Risk and resilience in the upcoming hurricane season: Part 1 & 2

Part 1

Brian Wood:

Welcome to Climate Check. This is Brian Wood, Senior Catastrophe Analyst and meteorologist supporting both Munich Re Specialty and American Modern, a Munich Re company. Today I'm joined by my friend and colleague Mark Bove, a meteorologist and Senior Vice President of Natural Catastrophe Solutions for Munich Re Insurance America. It's fantastic to have you back on the podcast.

Mark Bove:

Thank you, Brian. And congrats on your guest hosting spot.

Brian Wood:

Thanks. Even though you're no stranger to the listeners, maybe for those who might be listening to one of these for the first time, could you start out by telling us a little bit about what you do here at Munich Re?

Mark Bove:

Sure, Brian. My name is Mark Bove. I am a meteorologist by training. I've been with the Munich Re group for 24 years. For most of that time, I have worked in our corporate underwriting unit, helping test available catastrophe risk models and develop best practice for their use internally, as well as helping set budget scenarios for large risk scenarios in the United States. And for the past couple of years, I've been in our digital solutions unit, working on bespoke geospatial products for our clients.

Brian Wood:

Excellent. So the topic of the podcast today, we're going to be talking about hurricanes. We're heading into hurricane season this year, and we came off of a pretty light year, relatively speaking, from a hurricane loss perspective in the U.S. So why don't we talk a little bit about the factors that contribute to our part of the world, a little bit of a break in terms of those losses last year?

Mark Bove:

Yeah, Brian. It was a bit of a break in terms of losses, but in some ways surprisingly not of the activity in the Atlantic basin as a whole. When we were entering the 2023 Atlantic hurricane season last year, there really was a big question of whether the extremely warm SSTs across the Atlantic main development region would help counteract the expected impacts of an El Nino event in the Pacific Ocean that typically reduces the number of storms we see in the Atlantic.

As it turns out, we did not see the shear that we normally observe with an El Nino over the Atlantic. So that lack of the traditional shear we normally expect with El Nino event, combined with the warm SSTs in the Atlantic, allowed for a very active year. But we were quite fortunate, as you said. Only Idalia made landfall as a Cat 3 in one of the least populated sections of Florida, limiting losses as it came ashore. And the state of Maine was brushed by Hurricane Lee as well with some minimal loss. And even largely the Central America-Mexico-Caribbean were largely spared last year, which is quite fortunate.

Brian Wood:

Yeah, we were very fortunate that there was just enough to kind of keep the Caribbean quiet. And for the U.S. especially, that tends to mean that you're less likely to get Gulf hurricanes, ones that tend to come through the Caribbean or form in the Caribbean, although we did have that one window with Idalia.

Mark Bove:

And that's the shocking point. There really was just one window. For the rest of the season, most of the Western Caribbean and Gulf of Mexico was not really producing any type of convection that can turn into a storm. Nor were any tropical waves moving from the Central Atlantic into those regions as well and could potentially develop.

Brian Wood:

We were pretty fortunate in that a lot of the waves coming off of the African coast moving across the Atlantic seemed to gain latitude north or form early enough that it had a lot of chance to recurve or move out to sea. So how about the rest of the world faring last year with the hurricane season?

Mark Bove:

The rest of the world, obviously there's always a lot of activity and a lot of landfalls. What the impacts are on the locals and the insurance industry can vary greatly depending on where you are. For example, we had Typhoon Doksuri, which went into China last year, which caused, primarily via heavy inland rainfall and flooding, about 28 billion in U.S. overall losses from that event. New Zealand also had a quite substantial rainfall event associated with the tropical cyclone and caused several billion in damage there as well. But probably one of the most surprising tropical cyclone events last year was Hurricane Otis in the Northeastern Pacific, which rapidly intensified to a Category 5 strength before making a direct strike on the city of Acapulco.

And this is quite notable because historically we tend not to see Cat 5s moving into the Mexican Riviera coast on the Pacific side. We now, in the past five, seven years or so, have seen two major storms turn back into Mexico in that basin: Patricia and now Otis. And that really has a lot of big repercussions for construction and communities along the Pacific coast of Mexico who are typically not used to seeing that intensity of storms, nor is their building stock really designed to withstand high winds. It's more designed to withstand seismic hazards with the subduction zone along its coast.

Brian Wood:

It's interesting that we've seen that kind of switch flip in the Eastern Pacific. We've also seen it in the Gulf as well, where we're getting these storms that are rapidly intensifying just prior to landfall: Michael in 2018, and Laura in Louisiana. It seems like we've just kind of almost flipped a switch, where in the past this wasn't as common. It seems to be becoming more common with time.

Mark Bove:

Yeah, especially the past few years. Really, the 2000s and early 2010s were marked by storms weakening upon approaching shore. But we've really seen the opposite over the past 10 years. Whether, as you said, it's Michael in Panama City, Mexico Beach or others, we have seen these rapidly intensifying storms. And it is concerning, especially for life safety issues. When a storm can go from Category 1 to Category 5 in less than 24 hours, that means you have a lot of people that are unfortunately going to be in harm's way and never even have a chance to get out of it. And that's why proper building and construction in hurricane zones is needed, and places like Acapulco are going to need to rethink their wind safety building codes in light of Otis last year.

Brian Wood:

Some fellow meteorologists have done some studies that essentially showed in the Gulf of Mexico, where in the 1980s the extent of the warmest waters was somewhere in the central part of the Gulf of Mexico. So you had storms that would intensify in that area, but as they were coming to shore start to either maintain themselves or weaken. And now, almost certainly an artifact of climate change is the fact that those warm waters go right up to the coastline, and you no longer have that little bit of buffer there, where outside of peak season you can still get very, very strong hurricanes moving ashore.

Mark Bove:

Absolutely.

Brian Wood:

And so talking about the Gulf, we're going into the 2024 Atlantic hurricane season. As we record this podcast, there's already been a number of prognostications that have been pretty aggressive so far in at least the number of storms that are being predicted for the season. Can we elaborate a little bit on that?

Mark Bove:

Sure. You see organizations like Phil Klotzbach at Colorado State University coming out with very active if not hyperactive forecasts for the 2024 hurricane season. And the two primary reasons that we're getting such aggressive forecasts is one, as you mentioned just a minute ago, the waters in the Gulf of Mexico and the main development region of the Atlantic remain incredibly warm. In fact, for the first time in about a year, the average sea surface temperature in the basin is not a record, but still running very, very high. So this means there is a huge abundance of fuel available for any storms that form to develop and intensify.

Second, we have now a nascent La Nina developing in the tropical Pacific. And La Nina events in the tropical Pacific tend to decrease the wind shear that we see over the Caribbean Sea and the main development region of the Atlantic east of the Caribbean Islands. And without that wind shear that could potentially topple storms over, it means that basically all lights are checking green for anything that could be more conducive to help these storms develop and grow.

So the scientists are rightly concerned about it being a hyperactive season. I remember early in meteorology school, when you forecast a record, you better really be sure of it. And so this gives me pause when these people are going so far out on a limb of almost predicting that not just we get into the replacement list that supplements our main list of 20 storms, that we may be going well into it is quite a statement as how concerned meteorologists are for this year's season.

Brian Wood:

For sure. And as you mentioned, when meteorologists tend to forecast something that's just a huge number or a big record, we tend to be very skeptical and want to really break it down and make sure that it makes sense. But across the board, it's just everyone's going, "Yeah, this actually makes a lot of sense."

The one thing we don't know necessarily is about landfall risk. That's ultimately when it comes to losses in the insurance industry, that's where the rubber meets the road. So that is a little bit more difficult and that is governed by the high pressure that tends to be somewhere between the Azores and Bermuda. And as that moves, we can have landfall risks or windows where you can have storms move through. And that's really important and something we cannot predict.

Mark Bove:

Very true. And another aspect of climate change that we see are more intensified heat domes, particularly over land, like we saw over Texas last June and even over Morocco and Spain during the peak of hurricane season. And those high pressure actually help create an avenue over the central Atlantic where most of the storms that we saw last year passed. And it'll be interesting to see if a similar pattern forms. But as you said, these can be very fluid. But let's hope we do get a lot of open channels in the middle of the Atlantic to let these storms go safely north and into the colder North Atlantic.

And obviously there are other factors that are unknowns as well. How much influence will the Saharan air, the dust that blows off the Sahara have in influencing the season? Usually that's more early season activity, but if we do have an active Sahara air layer, which tends to suppress convection over the Atlantic, it could actually suppress and keep things a little quieter than we expect. But once again, even with these factors, everyone is believing this is going to be a near-record if not record season.

Brian Wood:

All right, Mark, we're going to take a pause here so we can pick up this conversation in our next episode. Listeners, please join me for part two of our discussion with Mark Bove, and head over to munichre.com/climatecheck for more information.

Part 2

Brian Wood:

Welcome back, listeners. This is Bryan Wood, senior catastrophe analyst and meteorologist supporting Munich Re Specialty and American Modern Munich Re Company, continuing my conversation with Mark Bove, meteorologist and senior vice president of Natural Catastrophe Solutions for Munich Reinsurance America, and we're talking about the latest climate change related risk considerations related to hurricanes.

For those who are new to the industry or wanting to learn more about climate change specifically, why are hurricanes such an important extreme weather event in the context of climate risk?

Mark Bove:

Sure. Bryan, they're reported because, one, they are very large-scale natural disasters. The impacts of a hurricane are not just necessarily focused around the eye with the core of highest winds. You can have hurricane force winds [inaudible 00:00:53] at a hundred plus miles from the center. You can have storm surges that extend out a hundred miles on one side of the storm. And, of course, you can have catastrophic inland flooding thousands of miles from where the storm comes ashore. So that's the first piece.

The second piece is that in certain parts of the world, there are tremendous amounts of insured value directly on the coast that are under severe threat from being impacted by major hurricanes. And by major, I mean categories 3, 4, 5 on the Saffir-Simpson Wind Intensity Scale that tend to do the most damage globally.

So we have cities like Miami with multiple billion, even New York City Metro with several trillion dollars of exposure is highly vulnerable as we saw with Sandy back in 2012. And it's not just the United States coast. Places like Japan, Shanghai, Brisbane, Australia, all are areas with very and large exposed insured values that can drive.

So because of the scale, the exposures that are risks of that types of hurricanes, and also knowing that in a warmer climate with a warmer ocean, there is more fuel for these storms to get stronger, that increases the relative risk to these cities. When a bad event happens, it's likely the probabilities are shifting that'll be more worse in the future than it could be in the past.

Brian Wood:

And that's a great way to jump off to the next topic I had, which is risk mitigation. We have all these areas with enormous building stocks. Not only for hurricanes, but other perils as well like wildfire. One of our best tools for risk mitigation is building codes. So can we talk a little bit about building codes, risk mitigation, risk transfer in terms of bolstering resilience to these events?

Mark Bove:

Absolutely. Hurricane Ian in 2022 along the Southwest Florida coast was an excellent laboratory to understand how Florida's building codes that were improved after Andrew and enacted in 2001, and then reinforced again in 2020, were doing locally and what we found is outside of the storm surge zones, you really didn't see any instances of structural damage to homes. And by structural, I mean losing the top of your roof completely that it's exposed, you lose a wall, that's types of structural damage. All modern construction for single-family dwellings built to the Florida code showed no signs, even in the most extreme winds of Hurricane Ian that exceeded 145 miles per hour.

This is a sea change as to when Hurricane Charley went through the same area in 2004, when we could see widespread structural damage among single-family dwellings and other types of construction. So the Florida building codes are actually doing a spectacular job at keeping the buildings up.

What is still not working as well is what we put on the as siding, like vinyl. Asphalt single roofs are still not performing as well as we would hope, and industry organizations that look at vulnerability and resilience, like the Insurance Institute for Business and Home Safety, which our organization helps sponsor, is showing that, yes, that these codes absolutely work and they really should be implemented nationwide because there is wind risk whether you're coastal in the United States or if you're in the middle of the US subject to tornado and derechos.

Brian Wood:

Yeah. Mark and I, for those who are listening, took a tour of the damage areas after Hurricane Ian, and it was really astonishing to see essentially where the eye of the hurricane hit. There's very little wind damage, but as you went further north to the areas that weren't hit by Charley in 2004, where the winds were much lower than the landfall areas, were the most damage was because those homes were over building stock that weren't damaged by Charley and, therefore, were much more vulnerable to the building codes. In some cases on Pine Island, we were looking at a couple of new homes that stood up well, and then everything around it was heavily wind-damaged and that made a huge difference. Those building codes are so very important and Florida's building code is the standard for the US that should be repeated over and over again across the coastlines.

Mark Bove:

I wholeheartedly agree and not just on the coastline. Inland as well. Look at the derecho in Iowa in 2020. Iowa only has a wind standard up to a three-second gust of 90 miles per hour. In that derecho, they had wind gusts in excess of 120. So these lessons really should be taken from Florida and applied.

But, of course, Ian was still a $50 billion loss, so to speak and we need to be careful. Because we have part of the problem solved, the structural piece, but there are other pieces that both material scientists and the insurance industry still need to better understand because almost one in every two houses in Ian lost their roofing. And that still adds up to a lot of damage that our industry ends up paying for and we're fine with that. That's our job to restore our clients to whole.

But ultimately, even having homes that aren't having any claims whatsoever, the roof stays intact, is better for the families within those homes and for the industry and the community that surrounds them as a whole. So hopefully, we can solve in the next decade or so these other two pieces then getting it into the actual environment as well.

Brian Wood:

Yeah, and we talk a lot about damage and numbers and materials and all of these things and your point about the people is what we want to come back to as well. This is about the people, ultimately. All the things we do with the data and the numbers and the dollars is to keep people whole and if we can get to a point to where people are in their cities after hurricane hit and the support services are available because the buildings are done better.

After Hurricane Michael, when I did a damage tour there, every pharmacy was out, every gas station was out and so people had to drive multiple hours away just to get gas and medicine and groceries. And that's all very important to keeping not only keeping people in their homes, but keeping the community as a whole functioning after these disasters.

Mark Bove:

I couldn't agree more, Bryan.

Brian Wood:

In preparing for our conversation, Mark, I came across a news article that stated that Munich Re was the best place to reinsure to withstand major hurricane losses. How do you think that reflects the Munich approach to this, and are there steps that anyone in the industry can take to expand insurability and help in this regard?

Mark Bove:

Sure. Obviously, I cannot talk to any individual insurer and what their needs are for reinsurance and any other type of reinsurance services.

That being said, Munich Re takes pride on its balance sheet and understanding the risks inside and out so we can provide that value and insight and capacity to our clients. We look very closely at the catastrophe risk models we use. Our teams of geoscientists vet them from the hazard set to the vulnerability and the financial model as well to try to understand, and then we're able to model our entire reinsurance portfolio.

Really the key is, is we want to make sure that we have enough capacity if a major event occurs, say in Miami, that is a real, real tail end, a major catastrophic event. We want to be able to pay all our obligations to our clients as soon as possible so they can get money into the hands of their clients and pump billions of dollars into the community fast. But also we want to be able to have that capacity, that paying out that large sum to our clients that is due will not create an insolvency for our organization. And also so much so that we have enough capacity that we can start writing business in that same region again the next day. So we take pride in looking at all the large catastrophic risks in great detail, multifaceted and multidisciplinary planning around the data around these events and, again, making sure that we can pay all our obligations if the worst of the worst actually happens.

I think that is the value proposition that Munich Re is best for, that even on your company's worst day, we will be there and we will be able to repay you for damage you've contractually sustained and, of course, pass that on to your clients as well. Obviously, we do this on the primary side with your organizations, Bryan, as well. They are bound by the same budget and assessment approaches and, of course, we plan to deliver that same value to our primary clients as well.

Brian Wood:

Absolutely. One more question before we end, Mark. You've mentioned Miami a couple of times, and this question kind of popped into my head. We've had recent major city hits in the US, New Orleans after Katrina flooding, Houston has had both Ike and the flooding from Harvey. Is there another big city that hasn't been hit in a while that is a concern to you, outside of Miami, which we know is the big one for hurricanes?

Mark Bove:

Oh, I would say there's two. One is Tampa, Florida, which has one of the larger older building stocks within Florida that is not built to the building code and also it's very low-lying. If you get the wrong hurricane approach where the winds are pushing water into Tampa Bay and into that area, we could have a very, very devastating event that probably would only be overshadowed by a Miami event in the State of Florida.

But other quickly, even though we had Sandy in 2012, I still don't think we've seen the full impacts of what a major storm can do in the New York Metropolitan area. The hits up in the Northeast are relatively few and far between, but a new event like the 1938, quote, unquote, New England Express or Long Island Express, a little bit further west over Manhattan could cause a lot of catastrophic damage to some of those old facades in Manhattan, not to mention debris shattering all those glass curtain walls in the area. So even though New York has had some glancing blows and some bad surge damage, they really haven't seen the full suite of what a major hurricane can do to a major populated area. And I honestly hope I never live to see the day when the inevitable happens in either of these locations.

Brian Wood:

For sure. Tampa has always been at the top of my mind in terms of both opportunity from a frequency perspective more likely and intensity. We had the 1921 Tarpon Springs hurricane that hit in Northern Pinellas County. It drove a lot of storm surge directly up Tampa Bay over a hundred years ago when most of the houses that exist weren't there and it still caused a considerable amount of damage. Now you've got 75% of the building stock in Hillsborough and Pinellas County that were built pre-Andrew building codes that are in a world of trouble if you repeat that event again.

Mark Bove:

Absolutely. As compared to Southwest Florida, where Ian came through, that building stock is so much newer and it really showed if Ian went through Tampa Bay, it would be a much bigger story than it already was.

Brian Wood:

Absolutely. All right, Mark, thank you so much for joining us today. And listeners, if you like this episode, please subscribe to our podcast for easy access to the past and future episodes of Climate Check. For more information, go to munichre.com/climatecheck.