Insurance risk modelling in hurricane zones

Insurance risk modelling in hurricane zones

Insurance risk modelling in hurricane zones As global climate patterns fluctuate between La Nina and El Nino, hurricane groupings generally swing between the Atlantic and the Pacific. As we settle into a neutral zone between the two, risk modelling analyst Kevin Sharp speaks to Insurance Business about keeping ahead of possible mega-storms.

Sharp, an analyst and “weather nerd” at ICAT, which largely insures wind damage for high-risk properties in coastal danger zones, said the global weather systems can mean a lot for tracking the location of hurricanes.

“Officially right now we’re in a neutral phase, between La Nina and El Nino. When we are in an El Nino pattern we end up with less activity in the Atlantic, but it’s the opposite in the Pacific. The [Pacific and Atlantic] basins act inversely to each other,” Sharp said.

As things stand, Sharp said, there’s about a 40% chance the climate pattern will remain neutral through the summer, which is the hurricane season, with about a 50% chance of it turning to El Nino.

“If that is the case and we do go into an El Nino for the hurricane season, we would expect less activity than normal for the Atlantic and potentially more activity that normal for the Pacific.”

While risk modelling takes “into consideration what we think the season is going to be like”, the insurance company generally takes a long term view, averaging out the effects of El Nino and La Nina.

“As far as insurance planning goes, we take it into consideration,” he explained. “We won’t actually change our planning … we don’t say, let’s slack off on what we’re selling. We continue to work on the long-term, averages.”

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From 2014-early 2016 an El Nino pattern was in place, which meant it was mostly quiet on the east coast, while there were several hurricanes that narrowly missed Hawaii off the west coast. A very brief La Nina followed, through the end of 2016 and early this year, Sharp said.

“In the past couple of years we’ve had a couple of really close calls in Hawaii,” he explained. “There have been so many close calls when we’re in that El Nino pattern.”

When a storm does connect though – a direct hit, rather than a close call – that’s when the company kicks into gear, calling in all their independent adjusters and temporary claims staff.

“When a storm is coming, like Hurricane Matthew, I’ll start mapping where our buildings are, where we’re expecting the storm to go, what wind speeds we’re expecting, what those wind speeds might mean as far as damage goes, what percentage of buildings we would expect with a claim, and we will start meeting several days before the actual storm hits,” he noted.

“And we’ll meet twice a day. A 50-mile shift in where the storm might go, or a 10-mile-per-hour shift in what the intensity could be, can lead to massive differences. We’ll start involving everyone in the company: the claims group, the modelling group, the IT group [to figure out phones and computers for the influx of temporary staff to cover claims calls]. It’s really pretty crazy how every corner of the company comes together.”

On the ground, they also prepare, Sharp said.

“How many independent adjusters do we need, how many engineers do we need, where should we be basing these people, when do we need to get them in there, which airports are going to be closed, where is it going to be safe to be staying?” he explained. “It’s a really fast moving time when those things are occurring.”


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