Lloyd’s Finds Extreme Weather Can Be Accurately Modeled Independently

In a new report based on research from UK national weather service the Met Office, Lloyd’s has found that extreme weather events may be modeled independently. While extreme weather can be related to events within a region, these perils are not significant correlated with perils in other regions of the world.

The study’s key findings include:

  • Met Office research found that the majority of perils are not significantly correlated, but identified nine noteworthy peril-to-peril teleconnections, most of which are negatively correlated
  • Lloyds’ modeling finds that these correlations were not substantial enough to warrant changes to the amount of capital it holds to cover extreme weather claims
  • Even when there is some correlation between weather patterns, it does not necessarily follow that there will be large insurance losses. Extreme weather events may still occur simultaneously even if there is no link between them
  • An assumption of independence for capital-holding purposes is therefore appropriate for the key risks the Lloyd’s market currently insures
  • The methodology released in the report enables scenario modeling across global portfolios for appropriate region-perils

“This important finding supports the broader argument that the global reinsurance industry’s practice of pooling risks in multiple regions is capital efficient and that modeling appropriate region perils as independent is reasonable,” the report concluded.

According to Trevor Maynard, head of exposure management and reinsurance at Lloyd’s, “This challenges the increasingly held view among some regulators around the world that capital for local risks should be held in their own jurisdictions. Lloyd’s believes this approach reduces the capital efficiency of the (re)insurance market by ignoring the diversification benefits provided by writing different risks in different locations and, in so doing, needlessly increases costs, to the ultimate detriment of policyholders. Insisting on the fragmentation of capital is not in the best interests of policyholders.”

Check out the map below for further insight from the Met Office about large-scale weather perils that do demonstrate statistically significant correlation:

lloyd's extreme weather perils

Houston Faces ‘Largest Flooding Event Since Tropical Storm Allison’

Historic flooding has left the Houston metropolitan area inundated once again this week, killing at least seven people, flooding 1,000 homes and causing more than $5 billion in estimated damages in Harris County alone. Gov. Greg Abbott declared a state of disaster for nine counties in and around the Houston area. The widespread nature of the disaster prompted the city of Houston to call this the largest flood event since Tropical Storm Allison, which devastated southeast Texas in 2001, causing $9 billion in damage and $1.1 billion in insured losses.

According to Harris County Judge Ed Emmett, about 240 billion gallons of rain fell on the Houston area this week. That’s the equivalent of 363,400 Olympic-size swimming pools, CNN reported. After 10 inches of rainfall fell in six hours Sunday night into Monday, powerful, slow-moving thunderstorms had paralyzed the region Monday, but storms continued through Wednesday.

Having some of the hardest rainfall overnight helped a bit to mitigate the dangers this week. While this made it difficult to predict, it allowed people to better make choices about going out, as opposed to last year’s floods around Memorial Day, Emmett told the Houston Chronicle. Nevertheless, emergency crews made more than 1,200 high-water rescues, many residents had to evacuate to shelters, and for those who were able to shelter in place, 123,000 homes had no power at the height of the flooding. Officials have also expressed concern about two local dams that have been rated “extremely high risk and are at about 80% capacity, but they are not in immediate danger of failing.

As I wrote in Risk Management last year, the city’s rapid urbanization and approach to land development have made it extremely vulnerable to flooding perils because there is little land surface that can absorb water in foul weather. Rivers, bayous and other receptacles for runoff are easily overwhelmed and take a considerable amount of time to return to normal levels, making the heavy, concentrated, sustained rainfall seen this week even more dangerous in such an urbanized setting. Last May, record rainfall and severe thunderstorms caused tremendous damage across Texas and Oklahoma, killing 32 people and flooding more than 5,000 homes in the metro regions of Houston, Austin and Dallas.

With this latest storm, Houston again offers a powerful reminder about the natural catastrophe perils compounded by urbanization and the need to prepare, both in the form of routine disaster preparation and urban planning. From the August issue of Risk Management:

The city has invested hundreds of millions of dollars to battle the effects of urbanization. On Buffalo Bayou alone, for example, flood control efforts totaling half a billion dollars in the past decade have included bridge replacements, the addition of detention ponds for runoff, and creation of green spaces that serve as parks in normal weather while offering more land surface that can absorb water in foul weather.

But the investments are not enough. “Houston may be doing things to try to improve…but there’s a long history of pre-existing stuff that is still there,” Walter Peacock, an urban planning professor at Texas A&M and director of the school’s Hazard Reduction and Recovery Center, told Time. “Think about every time you put in a road or a mall and you add concrete—you’ve lost the ability of rain to get into the soil and you’ve lost that permeability. It’s now impermeable, and therefore you get more runoff.”

Almost 900,000 Homes at High Risk of Wildfires, CoreLogic Reports

Despite extensive, persistent drought in the western United States, 2014 saw notably low numbers of wildfire incidents, both for total number of fires and acreage burned. According to CoreLogic, there were 63,345 wildfires in 2014, which ranks second only to 2013 as the lowest annual number of wildfires over the past 20 years. In comparison with 2013, which was the second lowest annual total acreage burned in the past 10 years, the 2014 season saw even lower numbers, with 3,587,561 acres burned by wildfires.

More intensive response to small fires and ignitions, increased overwinter snowpack and timely precipitation during wildfire season, and greater efforts to boost public awareness and homeowner mitigation efforts have all contributed to more effective control over wildfires, the company pointed out. But responding agencies, homeowners and insurers should not allow the decline to translate into a sense of security.

“Even though we haven’t seen the type of wildfire activity over the last few years that seemed to be thematic in the 2000s, there have been record setting wildfire events even during the recent periods of overall reduced wildfire numbers,” the report said. “With continuing residential growth in the West, the opportunity for fires to find homes and businesses is going to increase as well. This is why it has never been more important to know where wildfire risk is located and understand the likelihood of it occurring.”

Across the western states, the highest risk areas can be found:

Western US Wildfire Risk

Based on CoreLogic wildfire analysis, there are 897,102 residential properties in the region that are currently located in High or Very High wildfire-risk categories, with a reconstruction value of more than $237 billion. In the Very High risk category alone, there are just over 192,000 residences with a reconstruction value of more than $49 billion. “Taking into consideration the combination of risk factors both inside and outside the property boundary to assess numeric risk score, more than 1.1 million homes in the U.S. with a total reconstruction value of more than $268 billion fall into the highest wildfire risk segment of 81-100. This total is more than five times the number of homes that fall under the Very High risk category,” CoreLogic reported.

The company also broke down the statewide totals for potential exposure to wildfire damage, in reconstruction value per risk category:

CoreLogic: Total Potential Exposure (Reconstruction Value) to Wildfire Damage by Risk Category

Check out the full report for more details on the risks of wildfire damage.

Preventing Burst Water Pipes

Unrelenting frigid weather often means frozen water pipes – one of the biggest risks of property damage. In fact, a burst pipe can cause more than $5,000 in water damage, according to IBHS research.

Structures built on slab foundations, common in southern states, frequently have water pipes running through the attic, an especially vulnerable location. By contrast, in northern states, builders recognize freezing as a threat and usually do not place water pipes in unheated portions of a building or outside of insulated areas.

Freezing temperatures can be prevented with the installation of weather stripping and seals. This offers two major benefits: keeping severe winter weather out of a structure, and increasing energy efficiency by limiting drafts and reducing the amount of cold air entering.

These areas should be inspected for cold air leaks to determine where sealing is needed:

  • Windows and doors
  • Vents and fans
  • Plumbing
  • Air conditioners
  • Electrical and gas lines
  • Mail chutes

IBHS recommendations:

  • Provide a reliable back-up power source, such as a stand by generator, to ensure continuous power to the building.
  • Interior building temperature can be monitored by a central monitoring company to ensure prompt notification if the interior of the building reaches low temperatures during after hours, power outages or idle periods.
  • Recessed light fixtures in the ceiling below the open area that is directly under a roof, such as attic space, should be insulated to prevent the release of heat into the attic.
  • Check to see if there is any visible light from recessed light fixtures in the attic.
  • If there is, they are not adequately sealed or insulated. Sometimes, especially in low sloped roof buildings, the space above a suspended ceiling located below the roof may be heated and cooled like the occupied area below.
  • If that is the case, there is no need to insulate above the suspended ceiling or seal the ceiling’s penetrations.
  • Insulate all attic penetrations such as partition walls, vents, plumbing stacks, electric and mechanical chases, and access doors that are not properly sealed.
  • Ensure proper seals on all doors and windows. Depending on the building or room size, fan tests can be conducted to ensure room and pressurization tests.
  • Seal all wall cracks and penetrations including domestic and fire protection lines, electrical conduit, other utility service line, etc.
  • Sprinkler systems should be monitored by a constantly attended central station to provide early detection of a sprinkler pipe rupture due to freezing.
  • Insulation and/or heat trace tape with a reliable power source may be installed on various wet sprinkler system piping. This includes main lines coming up from underground passing through a wall as well as sprinkler branch lines.
  • UL-approved gas or electric unit heaters can be installed in unheated sprinkler control valve/fire pump rooms. If backup power is provided, the heaters should also be connected to this power source.
  • A monitored automatic excess flow switch can be placed on the main incoming domestic water line to provide early detection of a broken pipe or valve when the space is unoccupied.