The Economics of Hurricanes: Preparing for Hurricane Season
Each year, researchers at Colorado State University predict Atlantic hurricane season activity. Their forecast taps 60 years of historical data on sea surface temperatures, wind-shear levels, ENSO phase and other factors. Their initial forecast for last year’s hurricane season predicted a slightly below average season, but subsequent forecasts suggested increasing odds of more storms. Hurricanes Harvey, Irma and Maria made this true.
According to Aon’s annual Weather, Climate & Catastrophe Insight, the U.S.’s 2017 Atlantic hurricane season was one of the most expensive on record, made all the worse by damage caused by subsequent inland floods.
As U.S. coastal populations and property values keep increasing, the trend toward costlier and more destructive hurricane events, coupled with the impact on people, business and the economy, will only worsen.
Beyond the human toll, the economic costs of natural catastrophes can be enormous. Hurricanes are among the most costly of those catastrophes and their costs continue to grow. New technology tools are helping to manage hurricane risk and address their aftermath. But for the tools to be of real benefit, businesses and others in harm’s way must first recognize their exposure.
This means that businesses will need to aggressively assess and manage their hurricane exposures.
Earlier this year, Colorado State’s researchers predicted a slightly above-average 2018 Atlantic hurricane season, and they recently downgraded the forecast to near-average. But, as Steve Bowen, Aon’s resident meteorologist notes, “While the number of hurricanes is an important piece of the puzzle, the most significant metric from a life and property perspective is where these storms actually go. A meteorologically active hurricane season does not always translate into a high-cost year. It only takes one major landfalling hurricane to completely change the perception of a season.”
From understanding predictions and assessing vulnerabilities to preparing properly, hurricane season offers opportunities for organizations to test their business continuity plans to ensure the least amount of damage in the event of disaster.
Hurricanes’ Economic Costs Continue To Grow
Hurricanes Harvey, Irma and Maria have joined the ranks of the top-five costliest U.S. hurricanes ever, according to a National Oceanic and Atmospheric Administration (NOAA) report. Harvey is only the second hurricane in U.S. history – joining 2005’s Katrina – to cause $100 billion or more in losses.
According to Aon’s 2017 Weather, Climate & Catastrophe Insight report, the economic costs of Harvey, Irma and Maria together totaled $220 billion. Losses resulting from the three storms represented almost two-thirds of global economic damages resulting from catastrophes last year.
2018 Hurricane Season: What Do The Predictions Show?
Colorado State University researchers predict a near-average Atlantic hurricane season in 2018 with 14 total named storms.
The CSU team’s latest prediction for 2018 is that Atlantic hurricane activity will be 100 percent of the average season, slightly below the 30-year median of 103 percent. By comparison, 2017’s hurricane activity was about 245 percent of the average season.
Facing Hurricane Risks, Business Continuity As A C-Suite Imperative
Last year’s storms have highlighted the need for businesses to understand what is – and is not – included in their insurance policies when it comes to hurricanes.
The extent of hurricane exposure and its potential impact on operations has made it necessary to ensure that all the potential stakeholders in the organization – the CFO, plant managers, facilities managers, et cetera – understand how the company’s insurance policies might affect recovery following a hurricane loss.
“It’s really about understanding your policy to prevent surprises,” said Aon’s U.S. Property Practice Leader, Rick Miller. “For example, where is flood covered? Is it covered inside a separate flood definition, or is it covered in the instance of storm surge on a wind definition?”
And executive leadership – including an organization’s c-suite – has growing interest in hurricane preparedness, due to the far-reaching impacts of catastrophic events at such a scale.
“The c-suite is becoming increasingly interested in understanding business continuity associated with major disasters,” said Aon’s Managing Director, Global Risk Consulting, Jill Dalton. “Teams, especially those in the risk management function, are being asked to forward-think not only claims management but overall preparation for an event of such scale.”
Managing Through A Hurricane: Apps, Drones And Other Emerging Technology
As businesses look for ways to reduce hurricane losses before storms and respond to them more effectively after they hit, new technologies are being used to help speed up the claims process.
Drones, along with manned aircraft and satellite imagery, can assist in assessing the property at risk, helping underwriters get an accurate value – plus they can be used to gather information following a storm. Drones have proved particularly useful in reviewing the damage in remote or inaccessible areas of Puerto Rico that were hit by Hurricane Maria.
On the ground, thermal imaging is proving useful in detecting moisture that’s made its way behind walls, pinpointing areas that need repairs before more expensive damage is done much later.
Apps are also playing a growing role as well, both in helping businesses brace for impending storms and in addressing their aftermath. For example, apps can provide disaster alerts along with near–real time information on the company’s property at risk in the path of an approaching storm. After a storm, these apps can be an efficient way to document losses and submit claims.
Hurricane Activity Might Vary, But The Economic Risks Are Always Significant
The extent of hurricane activity varies from year to year, but the risk associated with these storms grows on an annual basis given increased exposure, continued sea-level rise and the prospect of more intense storms in the future.
Hurricane prediction is never perfect, so preparing for them is essential. The economic impact of hurricanes can be massive. In the face of the risk, businesses in hurricane-exposed areas need to fully evaluate their exposures and take steps to reduce their risks.
Better preparation and planning “helps drive better results,” in the event of catastrophe, states Miller. Aon’s Dalton echoes the sentiment: “The lesson is that anything can happen, and you don’t want to rely on insurance alone. You want your business to be ready to handle anything.” The first step in that process is acknowledging the risk.