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Texas Study Shows Business Impact of Major Storms

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A new study conducted by Texas A&M University at Galveston and the Texas General Land Office examines the 50-year impact of a major storm hitting Galveston Bay on the Texas coast near Houston, including secondary effects to the economy. The study focused on catastrophic “500-year” flood events (with a one-in-500 chance of occurring in a year), which, while rare, have hit the state 3 times in recent years. This includes Hurricane Harvey, which struck Louisiana and Texas in August 2017, causing $125 billion in damage, according to the National Hurricane Center.

These larger storms have serious economic impacts locally, regionally and nationally. Over a 50-year time frame, the study notes, “the projected economic impact on Texas’ Gross State Product (GSP) of storm surge without coastal protection is substantial.” In the wake of a 500-year magnitude event, the regional petroleum and chemical manufacturing sectors would see their output decline by 19% (or $175.4 billion) in lost revenue, as well as a projected 17% loss of petroleum jobs (approximately 155,000 jobs) and a petroleum price increase of 13%. It would also impact the region’s housing, with the sector declining by 8%, or $39.5 billion lost in sales.

A 500-year surge event striking Galveston Bay would also have serious impacts for national economic activity, especially because the region processes 25% of the petroleum and more than half of the jet fuel used in the United States. According to the study, U.S. GDP could drop 1.1% (approximately $883 billion), U.S. exports would suffer a 4% drop (approximately $1.66 billion) and “30 states not including Texas will have lower GSP in response to a surge event in Texas.”

“The Galveston Bay region is one of the most flood- and surge-prone areas in the United States with vast amounts of vulnerable residential, commercial, industrial and petro-chemical areas at risk,” said Texas Land Commissioner George P. Bush. “This study clearly demonstrates that, without any new protections in place, future storm surges could have substantial and lingering impacts on Texas’ economy and send lasting ripples through other economic sectors nationwide.”

Turning to mitigation, the authors of the report assessed the potential measure of a 17-foot “coastal spine,” also called a “coastal storm suppression system,” made up of “connecting seawalls and fortified dunes/levees along the coastline to retractable gates.” In October, the Army Corps of Engineers released the study Coastal Texas Protection and Restoration Feasibility Study proposing a similar example of this sort of structure—74 miles of barrier, including “floodwalls (inverted T-walls), floodgates (both highway and railroad floodgates), seawall improvements, drainage structures, pump stations, and surge barrier gates.”

The researchers estimate that a coastal spine would reduce the region’s lost petroleum and chemical manufacturing sector losses to 3% and 5%, respectively, a 1% reduction in regional unemployment, and a 1% increase in petroleum product prices. The report also claims that a coastal spine mitigation plan would reduce Houston-Galveston regional insurance premiums by as much as 28%. This could provide significant relief for insurers as well. Even though insurance and reinsurance only covered about 30% of the total wind and flood damage from Hurricane Harvey, this amounted to tens of millions in losses.

In terms of construction cost, the Texas researchers polled residents of three local counties and found that 56% “believed that both government and port industries should be responsible for financing the coastal barrier system,” and a majority agreed that some form of taxation should support its construction.

62% of Impacted Companies Lacked Hurricane Prep in 2017

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A majority of senior executives of large U.S. companies with operations in Texas, Florida or Puerto Rico admit to being unprepared for last year’s hurricanes that devastated their communities, according to a survey by FM Global. While 64% of respondents said the hurricanes had an adverse impact on their operations, a full 62% said they were not fully prepared.

“These candid admissions drive home a fundamental truth about catastrophe,” Louis Gritzo, vice president and manager of research at FM Global said in a statement.

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“People routinely fail to understand or acknowledge the magnitude of risk until they’ve experienced a fateful event.”

One reason for a lack of natural-hazard preparation is imprecise terminology, he said. Being located in a “100-year flood” zone, for example, “does not mean you have 99 years to plan—but that there is a 1% chance of such a flood every year.” Another reason for insufficient preparation is over-reliance on insurance, which cannot restore the market share, brand equity and shareholder value lost to competitors.

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The study found that as a result of hurricanes Harvey, Irma and Maria:

  • 57% of all respondents said they will put in place or enhance their business continuity or disaster recovery plans.
  • 40% plan to invest more in risk management, property loss prevention, and/or reassess their supply chain risk management strategy.
  • 25% will reassess their insurance coverages or their insurers.

FM Global commissioned market research firm ORC International to survey 101 senior financial executives at Fortune 1000-size organizations by phone in October through November 2017.

2017 Storms Break Records

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The 2017 hurricane season is finally behind us, but it left its mark with two Category 5 hurricanes and one Category 4 striking within weeks of each other, causing an estimated $300 billion in damage. In fact, 2017 broke records, including the strongest storm—Irma—and the longest-lasting storm, which was Hurricane Harvey.

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Other natural disasters in 2017 also did their share of damage, including hailstorms and 1,496 tornadoes compared to an average of 1,202.
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Then there were the wildfires, which burned more than 9 million acres of land.

Highlights of 2017 are summarized below by Interstate:

2017 Atlantic Hurricane Season Outlook

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With the official opening of 2017 Atlantic hurricane season fast approaching, researchers appear cautiously optimistic the relatively quiet streak will continue.

Today, Colorado State University’s Tropical Meteorology Project released the extended range forecast of 2017 Atlantic seasonal hurricane activity, predicting slightly below-average activity in the Atlantic basin, with a forecast of 11 named storms, four hurricanes, and two major hurricanes.

Philip Klotzbach, CSU

The probability of at least one major (Category 3+) hurricane making landfall on the entire U.S. coastline is 42%, compared to an average of 52% over the past century. The probability of such a storm hitting the East Coast, including peninsula Florida is 24%, compared to an average of 31%. Thus, CSU noted, the estimated probability of a major hurricane making landfall in the U.S. this season is approximately 80% of the long-period average.

Hurricane activity may not be as critical a determinant for how insurers and property-owners will fare, however. Aon Benfield’s Global Catastrophe Recap reports have consistently noted the rising toll of economic and insured losses due to severe weather events including severe thunderstorms, hailstorms, and flash flooding. In Texas alone, for example, Aon Benfield reports the state incurred record thunderstorm-related losses for the year, with insurers citing costs exceeding $8.0 billion.

Other recent studies support this trend. In the Willis Re and Columbia University report Managing Severe Thunderstorm Risk, researchers found the risk to U.S. property from thunderstorms is just as high as from hurricanes. Their review of Verisk Analytics loss statistics for 2003 to 2015 found the average annual loss from severe convective storms including tornadoes and hailstorms was $11.23 billion, compared to $11.28 billion from hurricanes. Considering the past decade alone, severe convective storms posed the largest annual aggregated risk peril to the insurance industry.

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