2021 has already proven to be a more active Atlantic hurricane season than expected, with 14 named storms and eight weeks still to go till the November 30th end date. It's already been a year much like that of 2020, as above-average storm activity continues to batter the Atlantic and Caribbean.
With the recent devastation caused by Hurricane Ida in August, which left a trail of destruction from the Gulf Coast to the New Jersey seaboard, many insurers are wondering how many more tropical storms are left to come. The arrival of 14th named Tropical Storm Nicholas off the Texas Coast on September 13th seems to answer this question. It's forecasted to create widespread flooding throughout the Lonestar State and parts of the Louisiana coast and northern Mississippi over the course of three days as it slowly moves Northeast.
2021 is one of just four other years where there have been fourteen or more named storms by this time in September. So this is a stark reminder that the landscape for insurers providing coverage in these high-risk areas is getting riskier.
Recently, President Joe Biden witnessed the devastation wrought by hurricane Ida throughout New York and New Jersey. His visits to homes completely flooded and devoid of once housed families and possessions further emphasized the urgent nature of climate change.
In 2021 alone, flash floods caused by Ida took the lives of at least 22 people, in addition to the 82 lost by the hurricane's fury. It unleashed peak wind speeds of 172 mph as a category four storm when it hit the Louisiana coastline and slammed into New Orleans, topping Hurricane Larry's 125 mph winds earlier this year.
Worse, Hurricane Ida dealt significant damages to offshore oil and gas producers. Currently, nearly 79% of production is offline, with approximately 17.5 million barrels of oil lost. Commercial insurance policies could cost insurers almost a billion in property and equipment damage claims. Losses due to business interruption, tourism halting, and other damages caused will add to the growing flood of claims that insurers in nearly every industry market will be hit with.
It has been reported that Ida took out power in over 1 million businesses and homes throughout Louisiana and Mississippi. The New Orleans area felt the biggest pinch when all eight of its transmission lines failed, despite the city suffering less severe storm damage compared to other nearby parishes.
It's also important to note that powerful tropical storms and hurricanes that leave this scale of damage will cause a surge in demand for repair services and the materials needed to complete restoration. This could also increase the overall cost of losses in the short term.
Most insurance experts agree that wind and rain damage will be the primary cause of loss from this powerful hurricane. S&P stated that among their property and casual insurers it rates, the residential property policies would be most affected. Still, commercial losses are expected to be substantial and make the current power outages even worse. Morgan Stanley analysts also feel carriers' catastrophe budgets will erode faster than expected because of the storm, but most losses would likely fall on reinsurers. Some are even saying that these budgets could be exceeded when taking the recent flooding throughout Europe into account.
Current Accuweather damage estimates are topping nearly $95 billion, a figure that includes both insured and uninsured factors. This would put Ida in the top ten most costly hurricanes to impact the United States since 2000, with Katrina being the most expensive.
While tropical storm numbers seem to be steady, hurricanes are increasing, as is their intensity, thanks to the ever-warming climate of our planet. This isn't a new trend, and in fact, goes back decades, starting with Hurricane Andrew in 1992, followed by Carla, Hugo, Katrina, and now Ida.
There is little doubt that rate increases will continue to manage the risks in these climate-exposed areas for many insurers. Development isn't deterred by this type of weather in these regions either. Clearly, businesses and families feel there are more advantages to being located in these dangerous zones than the risk involved.
Swiss Re released a Sigma Research report in April of 2021 that predicts insurers can expect increased growth in regions that experience high climate event risk. Property insurance companies are forecasted to increase 5.3% annually over the next twenty years. This report attributed this growth to further economic development and urbanization in climate-exposed communities.
Failing to achieve these goals would increase the likelihood of some properties becoming completely uninsurable in high-risk areas.
Finding a solution to climate change and prevening uninsurability issues is not an easy feat. Many industry experts agree that any solution will require insurers and their clients and the government to commit to the effort. It's more than just about improving home construction on coastlines or risk management near regions more prone to wildfires.
To avoid creating an insurance crisis, some analysts believe two needs must be made a priority:
The Bar List insurance network will keep your organization in the loop on the latest climate-driven insurance news and other trending industry topics. Our network always has been and will continue to be the most reliable, helpful tool during unpredictable insurance market events. Insurers can trust that the professionals we list are top quality and experts in their field.
As always, please feel free to reach out for more information or to inquire about a specific insurance sector. We're happy to help and hope to provide some relief during these trying times.