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2015 Extreme Weather Events in Review

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From hurricanes to hail to droughts to tornadoes, 2015 was a busy year for extreme weather events.

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Drought in California continued to worsen, increasing the risk of wildfires.

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While record rainfall in Texas and Oklahoma alleviated drought, it caused severe flash flooding in Texas. There have been 25 Category 4-5 northern hemisphere tropical cyclones—the most on record to date, breaking the old record of 18 set in 1997 and 2004.

The Insurance Information Institute reported that insured losses from natural disasters in the United States in just the first half of 2015 totaled $12.6 billion—well above the $11.2 billion average in the first halves of 2000 to 2014.

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Interstate Restoration provides a look at 2015 weather events:

storms_2015_infographic2

Climate Change’s Impact on Cities and Businesses

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Growing populations around the globe have created larger cities, as well as greater concentrations of risk. It is projected that a rise in sea levels and increased intensity of events will amplify the impact of hurricanes, tornadoes, heat waves, floods and droughts. Because of this, climate change is seen as one of the biggest threats to cities and businesses and could account for an estimated 20% of the global GDP by the end of this century, according to “Business Unusual: Why the climate is changing the rules for our cities and SMEs” by AXA.

While some cities have worked to put resilience plans in place to reduce the impact of flooding and other disasters, there is much to be done and businesses are vulnerable, especially small- to medium-sized enterprises (SMEs). Only 26% of SMEs have taken action to protect themselves, yet 54% are worried about the impact climate change could have on their business, and the number rises to 75% in emerging markets, the study found.

AXA-SME impact

“These disasters would be magnified by the fact that populations and assets have never been so concentrated in disaster-prone areas,” Henri de Castries, chairman and CEO of AXA Group said in the report. “Half of the world’s population now resides in cities, often along coastlines, and this proportion is due to rise to nearly two-thirds by the middle of the century, representing some 6.4 billion people. It comes as little surprise, then, that 80% of the climate change adaptation costs for 2010-2050 would be borne by urban areas.”

According to the report, these are common elements of resilience planning:

  • Risk assessments to identify key vulnerabilities.
  • Adaptation of essential infrastructure to withstand changes to the environment.
  • Development of flood defenses to protect inhabited areas from flooding caused by extreme weather events and increased rainfall.
  • Urban planning and relocation of buildings, including adapting to future developments that allow greater resilience to the consequences of climate change.
  • Development of emergency warning and response plans—emergency response planning is a core pillar of resilience strategy.
  • Community engagement and awareness-raising activities.

Additional findings:

Impact IImpactII

 

National Pre-Disaster Standards Called For

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Establishing state and local building codes would insure resilient construction and stop the cycle of spending to rebuild after disasters such as hurricanes, according to the Insurance Institute for Business & Home Safety (IBHS). The organization said it supports the Building codes4BuildStrong Coalition’s National Mitigation Investment Strategy, which calls for a comprehensive federal plan to improve disaster resilience across the U.S.

The plan focuses on investment in pre-disaster funding using unspent, non-FEMA grant program funds to reduce damage caused by natural disasters—funds that were established in the wake of Hurricane Sandy, IBHS said.

“We can’t keep doing things the same way, with lives and communities being destroyed over and over again by disasters, year after year,” said Julie Rochman, IBHS president and CEO said in a statement. “The National Mitigation Investment Strategy will help break this cycle of destruction.”

Building codes3

The Strategy recommends:

  • establishing a new FEMA-administered resilient construction state and local building code grant program to help qualified states defray cost of enforcing building codes
  • increasing FEMA funding for pre-disaster mitigation activities by $100 million per year from fiscal years 2016 to 2020
  • passing new congressional initiatives to create resilient construction incentives for states, builders, and individual homeowners

Building codes2

According to the BuildStrong Coalition:

The reality of the nation’s current disaster policy is this: costs associated with natural disasters in the United States continue to rise, and the federal government is absorbing more and more of the costs as sympathy for victims often creates a political expediency for billions in off-budget, unaccountable federal spending that is allocated for cleanup and recovery. The result is an endless cycle of destruction where cities are rebuilt only to be devastated again by the next big storm. A new approach to federal disaster policy is needed.

The report looks into why more needs to be done before a disaster and describes ways to target more resources to building codes. Doing so through a new national disaster policy focused on pre-disaster mitigation will benefit homeowners and building owners that are of the most immediate concern post-storm.

 

Cybersecurity, Product Recall and Drones Top List of Emerging Casualty Risks

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The cybersecurity insurance industry is booming, with demand for this specialty coverage vastly outpacing any other emerging risk line, according to a new survey by London-based broker RKH Specialty. In fact, 70% of the insurance professionals surveyed listed cyber as the top casualty exposure.

The brokers, agents, insurers and risk managers RKH queried after April’s RIMS 2015 conference said their top casualty concerns after cyber are product recall and drones (11% each), with others including e-cigarettes, autonomous vehicles and telematics totaling only eight percent.

RKH Specialty Study Graph

“Losses stemming from cyber-related attacks and business interruption can be catastrophic for individual businesses,” said Barnaby Rugge-Price, RKH Specialty’s CEO. “Healthcare and retail have been the major buyers in the cyber space to date but we are seeing an increasing conversion rate across the whole of our portfolio. After a number of years of looking at the offering, clients are increasingly deciding to purchase the cover as the product has improved and the frequency of attacks has continued to increase. There has also been a heightened focus on the business interruption aspect, where cyber attacks can cause whole facilities to shut down. But whether cyber related or not, any interruption to the supply chain can cause a disproportionate loss. The survey highlights the importance of specialist insurance for a whole host of emerging risks.”

Turning specifically to property exposures, supply chain disruption was identified by 61% as the top risk, followed by flood (30%) and tornadoes (9%). The findings reflect a growing recognition of the potential exposures that longer and more complex supply chains introduce, the firm said.

The brokerage also asked insurance professionals what they think clients are and will be most concerned about when evaluating a broker’s service, and in turn, what brokers will need to focus on to stay competitive. They predict:

RKH Specialty broker service