Anyone for insurance?

The stormy weather is coming early this year, and there has been very heavy damage across the MidWest from tornadoes that seem to have arrived a couple of months earlier than are normally expected.

With the high costs that arose last year from the impact of the hurricanes, and the other unseasonable weather impacts on the country, such as the current fires in Texas and Oklahoma brought about by the drought, the insurance industry has been starting to take a look at the levels of risk that it is now getting into.

Last year, based on info that came from the industry we posted about some of the problems that companies engaged in drilling in the GOMEX were starting to encounter in insuring their rigs. All of a sudden the condition of the rig and the level of storm that it could withstand was being considered against the likelihood of it encountering a storm of that or greater magnitude. The insurers were asking, at that time, for assurances that rigs could withstand the storms, in the form of models that would validate the design strengths that were being proposed.

With the temperatures of the Gulf reported to already be warmer than normal, this is probably an indication that the Hurricane season will be at least as intense as last year.

But there is a new issue that is beginning to concern the insurance companies. What if you are insuring the companies that might be considered causative of global warming. What happens if they get sued?

A bit of a stretch still you might thing, but insurance companies need to consider that risk, and as an article in Salon has just pointed out, they are starting to realize the problem.

Swiss Re is a reinsurance company --- a large chunk of its businesses comes from selling insurance to other insurance companies to cover their potential losses. As one might guess, Swiss Re's business took a hit in 2005, as a result of the unprecedent hurricane damage that ravaged the United States. Swiss Re is alarmed at the rate at which the financial cost of natural disasters has been rising -- doubling every 10 years, and predicted to hit $150 billion a year within a decade.

Executives at Swiss Re are beginning to worry that the executives of corporations responsible for greenhouse gas emissions may ultimately be found legally liable for damage from natural disasters that result from climate change. Swiss Re has decided that it would rather not be on the hook for that kind of legal liability, especially for those corporate executives who are denying that there is any problem at all.

And, of course, being cautious folks
"So,' said Walker, 'we might go to them and say, "Since you don't think climate change is a problem, we're sure you won't mind if we exclude climate-related lawswuits and penalties from your [Directors & Officers] insurance."'"
A single year of bad weather and its impact is something that insurance companies have learned to survive, but if the pattern of hurricane damage is going to be an annual event for the next decade then the whole game may be redesigned.

However there is at least one prediction that suggests that the season will be somewhat less intense than last year, with the probabilities of there being a Category 3 or greater Hurricane being

1) Entire U.S. coastline - 81% (average for last century is 52%)

U.S. East Coast Including Peninsula Florida - 64% (average for last century is 31%)

Gulf Coast from the Florida Panhandle westward to Brownsville - 47% (average for last century is 30%)

Above-average major hurricane landfall risk in the Caribbean

So maybe it won't be as bad as we may anticipate.

The only superstitious worry that I have is that we had that predictive movie from Fox called Oil Storm last year, and it was a bit more accurate than one might have liked - at least in setting up the problems. CNN are about to show the new version called "We Were Warned" this weekend.

Oil Storm has a very fictitious ending that we posted about at the time. Given all that has happened since, and the realities of the Gulf Coast situation, somehow I suspect that the pill won't be quite as sugar-coated this time. Ulp!

did anyone else catch this comment in the report.  It is by the former lead author of these annual predictions.  I find it particularly interesting, given all the controversy over the global warming and hurricane connection:

Phil is now devoting more time to the improvement of these forecasts than I am.  I am now giving more of my efforts to the global warming issue and in synthesizing my projects' many years of hurricane and typhoon studies.

Fortune Magazine had an excerpt from "Winds of Change," which is advertised on this page.  After reading the excerpt, I'm not sure that I want to be a property owner anywhere in the country, especially anywhere within a couple of hundred miles of the Gulf Coast and Atlantic Ocean.  Growing insurance problems may be one of many nails in the coffin of the Great Housing Boom.
Building close to the coast has always been questionable.  The dangers inherent in constructing anything within so close a proximity to water and at such low terrain elevations should not require the genius of Newton to be obvious.  The Texas coast has an average rise of 1 ft per mile, so theoretically,  any storm surge the likes of the 1906 Galveston hurricane could reach almost 1/4 the distance to San Antonio, given the many low shallow bays and the subsidence that has been occuring for the last 40 years.  The insurance companies have been betting against the KNOWN odds for many years.  Its time at least somebody wised up.  As ususal the average punter continues in oblivion until it hits him in the pocket book.  Well, if they have to move to tornado alley, I hope they'll at least invest in a good storm cellar.
Hey folks -- regarding climate, yesterday Environment Canada announced that 2005 has been the warmest winter in that country's history. Overall temperatures were up 3.9 degrees celcius and across much of the northern region temperatures set new record highs (for the winter) with one large area registering a 8+ degree deviation from normal. Celcius.

If indeed the earth is warming rather suddenly, and no one is suggesting that, we'd see much risk in the Gulf. Last years very warm Surface Sea Temperatures certainly contributed to the damage. Perhaps this year will be another year of records.

Just another piece of the puzzle...

I have been lurking around TOD since Katrina hit last August and I keep coming back every day!  The posts and the comments are high quality and the information is thorough.  Everyone should keep up the good work!  

In this post, Heading Out links to Dr. William Gray's December 2005 hurricane forcast for this summer (the revised report comes out April 4).  However, this winter and spring we have entered into a La Nina weather event.  A recent NOAA bulletin mentioned that La Nina events usually lead to more active hurricane seasons.  Check out the link.

Only time will tell whether La Nina has any effect on this year's hurricane season.

"Since you don't think climate change is a problem, we're sure you won't mind if we exclude climate-related lawswuits and penalties from your [Directors & Officers] insurance."

What a brilliant idea!

This would get them to put their money where their mouth is!

When I look at the NHC forecast that HO cited, they appear to have picked parameters from all over the world that have been correlated in the past with hurricane number/intensity and use that to make the prediction. They don't say, but one suspects, that the choice of model parameters is the result of computer data-mining. There are grave dangers in doing prediction by datamining for things with high-correlations. If one looks at enough possible candidate variables, even if there are no true causal associations at all, something will look correlated by chance. To avoid this problem, it's important to do cross-validation - the samples used for finding the correlate variables to build the model and the samples used to test the prediction skill of the resulting model must not overlap.

It's not obvious to me that these guys understand the dangers here. But maybe they do and I just don't have enough detail on their methodology. Does anyone have more information on it?

Hmmm. In December 2004, they predicted a 69% chance of a Cat 3-4-5 hurricane hitting the US coast in 2005. We got Dennis, Katrina, Rita, and Wilma. Wilma had the lowest central pressure ever recorded in an Atlantic hurricane, and Katrina caused the highest monetary damages of any Atlantic hurricane.

In December 2003, they predicted a 68% probability of a Cat 3-4-5 hurricane hitting the US coast. We got Charlie, Ivan, and Jeanne. (Frances was only Cat 2 in Florida, though she had hit the Bahamas as a Cat 3).

So, when they say the probability of a Cat 3-4-5 strike on the US is 81% this year (versus 69% in 2005 and 68% in 2004), you should probably quake in fear :-).

For whatever reason, the weather sure seems to be getting wilder.  

Hawaii's been socked with rain over the past few weeks.  All the utility poles were knocked down by wind along a major highway yesterday.  Today, a dam failed on Kauai, washing out a large section of the only highway into the area.  Not to mention several houses.  

They apparently had no clue the dam was in danger of failing.

Comments from Munich Re on Feb 16, 2006:

"While the average increase may have been around 3 percent, some regions, notably those hit by the 2005 hurricanes, paid a lot more for reinsurance coverage. Munich Re noted "high two-digit figures" as the more or less average increase. However it also said, "the highest increases were in offshore energy"

It appears that reinsurance rates will be about 20% higher for the southern U.S. and offshore drilling rigs, but little changed for localities with lower exposure to storms.

Hmmm. I just found a very interesting paper:
We have investigated the interaction between large-scale plate driving forces, lithospheric structure, and the stresses induced by bending of the lithosphere as a result of glacial loading and unloading in the New Madrid seismic zone, eastern-central United States. The modeling shows that the removal of the Laurentide ice sheet that covered large parts of the northern United States until ca. 20 ka changed the stress field in the vicinity of New Madrid and caused seismic strain rates to increase by about three orders of magnitude. The modeling predicts that the high rate of seismic energy release observed during late Holocene time is likely to remain essentially unchanged for the next few thousand years.
This suggests melting the Greenland ice sheet might be bad for insurance companies from a whole additional perspective...
I've seen some previous concerns about the effects of shifting many billions of tons of weight on the earth's surface as the result of glacial loading and unloading. Interesting!

It is a good reminder that our earth is less like rigid baseball and more like a very flexible and fragile water balloon that can be distorted relatively easily by the slightest of perturbations.

I am beginning to come to the conclusion that the earth is such a hopelessly complex and chaotic dynamic system that I seriously doubt we will ever succeed in developing a deterministic model that can accurately predict future conditions. I'm not saying we shouldn't try to gain a better understanding of what is going on, but on a certain level some things are literally unknowable.

The phenomena is called Isostatic readjustment. It is happening in the North Sea and the Baltic. As Ice load is removed, the continental crust re-adjusts slowly over time and rises quite gently.
You get things like raised beaches. Northern Europe is not very tectonically active so seismic activity due to readjustment is not an issue. Except perhaps on the Great Glen Fault which stirs occasionally.

However (I seem to recall) there is evidence of Submarine slumping off Norway which , in the past may have created a Tsu-Nami that hit the UK very hard.

On the other side of the coin, The south east of the UK and the low countries are sinking slowly.Polar melt will be an issue for these areas. (Thats why the Dutch love boats).

Thanks for this piece of information. I had been wondering if something like this were possible, but had not seen anything in print from someone who might actually know...
No, I don't think the Greenland ice melt will cause insurers too much trouble from a seismic point of view.

The huge ice shelf that covered northern North America caused stress changes when it melted IN THE AREAS IT PREVIOUSLY COVERED.  Greenland may have some seismic activity due to the change in load, but I'd be really surprised to see any activity elsewhere -- and there just isn't that much in insurance liability in Greenland!

The New Madrid zone is in Missouri right? I don't think the Laurentide ice sheet got down that far. Wikipedia says it only got as far as Chicago in the last ice age.