The Risks of Hazard

Recently I’ve been researching where hurricanes have historically made landfall in the southeastern United States, and I have found little nuggets of wisdom that help drive underwriting in Florida. The variability of the frequency of hurricane strikes along the coast is surprising. Some places get nailed a lot, and some rarely get hit.

Godzilla is coming! In the past 10 days or so, the impending El Niño has been universally dubbed “Godzilla” because it is being forecast as the largest (or almost largest) such event in 50 years or more.

Headline writers love it:

• El Niño fascination grows colorful: It's turbulent, massive, Godzilla-like and even 'Bruce Lee' - The Oregonian
• Will ‘Godzilla’ El Nino terrorize KC this winter? Forecasters and Farmer’s Almanac disagree - The Kansas City Star
• Will ‘Godzilla El Niño’ Terrorize Colorado This Winter? - CBS Denver
• Shark Encounters Increase as El Nino Approaches - SFGate (this one deserves a link)
• What happens when ‘the blob’ meets Godzilla El Niño? Climate chaos and more hot, dry weather for B.C. - Canada’s National Post

The Global Language Monitor has added a new usage of “Godzilla” to the English Language Lexicon because of all this, and Your Dictionary has added a second definition to their Godzilla entry. To give credit where it’s due, here is Bill Patzert at NASA’s Jet Propulsion Laboratory who appears to have coined the phrase.

The coverage is very much focused on what types of weather we can expect in the autumn and winter from this year’s El Niño. Speculation is rampant on what California will experience, and almost every city in North America has a local look on what might be coming. Floods, droughts, warmer weather, colder weather, blizzards – it’s all there, depending in where you look on the continent. And it’s all reasonable…at least as reasonable as anything described as “Godzilla” can be.

A few weeks ago, I wrote about the New Madrid seismic zone, including how an earthquake there would be the costliest natural disaster in the country’s history. In those two weeks, the readership of that blog post has been enormous (thanks to Iain Bailey at Swiss Re for the original article!), and along with it came many questions and comments that mention the Cascadia subduction zone. So, let’s explore that seismic time bomb, including a comparison with New Madrid.

Until the 70s and 80s, the Cascadia subduction zone was unknown to science. Thanks to a July 2015 article in the New Yorker by Kathryn Schulz, it now has a high profile in the public consciousness. The article recounts the scientific detective story around its discovery, and describes the potential destruction to be wrought when (not if) the earthquake comes. It’s a fantastic – and very scary – article, and it has made the rounds of social and traditional media.

What are the similarities between the two seismic zones? Not much, beyond their shared potential for devastation (human and economic) of large populations.

The differences are more interesting.

I recently wrote a blog about how the future of underwriting software is now, exploring this AM Best video. One of the things that stood out was that underwriters are going to be more responsible for building and managing their sales pipeline. This is particularly prescient for those underwriting non-NFIP flood insurance because of the impending rush into that market – building strong portfolios will be extremely important because those portfolios will represent an insurer’s initial position in the market. As early adopters turn into the full industry’s arrival, competition will be fierce* for good risks. Differentiation will be necessary for success. (* it will probably be fierce, but not necessarily…but that’s another blog).

The main source of differentiation for an insurer is going to be the flood risk analytics they use. Ideally, those analytics will be based on their own experience, data, and expertise because when everyone uses the same models it is more difficult to differentiate. Quality of the insurance coverage will also quickly distinguish the players.

Swiss Re published a paper describing a potential natural catastrophe that would be the costliest nat cat event in U.S. (and, ipso facto, global) history. Other publications are picking it up for obvious reasons, including Insurance Journal and Carrier Management. The first surprise of many who read the paper is the event they are describing: Midwest earthquake.

Really?