Over the past several months, the Northeastern U.S. has experienced abnormally dry conditions leading to a drought that could last into the fall. Now, it is facing a different problem with the looming risk of heavy rain and wind from Tropical Storm Hermine.
Due to a mass of dry air, Hermine could move beyond the southern U.S. into the Eastern Seaboard this weekend, threatening certain areas in the mid-Atlantic region with heavy wind and rain and posing a risk of damage to some coastal communities, according to AccuWeather.com. This has led to flooding concerns among the insurance industry.
“For a storm like this where wind speeds aren’t that high, the main concern would be storm surge and inland flooding,” said Andrew Higgins, technical manager at Allianz Risk Consulting. “When you think of a hurricane, you typically think of wind damage, but storm surge flooding can actually produce even more damage.”
Florida’s Gulf Coast is at the epicenter of the storm, which has weakened as it moves inland. The National Hurricane Center differentiates a tropical storm as a cyclone with maximum sustained winds of 39 to 73 miles per hour, while a hurricane is defined as a cyclone with maximum sustained winds of 74 miles per hour or higher. Although the storm could weaken further as it hits the Atlantic, the effects of rain and wind along the Eastern Seaboard could lead to flash flooding, fallen tree limbs and power outages, AccuWeather.com also reported. With this in mind, the insurance industry has taken steps to identify at risk areas and worked with clients to develop pre-emergency plans to mitigate any damages, Higgins said.
Learning From Sandy
“Hurricane Sandy was an event that showed [the insurance industry] that a very weak storm can cause tremendous damage,” he said. “When Sandy actually made landfall, it wasn’t a hurricane or tropical storm – it was just a strong winter storm that didn’t have hurricane force winds. Depending what happens when this type of storm makes landfall, it can produce tremendous damages.”
Hurricane Sandy, which impacted the East Coast in 2012, hit at high tide and moved West – a move that pushed more water on to the shore than is typical and caused storm surge flooding, Higgins explained. Flooding is the nation’s number one natural disaster, with roughly 25 percent of all flood insurance claims filed in low-to-moderate flood risk areas, said Loretta Worters, vice president of communications at the Insurance Information Institute.
“Even though you may think your community has little or no risk of flooding, the reality is that anywhere it rains, it can flood,” she said, adding that it is important to have an evacuation plan in place and the right flood insurance coverage. “Hurricane Sandy prompted a reevaluation of how the New York metropolitan area prepares for and deals with major disasters. There was a lot of loss for businesses, which didn’t properly prepare. They didn’t have the right type and amount of insurance.”
Flooding Concerns as Home Values Rise
One of the biggest concerns related to flooding for the insurance industry today is the increasing value of homes along the East Coast, Worters said. Exposure to windstorms and high property values combine to make Florida the area with the highest potential for losses, and New York’s Long Island the second highest, she explained. In New York, the value of insured residential and commercial coastal property was $2.92 trillion according to a 2012 study by AIR Worldwide, representing 62 percent of the area’s total insured property values. Other states where insured coastal property values exceeded 50 percent of the state’s total in 2012 were Connecticut, Maine and Massachusetts, the study found.
“It’s too early to tell, although the [storm’s] trajectory appears to be the Eastern U.S,” Worters said. “I can say that insurers are prepared both logistically and financially for whatever mother nature has to bring this hurricane season. Our claims paying capacity is at or near an all-time record high at the primary level and at a record high in terms of reinsurance and capital markets capacity through catastrophe bonds and other such instruments. There’s simply no question that, financially, the industry is prepared.”
At risk areas for Tropical Storm Hermine are expected to include Virginia Beach, Va., Ocean City, Md., Atlantic City, N.J., and Rockaway, N.Y. However, it is too soon to determine the exact Northeast impact of the tropical storm if it hits, according to the National Hurricane Center. This seems to be the trend for this Atlantic season, as the National Oceanic and Atmospheric Administration stated in a May report that uncertainty in forecasting climate signals that influence the formation of Atlantic storms have made this 2016 hurricane season particularly challenging to predict. Despite these challenges, the insurance industry is ready, Higgins said.
“From a large property perspective, we will have a good idea what facilities could be affected prior to any event,” he stated. “Something like this isn’t a big deal for the industry if we’ve done our job right.”
Peak Atlantic hurricane season typically runs from the beginning of June until the end of November.
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