Ida, Katrina, and the Importance of Adequate Loss Modeling

This post is part of a series sponsored by CoreLogic.

With the 2021 hurricane season coming to an end, insurers and government agencies are beginning to take stock of what occurred and how damages stacked up compared to previous years. It’s important that insurers deploy accurate loss modeling methods as they prepare to pay out claims and plan for hurricane season in 2022. A helpful component to this type of analysis is understanding the losses and hurricane characteristics of this year’s season. While the number of hurricanes in 2021 is in line with the 30-year average, this year had half as many hurricanes as 2020 (14), and Hurricane Ida proved to be the most damaging.

A Closer Look at Hurricane Ida

Hurricane Ida, the fourth hurricane and second major hurricane of 2021, rapidly intensified into a category four hurricane before making landfall near Port Fourchon, Louisiana on Sunday August 29 – the 16th anniversary of Hurricane Katrina.

In areas near Hurricane Ida’s landfall, destructive winds exceeded 145 miles per hour, making it one of the strongest hurricanes that made landfall in recent history. Maximum storm surge was over 8 feet and maximum rainfall over 15 inches. The storm rapidly intensified when it passed over an extremely warm loop current in the ocean, increasing the wind speed from 85mph to 140mph. This rapid intensification also occurred with Katrina and Rita in 2005.

There was widespread structural damage to roofs as well as catastrophic damages to the transmission system, leaving a million people or more without power. Much of Louisiana’s housing stock was spared from the worst of the initial landfall. Port Fourchon is in a remote area approximately 15 miles southwest of brand aisle and is known for its significant transport of petroleum.

As Ida moved towards the Northeast and downgraded to tropical storm status, several strong tornadoes emerged, while New York, New Jersey and surrounding states experienced record-breaking rainfall events. New York City received three inches of rain in a single hour, which broke the record of just under two inches. Climate change enhanced Ida due to warmer air in the northeast and contributed to more rainfall.

The Elements of Adequate Loss Models

Modeling the losses from a hurricane is a complicated affair – and insurers should make sure their chosen modeling software captures all pieces of the hurricane puzzle.

First and foremost, models need to be powered by comprehensive property characteristic datasets to give an accurate sense of exposure. Parcel geocoding is critical for precisely locating the risk, particularly for flood and storm surge, where just moving a few feet can often mean a difference in elevation. And reconstruction cost values powered by an understanding of changing material and labor costs are needed to estimate what it would cost to repair or replace a given property if destroyed. There also needs to be an understanding of insurance conditions such as typical policy terms and which properties have coverage for the various perils.

When it comes to modeling the hurricane itself, granular modeling of a hurricane’s three main perils is crucial for understanding: wind, storm surge, and inland flood. Models should be able to advance storms forward and compute upwind impacts of wind, compute inundations from storm surge, and compute rainfall and flood depths from inland flood.

Tying these elements together is an understanding of vulnerability and financial modeling. Over time, building codes improve and their enforcement improves. Vulnerability models for wind and flood should take changing building codes into account. Combining this information together gives the ability to estimate losses and ranges of model losses.

Accurate Modeling Builds Resilience

CoreLogic pre-landfall event analysis for Hurricane Ida estimated that over 941,000 residential properties were at risk in this storm. Following the event, CoreLogic estimated the total losses between 27 and $40 billion for wind, surge, and flood to residential and commercial properties in Louisiana, Mississippi and Alabama combined. Subsequent Tropical Storm Ida caused an estimated additional $16 billion to $24 billion in insured and uninsured inland flood losses to residential and commercial properties in the U.S. Northeast.

As insurers continue to assess the damage from the 2021 season and move into the reconstruction phase – and preparing for the 2022 season – it is critical to leverage the latest data analytics and insights to help accelerate disaster recovery and future events.

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