Storm & Security

16 STORM & SECURITY PROTECTION / FORECAST 2014 PROTECT / YOURSELF Hurricane forecasters have predicted a mild 2014 hurricane season (see page 10). The El Nino effect should reduce the number of big storms forming in the Atlantic Basin. As a property owner, how does the below average prediction translate to your hurricane exposure? In 2013, while there was a shortage of strong hurricanes, there was no lack of tropical storm activity. Based on the last 30 years, the average activity in the Atlantic is 12 named storms, including three major hurricanes. The year 2013 saw about the same frequency of named storms, but the number of hurricanes and major hurricanes was well below average. But while the Atlantic Basin was quiet—no major hurricanes for the first time since 1994, and the number of hurricanes in 2013 was the lowest since 1982—that was not the case in the Pacific. Typhoon Haiyan, which struck the Philippines in early November 2013 (see S&SP, Vol. IV, No. 4, page 23), was an exceptionally strong storm with sustained wind gusts of one minute that exceeded 196 mph. That wind speed would be classified as a level three tornado. If a hurricane with that wind speed were to strike on the U.S. Eastern Seaboard, the shoaling effect of the waves would produce a wall of water with a maximum height of 12 meters. Hurricane Sandy storm surge peaked at three meters. In preparing for hurricane risk, 2014 could be a paradox of small chance with large results. In actuarial terms: Probabilities that may seem relatively small may still be quite significant. In plain English: It only takes one. What's at Stake Forty-eight percent of the U.S. population lives in a coastal county. In Florida the percentage jumps to 76 percent. Between the Atlantic coast and the Gulf of Mexico coast there are an estimated 4.2 million homes with an insured value of $1.2 trillion. Florida had Andrew, the Carolinas had Hugo and the Eastern Seaboard had Sandy. Each state, one storm; but the intensity of the storm and the density of insured values can create economic upheaval. The estimated insured value of residential and commercial properties in just the coastal counties of the U.S. East and Gulf coast states now exceeds $10 trillion. The top five states for insured coastal properties are: New York ($2,923 billion), Florida ($2,862 billion), Texas ($1,175 billion), Massachusetts ($849 billion) and New Jersey ($713 billion). Each of these states need only one direct strike to turn a mild year in to a wild year. What's Changed The 1992 hurricane season was forecast to be slow for hurricane development, and if Andrew had not hit Florida and Louisiana the year would have been designated mild. Andrew was the only big storm in 1992, but it changed the world as we know it. The deadly storm created $25 billion in losses (only hurricanes Katrina and Sandy rank higher in insured damage), but Andrew's effect on government, insurance carriers and the population of Florida would carry on a long time after the damaged buildings were repaired. New building codes were adopted, state govern- ment had to create insurance programs to cover the large number of uninsured homes and building as the insurance carriers left the state or went bankrupt from undervaluing the potential loss from one storm. "Hurricane deductibles: were added to the insurance lexicon and catastrophe modeling became a large cost driver of insurance premiums. | by Don Leggett | Hurricane Deductibles On the Rise? Past storm damage affects your future coverage no matter the forecast. One storm covering a large area, or one small storm of great intensity, will create such devastation that your business interruption coverage will be exhausted.

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