfalls will change. That’s the high-level thinking among some cutting-edge modelers.
Building in Resilience
Another path toward resilience involves reducing property damage caused by storms, fires, and other perils. Certain construction techniques and building materials can increase the hazard to a building and make it less resilient in the event of a catastrophe. Some types of lightweight construction use less material and are economically efficient. But from a fire protection perspective, when these materials burn, they may be more likely to collapse. Commonly used plastic insulation materials, for example, are combustible and can burn quickly. Under certain conditions, the installation of photovoltaic (solar) panels on a roof can increase the potential for damage from wind uplift, magnify the fire risk, and inhibit firefighting operations. Quality of building codes and related enforcement are key considerations that can affect the likelihood and consequences of these perils.
Roofs may also pose other challenges. When significant wind damage occurs and the building envelope is breached, the roof is the most vulnerable structural component. One example would be unsecured mechanical equipment on a roof. During inspections of homes and commercial buildings, some have encountered heavy equipment secured only with screws into wood blocks. That’s a potential hazard because unsecured equipment can blow off a roof and cause property damage, injuries, or worse. Hurricane-force winds can push improperly secured equipment across the roof surface, tearing into the membrane and compromising the integrity of the building envelope. Insurers should encourage property owners to ensure that rooftop equipment is properly secured before anticipated wind events.
Some also find roofs with degradation that should never have occurred. Property owners need to have building maintenance personnel adopt and implement preventive maintenance and roof inspection programs that alert them to potential and active degradation. Weak links such as roof detachment, corrosion, or other damage could tear off roofing during an enhanced wind event. Such risks need to be mitigated before an event occurs.
After a significant wind event, we can sometimes see massive pieces of a building on the ground and tremendous damage to a roof that's been protected only by a flimsy tarp. Building management should repair or address roof and building envelope problems before the insurer underwrites the policy. Property owners must handle such exposures in anticipation of potential enhanced wind events—well in advance of any last-minute TV reports.
So, can lessons from past disasters be applied to improve our performance in the future? One major lesson from Superstorm Sandy involved the effects of storm surge. The fact is that the surge pushed past the immediate coastline and caused extensive damage inland. Five years ago, before Sandy’s devastating landfall in New York and New Jersey, many insurers generally did an efficient job evaluating commercial structures for the peril of fire, but wind was often another matter. Some insurers have started to take a more careful look at wind in areas with greater potential for exposure. Anticipation of perils is the foundation that supports resilience, although anticipation by itself isn’t enough for success. The larger part of the answer lies elsewhere.
Hurricane season in 2017 brought the fiercest run of storms recorded since 1893. In the face of perils that future seasons may hold, it seems clear there’s less excuse than ever for inaction or delay in action. In the words of the 19th-century French scientist Louis Pasteur, “Chance favors the prepared mind.” Do we have the will to change and better prepare for perils—to make chance into an ally and become more resilient?
Note: Technical data for this article was provided by Verisk experts Rob Newbold, executive vice president of business development and client services at AIR, and Marc Treacy, managing director of flood insurance at ISO.