Last year was the costliest year for US natural catastrophes on record due in large part to the very active North Atlantic hurricane season, which produced three particularly devastating storms, Harvey, Irma, and Maria.
As North Atlantic communities brace themselves ahead of this year's hurricane season, Lloyd’s looks back at events from last year to understand what we can learn. We believe there are five important lessons for insurers:
1. Each hurricane is unique
Last year’s hurricane season demonstrated that even “well-modelled” risks like US windstorm still have the potential to surprise. Hurricane Harvey, for example, resulted in widespread flooding, which was driven by extreme rain. The sheer scale of devastation last year was another issue. The fact that three hurricanes made landfall within a matter of weeks led to additional costs – due to shortage of building materials, driving up costs and causing delays in rebuilding. This is a factor that insurers should consider more closely when underwriting risks in the future.
2. There is room for greater private sector participation in the US flood insurance market
Total economic losses from last year’s Harvey, Irma and Maria combined are projected to reach over $200bn and insurance is expected to cover about half of this. And yet a shocking number of Houston residents – up to 80% - did not have flood insurance. Greater participation of private market insurers could potentially lead to higher resilience and increased insurance penetration. However it would need a more equitable balance between public and private markets, combined with continued improvement of flood modelling. One of the main problems is that risk maps are sometimes out of date. This has made it hard to price flood risk and has done little to discourage planners from populating areas prone to flooding. Lloyd’s is working with government leaders, industry associations and distribution partners in the US to increase the participation of private markets in insuring flood perils. As well as developing a better functioning flood insurance market, this could help by highlighting the risk of building in certain areas.
3. The best laid plans often go awry
Hurricane Irma destroyed a number of yachts in the Caribbean, leading to large Lloyd’s insurance losses (approximately £350m). Partly this was the result of a high number of yachts located in the same area. The bigger “super yachts” are often crewed all year round – which means they can move out of the way of danger. Smaller yachts do not always have this option. And even apparently safe zones may still be at risk for these smaller yachts. In Miami, for example, higher than expected storm surges, meant yachts suffered damage after mooring failures in supposedly safe marinas. Yachts that were moved onshore in advance of the storm also suffered damage. It might be worth reassessing what is considered a safe harbour.
4. Getting resources into a disaster zone quickly speeds up recovery
It sounds obvious but often this is very challenging due to a lack of specialist personnel (eg loss adjusters). Getting loss adjusters to disaster hit areas in the Caribbean last year proved very difficult and in some cases it slowed down recovery. The problems are most acute in particularly remote regions, where it is often tricky to get contractors in to carry out repairs. Seven months after Maria hit Puerto Rico, for example, power is not fully restored.
5. Insurers can make better use of new sources of data to settle claims quickly
Settling valid claims as quickly as possible helps individuals and communities rebuild their lives. It also improves the reputation of insurance and the service insurers provide. To speed up payments, some insurers now use satellite imaging to assess damage in remote or hard to access areas. This has been proved to speed up claims payments and reduce recovery time. Insurers are also looking at how to augment their loss data and get up-to-date information about what is happening on the ground. Images and even short descriptions of what is happening in a particular area provided by local people help give a fuller picture of the destruction and help validate other data sources.