Last year was a particularly hazardous one, with natural catastrophes causing excessive damages in what appears to be an ongoing trend of higher losses in the past decade, while also posing a danger in many U.S. communities to home ownership, a new report shows.
It was the seventh year in the last decade in which 10 or more weather and climate disasters exceeding $1 billion have occurred, according to CoreLogic’s newly released 2019 Natural Hazard Report, which highlights the disasters that occurred last year and looks back at those within the past decade.
The year was notable from a natural catastrophe standpoint: hail and flash flooding in Houston; an EF4 tornado in Ohio and an EF3 in Texas; the strong impact of Hurricane Barry on Louisiana; the estimated $3.4 billion widespread impact of Hurricane Dorian, the devastation of Typhoon Hagibis; and a few big earthquakes.
“Last year the world experienced severe weather events in the form of tornadoes, hailstorms, floods, earthquakes, hurricanes and typhoons,” the report states. “While there were more significant catastrophic events in previous years, 2019 delivered damaging events that demonstrate a continuing trend of higher losses.”
According to a report released by Marsh, global average commercial insurance prices increased 11% in the fourth quarter of 2019. Average price increases were driven principally by increases in property insurance rates as well as financial and professional lines, Marsh said.
The report cites data from the National Oceanic and Atmospheric Administration showing there were at least 14 events with losses exceeding $1 billion in the U.S., more than double the annual adjusted average (from 1980 to 2018) of 6.5 events per year.
Among the impacts of these events is rising mortgage delinquency rates, which often follow catastrophes, the report shows.
After hurricanes Harvey, Irma and Maria in 2017, serious delinquency rates on home mortgages tripled in the Houston, Texas, and Cape Coral, Florida, metro areas and quadrupled in San Juan, Puerto Rico, according to CoreLogic.
Hurricanes Florence and Michael the following year led to a spike in serious delinquencies in Wilmington, North Carolina, and Panama City, Fla., among other communities, while California’s Tubbs Fire in 2017 and Camp Fire in 2018 caused serious delinquency rates to spike by more than 50% in the Santa Rosa and Chico metro areas.
After experiencing the effects of the Mount Kilauea eruption, serious delinquency rates on the Big Island of Hawaii rose 0.3 percentage points (10%) between June and September 2018 while falling by 0.1 percentage points (5%) in the rest of the state, the report shows.
“Based on CoreLogic research, communities affected by wildfires, hurricanes, floods, tornadoes, earthquakes and other natural disasters in 2019 will likely experience an increase in mortgage delinquencies and shelter costs, and it can take more than 12 months for mortgage delinquency rates to normalize–and even longer for homes to be repaired or rebuilt,” the report states.
What’s going on over the past decade?
Tom Larsen, one of the authors of the report, offered a simple answer.
“There’s just more of us,” Larsen said.
More people in more properties to feel the impact of severe weather equates to higher losses on the whole, but it’s not just that the world’s population is increasing, home values are rising, as is the cost of construction and rebuilding.
“Cost per claim is higher and you’re seeing more claims because of the people that are there,” he said.
Larsen acknowledged the uptick in loss trends from natural catastrophes could also be a function of climate.
“There’s probably a climate signal in there, but it’s difficult to pull out,” Larsen said.
Also driving the loss trends is that more people are also moving into remote areas with higher risk.
One example is an ongoing development trend in California in which more homes are being built in and around the wildland-urban interface, where wildfires are more likely to impact properties, while in other parts of the country, the trend is bigger houses, which of course have bigger roofs, according to Larsen.
“If you have bigger roofs, you have a bigger target area,” he added.
Flooding was another major concern identified in the report.
The peril has gotten more attention in recent years with growing concerns over sea level rise caused by climate change.
A Bloomberg article published in Insurance Journal reports that climate change is spurring studies into atmospheric rivers, narrow ribbons of concentrated moisture that originate in the Pacific and can flow thousands of miles before dropping rain and snow on land, which have been blamed for creating billions of dollars in flood damage across the western U.S.
A study released in December by Scripps and the Army Corps of Engineers found that atmospheric rivers caused 84% of the flood damage suffered in 11 western states over 40 years through 2017. The average annual cost: $1.1 billion, according to the report.
Larsen noted that the private flood insurance market for homeowners may not be up to handling increased flooding – yet.
“There’s a large insurance gap,” Larsen said. “My expectation in the next few years is we’re going to be writing the story about less and less of an insurance gap.”
He believes more carriers will be willing to cover flood, and more policyholders will be willing to buy flood policies in the private market.
“That’s certainly what we’ve been seeing as a trend,” Larsen added.
Wildfires in California were the big natural catastrophe news in 2017 and 2018, but 2019 was a relatively quiet year.
However, Larsen believes the state’s wildfire risk bears close watching.
“There’s an awful lot of unburned areas,” Larsen said. “California is not off-risk, it’s still on-risk for fire. There’s still the potential for very large fire losses in California.”
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