In The Public Eye: Is The Weather Changing?

Intro (00:00):
Welcome to the Alliant In the Public Eye podcast, a show dedicated to exploring risk management topics and challenges faced by today's public sector leaders. Here are your hosts Carleen Patterson and Justin Swarbrick.

Justin Swarbrick (00:19):
All right, welcome everyone. To another episode of in the Public Eye today, Carlene and I are going focus on the property market mainly on weather and how it affects the market. As we are into 2021. It's becoming painfully evident that property insurers had another challenging year. One of the statistics that has come out is Swiss Re is estimating that the industry is going to pay close to 85 billion in insured property losses, making it the fifth worst loss year ever for property insurers. Now, this is on the heels of 2018 being the third worst year ever and 2017 being the worst year ever for property insurers, much of this is being driven by weather related losses. So, the question that we have, and we want to try and answer today is the weather getting worse? With us is our guest Andy Siffert, who studies weather as a meteorologist.

And, and he's going to give us some further insight as to what is actually happening with the weather. One of the other stats that came out of 2020 is we broke a record. We broke a record for having the most weather events that resulted in $1 billion in property damage or more. So, is the weather getting worse? That's the question today. And Andy, we appreciate you being with us and we look forward to our discussion, but before we get into the weather, why don't you tell our audience a little bit more about your background and what you do.

Andrew Siffert (01:56):
Well first let me thank you for having me on your podcast here today. As you'll get to know me, I'm very passionate talking about the weather and its impacts the insurance industry. But yeah, let me tell you a little bit about BMS. We have about 450 people globally over 21 different offices, and really we're an independent, innovative specialist in providing comprehensive solutions and services to the insurance reinsurance wholesale capital market industries. And as you alluded to, I'm a meteorologist I've been actually in the insurance industry for about 18 years and you're thinking yeah, meteorologist and the insurance industry is not on TV, not the weather service really. It's very common for the insurance industry to employ meteorologists because I always like to say every insurance company is a weather company. One of their biggest spends is actually on the weather, casts, as you alluded to are a big deal in our industry. And I'm here at BMS Re basically supporting insurance clients and adding value through catastrophe response, CAT modeling, product development, scientific research, and really thought leadership doing podcasts like we are talking about here today and really helping insurance companies understand the weather. And I hope educate the audience here today of what's kind of going on. So that's kind of a little bit of background on myself.

Justin Swarbrick (03:23):
I alluded to this record breaking year that we had with 22 events resulting in over a billion dollars or more in damage. It's it certainly seems like to all of us that the weather is getting worse, but is it actually, can you speak a little bit to that for our audience today?

Andrew Siffert (03:44):
Wow. Okay. How much time do we have for this podcast? I mean this is going to be a mouth full of words here, but I guess first, you know, I think we always had put things in perspective first, and I just want to answer a few things about the comments you made earlier in terms of the weather's getting worse in terms of loss. So in reference to the NOA report, in reference to your Swiss Re report, you know, first off NOA’s a great agency. They contribute massively to saving lives on property, but I think we have to be careful when we look at losses and, and put things in historical context, you know, some of these loss studies that are done by NOA or even Swiss Re they'll go and adjust the losses for CPI or inflation, but with the industry insurance industry should really know is it's really not sufficient.

I think you need to take a full look at the social economic issues that have gone on historically and what it continue to go on. It becomes a much more complex problem. I always like to use the case of a Miami hurricane, as you may know, if you've ever been to Miami lately it's a hotbed of growth. It's not the Miami of 1929 or there's considerable development going on in Miami. So, let's say the last major historical hurricane, even in 1992, Hurricane Andrew to Miami. Miami was a much different place than it is now in 1992, versus it is now. So, I mean, just that development. So you can take Hurricane Andrews current loss and adjust it for CPI, but it doesn't account for what an event today might happen in the Miami area. Just given all the development and new high rises that have been put in place since the last cat five has hit the area.

Justin Swarbrick (05:26):
So Andy, you mentioned hurricanes, I believe in 2020, we set a record for the amount of hurricanes that we experienced. Are you saying that the hurricanes themselves are not getting more severe? It's that the property loss is increasing because of the increased development in some of those areas that, that we frequently see hurricanes like Miami, Louisiana, sometimes in the Northeast.

Andrew Siffert (05:52):
Yeah. One way to look at that is we were definitely seeing more area like the development. I just mentioned in Miami. When you look at this last hurricane season, it was pretty spectacular. If you just want to touch on the trends of what's going on with the hurricanes, for a minute, I mean, we had 30 names storms in the Atlantic basement. I mean, we all got very familiar with the Greek alphabet, which, I mean, basically I haven't done since I was in the high school fraternity class or, fraternity row, but, ultimately, I mean, really what matters as you alluded to the insurance industry is not necessarily how many storms are in the Atlantic basin, but how many are actually making landfall. And I always like the point that out, because that's actually very important to the insurance industry can have 30 name storms in the basin, but if only two make landfall or one make landfall, like in 1992 with Hurricane Andrew, it's like pretty impactful.

But this past year actually we had 12 main storms make landfall that most ever since 1916. But when you look at kind of the trends of landfall, like just even take the past three years, it's been fairly active or 2019, I should say is we had five main storms. We did potentially have a pretty big disaster, just a hundred, basically 120 miles east of the south coast of Florida with Hurricane Dorian. I mean, thankfully it did stall over South Florida, like getting back to the whole Miami example. I mean, that would've been pretty disastrous. 2018, we had five main storms Michael and Florence in 2017, we had five main storms, make landfall was Maria, Harvey and Irma. But I think we need to also remember we went through a pretty long period between 2006 and 2017 was really very few main storm landfalls and very, you know, actually no major hurricanes making landfall for that 12 year period.

And that actually was pretty unprecedented in our historical record. So, to answer your question in terms of like the trend of hurricanes making landfall, it's been pretty flat. We went through a very long period there where we actually didn't have any hurricanes really making landfall from 2006 to 2017, but we're kind of making up for that in the last three years. And even in 2020 with the 12 main storm landfalls. And when you combine that with just think of the development, that's occurred since 2006 to 2017, along the coast of the United States, and you all of a sudden you start getting more landfalls of course you're going to start getting larger losses. With the increase of value and other social economic factors that go along with just the cost of building materials is far outpacing, even inflation in 2020. Even if you went to the lumber store, wood is much more expensive than it really has ever been, or at least can quite some time. So, all these little factors add up when you start looking at the loss, that's why it's important. I always say to not necessarily focus in on the insured loss, but what's actually going on in terms of the true weather.

Carleen Patterson (09:05):
Yeah. So Andy, when it comes to the number of hurricanes, and I understand that over a longer period of time, we had a lot of years where we didn't have hurricanes hitting landfall, but since 17, so you've got four running years with a good number of them hitting. Is there something in the weather patterns that is making this be a little bit more frequent or is it still too early to tell since we really only have four years like that?

Andrew Siffert (09:31):
Yeah, it's very tough to kind of tie anyone predict a year into a longer term change and a particular weather pattern. Cause I mean, weather patterns basically change on a monthly or even weekly basis. And really it only takes one storm in the right atmosphere conditions to kind of find an opening and track towards the US, versus that high pressure were to stay in place and it would be kind of what we call a fish storm and head out to sea. So, what we are seeing though, in terms of like the last three years, uh, has been really warm sea surface temperatures in the Atlantic ocean, and that's going to contribute to more storms forming. And obviously when you have more storms forming it's just the probability of we have that many more chances of a storm making landfall.

It's not to say between 2006 and 2017, when we saw kind of a hurricane drought of landfalls, we didn't have warm sea surfaces temperatures because in that period, there was this different atmospheric conditions to prevent the storm from really making landfall. I mean, we, we saw storms make landfall during that period. We had Hurricane Ike, we had Hurricane Sandy and actually Sandy is just one of these unique storms that kind of made a right hook straight into New Jersey, which was kind of unprecedented in itself in our historical record. In terms of this past year, you might say that an atmospheric phenomenon in the central Pacific could have created conditions in the Atlantic ocean to create more storms because it produced less wind sheer. And you combine that with warm or sea surface temperatures that could have been the ingredients for why we saw more storms in the 2020, hurricane season.

Justin Swarbrick (11:17):
So Andy, what about convective storms? It seems like those are getting more severe too. And, again, I understand the development and the increase in development causing the losses to be larger, but there just seems to be such a focus on convective storm in the industry from underwriters that something's changed over the years. Is there anything new going on in the Midwest in terms of convective storms?

Andrew Siffert (11:43):
Yeah. So when we look at severe convective storms, I mean that should definitely be a red flag for the insurance industry in the sense that even just last year, there was about 30 billion of US insured loss over 40 different events. But what's interesting when I look at the data is there's a little bit actually of a disconnect in observations of this severe weather and the loss. So again, alluding to the trend and not to measure weather severity by looking out loss, but actually measured by the weather peril itself. When we look at that severe weather, hail for the insurance industry is usually the driver about 60% of our hail average annual severe storm loss comes from hail about 60%. When you actually look at hail observations, just the reports of hail when hail fell and caused damage. And this is recorded by NOA and the storm prediction center, those observations are actually quite low.

You know, we had about 4,600 reports of large hail across the us last year. And that's actually below average, that's actually the lowest it's ever been since 2005. So, hail didn't drive the losses, well, I mean, it probably drove some of the losses last year. So, then you say, okay, well how about tornado? What are we looking at tornadoes? We had about 1,484 tornadoes in the us last year. There were some big tornado losses. If you remember, like Nashville proved that a tornado can hit a metropolitan area. What's interesting though about the tornadoes again is, as I mentioned, there's 1,400 or so tornadoes, but the average actually is 1,300. So we were below normal on tornadoes. So it's okay. Yeah, we had Nashville, big tornado, but we still didn't have as many tornadoes.

And that just a matter of block of them hitting the populated area to cause loss. So, what's really driving the loss in 2020, it's actually the, probably the wind events. And if you remember, we had a really large wind event come across the Midwest through Iowa, which is called a derecho. And that, that impacted quite a bit of property. I think that event alone, I think just in Iowa is about, well, I think industry wise, it's about a $6 billion event. And if you look at wind reports last year, we actually had quite a few reports of wind damage across the us. Now what we actually saw last year, which kind of gets back to the other point of this increase in of severe weather, maybe hitting more populated areas, we actually saw more severe weather across the Southeast United States.

And if you look at a population map, there's more people across the Southeast United States, through Alabama, Mississippi, Tennessee, Georgia, South Carolina, North Carolina, in that area, Florida, there's more severe weather was recorded in those states than there was actually a recorded in like parts of, Denver in Colorado, Oklahoma. In fact, I just did a study yesterday for, an insurance client in Denver where we were actually, they had basically no hail in Denver last year and that's like, unheard of. And in fact you have to go all the way back to like 2000 to not have a true hail observation in the Denver metropolitan area. So it, it kind of comes down honestly to luck. There were a lot of places that were lucky last year, and there were a lot of places that were unlucky and unfortunately the Midwest like Iowa and parts of the Southeast were unlucky and that contributed to about 30 billion of insured loss.

Carleen Patterson (15:10):
Is that what we should tell our clients? You're just unlucky.

Andrew Siffert (15:14):
Well, I mean, severe weather is one of the, I mean it is kind of the weather, right? I mean, it does come down to luck, I mean, it's not necessarily even about weather. It's like, natural catastrophies, if you're in California, there's been a pretty lucky streak of no major earthquakes and that region. Right? So the luck definitely plays, a role here, I think for tornado specifically. I mean, it's amazing what a tornado can do and the damage it can do and how one property can be basically unharmed and the other one be wiped off its foundation. So, and a lot of that is just micro vertices within their tornado and them hitting that at the right angles and the different intensities that at that moment in time and that pass.

But I think there's obviously areas in the US that should experience severe weather. And, you know, in Iowa was one of those areas that you're going to get severe thunderstorms that move across the state. Unfortunately, it was just one of the larger thunderstorms went big basically through Des Moines and Cedar Rapids. It was quite intense. Some are calling it kind of an inland major hurricane, you know, these events happen every year. It's just unlucky that they actually hit a more urban area, but that's all built in these catastrophe risk models that we use to help us understand kind of the effective loss of a particular property. And, for the most part, they fare, fairly well. Right. When you, you take any given year, my house, like here in Minnesota where I'm at, you know, it was built in 1969 and still standing today. Right? So these return periods for major catastrophe are quite long. And so I think that's factored in these catastrophe as well that we use to help us understand risk.

Justin Swarbrick (16:55):
Yeah. We're going to do a separate podcast on modeling and how they perform and what they're used for in the industry. I imagine, as you examine this, Andy and your team examines it, is there anything we can do? I mean, is there really anything we can do to avoid these significant weather events, which in turn create increased property loss in the industry? Or is it really just about luck and we're unfortunately in a bit of a unlucky few years here.

Andrew Siffert (17:28):
I think there's many different ways to mitigate loss. And I think one of the very first steps that any property or any municipality or any, any corporate entity can do is mitigate that loss by taking risk management, resiliency steps. So, the first steps and really mitigating losses to build resiliency, and whether it's corporate or government need to focus a little bit more on investing into that risk management resilience, sustainability into that portfolio of risk that they they're managing. So regardless of whether the landscape of weather is changing, right, the winning solution here is to build better and manage better those properties by taking more resilient steps. And that comes down to, you know, on a particular building, what is the proper type of roof structure that potentially be put on a particular building? Is it metal roof is going to last longer and be much more resilient to hail versus a asphalt shingle, but the asphalt shingle roof is going to be cheaper, right?

So you got to weigh these benefits, but think longer term, and that's going to be the winning solution that would ultimately probably drive the risk tolerance down as well. Because you're building a building or when you redo a building, you're building to a better standard than what's made you expected in terms of how we built something in the past. So regardless of what, how the weather changes, whether it's getting more severe or not, you're building better. And you're mitigating that risk by doing that. And we should all be doing that whether it's personally or corporately or, you know, in our public entity side of things.

Justin Swarbrick (19:09):
Yeah. Makes that makes a lot of sense. Well, we've got a few more minutes left Andy. Is there any closing comments or is there anything you wanted to share with the audience before we wrap up?

Andrew Siffert (19:21):
Yeah, I think, I guess it's really just about putting things in perspective. I think again, don't get so focused in, on the particular headlines that you might read. Because there's often a lot more detail that that needs to be explained within those headlines. I'm a firm believer doing your own research. You know, weather is a very topical topic and people like to use weather as an excuse, but I think weather shouldn't be used as an excuse and we should actually use weather to, as I said, learn from and build better societies as a result of what we learned from the past. But don't build back to what we, we just had build back better. And ultimately when that event happens next time, it's going to be less impactful because of that. And I think that's one of the biggest things we can learn from, from any natural catastrophe and I'm not sure if we do that, enough.

Justin Swarbrick (20:14):
Well, we appreciate you coming on and sharing your knowledge with us. We're going to have more about the property market and what we are seeing, not just from obviously a weather perspective, but, but how the claims that we've seen over the past year are going to affect the market on a Gulf or basis.

Carleen Patterson (20:33):
We'll also be exploring some of the things that our clients can do with tools and some of them Andy alluded to, but you know, whether it's valuations or considering total cost of risk and short term gain for long term pain or let's do it the other way around in the short term, something might cost more but long term it's going to be the better solution. So, we'll be diving into some of those topics in more detail with some of the future podcasts as well.

Justin Swarbrick (20:59):
Thank you, Andy. We appreciate it.

Carleen Patterson (21:02):
Thanks Andy.

Andrew Siffert (21:02):
Thanks, for having me.

Justin Swarbrick (21:03):
Absolutely.

Carleen Patterson (21:04):
Well, we recognize this is a challenging time in public entity, risk management, and we hope that this information today in our future podcast will help you as resources as we navigate 2021 and beyond hope you enjoy this episode of in the public eye and for more information and additional podcast, please visit Alliant Public Entity.