Catastrophe Year in Review

Heading into 2013, there is a crucial opportunity for claims and risk managers to reflect on and learn from the disasters that left an impact on policyholders, insurers, and many others over the past year.

In short, after record-breaking destruction in 2011, natural disasters continued to cause extensive damage in the U.S. in 2012. Beginning with several major tornadoes in January, the U.S. faced severe hazard risk through the end of summer and into late fall. Even as tornado activity eased in May, catastrophic wildfires, freshwater flooding, and hurricane-driven storm surge hit homeowners across the U.S. and, in some instances, contributed to record amounts of damage and destruction.

Though the single most destructive disaster in 2012 was Superstorm Sandy, a record-setting wildfire season that continued a trend of fewer-but-larger fires also made headlines last year. A number of significant freshwater flooding events as well as heightened tornadic activity in the early months of the year also contributed to the billions of dollars in destruction the U.S. faced in 2012. To be sure, each year brings a unique set of hazards and, because the strength, severity, and geographic impact of these natural disaster events will change over time, an understanding of patterns in hazard activity, geographic vulnerabilities, and the properties exposed to each different type of disaster is crucial to managing risk.

Hurricanes

Hurricane activity in 2012 ominously began prior to the official start of hurricane season with two tropical storms, Alberto and Beryl, forming near the end of May. Most of the early tropical storms and
hurricanes did not make landfall in the U.S., but the damage from those that did increased throughout the season. Of the 19 named storms that occurred in 2012, six became Category-1 hurricanes, three were Category 2, and one was a Category 3. Here is a list of the most notable storms of the season.

Hurricane Isaac – The first hurricane to impact the U.S. in 2012 was Hurricane Isaac, which made landfall in the New Orleans area on Aug. 28. According to the National Weather Service, Isaac was a Category-1 hurricane with a wide wind field comprised of 80-mph winds that tracked slowly as it moved inland, resulting in significant storm surge and rainfall. The width of the storm, along with the slow progression, created a large mass of water that resulted in a storm surge of 12-14 feet, with some isolated areas experiencing even higher water levels, according to the Army Corps of Engineers.

Tropical Storm Debby – On June 26, Tropical Storm Debby came ashore approximately 150 miles north of Tampa on the Gulf coast of Florida with 40-mph winds. Although it did not generate significant storm surge as it made landfall, Debby dropped at least 25 inches of rainfall in a number of locations as it crawled slowly eastward across the Florida peninsula, resulting in severe flooding along its path.

Superstorm Sandy – Superstorm Sandy made the greatest impact in 2012 when it struck the northern Atlantic coast as a Category-1 storm in late October.

Dubbed “Frankenstorm” by NOAA in the days leading up to landfall, Sandy had several nontraditional characteristics that contributed to the estimated $50 billion in damage left in its wake, including an unusually broad span, a collision with a nor’easter moving across the Northeast, and a landfall that occurred during both a high tide and a full moon. These three conditions were responsible for record storm surge in several areas, including a surge height of 13.7 feet at Battery Park in lower Manhattan. Homes along the New Jersey coastline and New York’s Staten Island and Long Island were not only flooded but also, in some cases, moved completely from their foundations by the surge.

Superstorm Sandy, just one year removed from the devastation in the Northeast caused by Hurricane Irene, demonstrated the importance of preparation for events that are possible, even though they may not have a high statistical probability. While it is less likely that a hurricane will approach the New York area, especially two years in a row, the Gulf and Atlantic coasts do experience hurricanes and tropical storms with regularity. Most of the coastal areas do not have levee systems in place, and virtually all coastal areas are attractive locations for residential development.

Flood

Prior to Superstorm Sandy, flood events last year were relatively insignificant, with most of them occurring below FEMA’s 100-year flood levels. In fact, freshwater flood activity through October indicated a decline in flood losses from 2011, on par with CoreLogic’s historical trend analysis.

The broad scope and extreme conditions of Sandy, however, led to widespread flooding along the Atlantic coast and a significant increase in estimated flood losses for the year. Earlier in the year, Tropical Storm Debby tracked slowly across the Florida peninsula in June, dropping at least 25 inches of rainfall along its path. After months of sustained, widespread drought, Hurricane Isaac brought heavy rainfall and flooding to Louisiana in late August before continuing northward into the Midwest.

Wildfire

The 2012 wildfire season was the third-most destructive on record in the U.S. in terms of total acres burned, as of early December. The 15-year trend of fewer-but-larger fires continued into 2012 with fewer than 51,000 individual wildfires across the country—the lowest number recorded since 1989.

Several individual fires that occurred set records, however, including Colorado’s Waldo Canyon fire, which damaged or destroyed 346 homes, and New Mexico’s Whitewater-Baldy fire, which burned more than 297,000 acres. The rebound in wildfires that occurred in California was not unexpected given that by the end of August, approximately 63 percent of the U.S. was experiencing drought conditions as classified by NOAA. NOAA continues to predict a pattern of drought conditions through the start of 2013, suggesting the potential for another increase in wildfire risk across much of the country.

Tornado

Tornado activity in 2012, as in 2011, was once again not limited to the region commonly referred to as “Tornado Alley.” In fact, states located outside of the central and southern Great Plains experienced a significant number of tornadoes this year, as well as an increased share of the more destructive storms. Some of the most destructive tornadoes include the Jan. 22-23, 2012 outbreak of tornadoes in Alabama, which caused at least $30 million in damage to some of the same areas that were devastated by the April 27, 2011 outbreak.

Overall, January 2012 was one of the most active Januaries since recording began in 1950, with a total of 79 tornadoes reported across the country. In late February, tornadoes struck Illinois, Indiana, Kentucky, and Ohio. Harrisburg, Ill., experienced the most concentrated destruction, with more than 225 homes and businesses damaged or destroyed and an estimated $475 million in total damage.

Takeaways

It can be argued that the most important lesson to be learned from the disaster events of 2012 is that current or perceived hazard inactivity is not a reliable indicator of future inactivity. Take Superstorm Sandy, for example. Although located outside the Gulf coast/southern Atlantic region considered most susceptible to tropical storms, the northern Atlantic coast’s hit by Sandy proves that this area can indeed experience such events at levels of unprecedented severity.

It’s for that reason that evaluating risk in the areas in which disasters are most common only reveals part of the solution. To understand the true risk associated with natural hazards, it is important to obtain a full and accurate representation of both short-term and long-term exposure and across all potential areas of occurrence.  

Top Five Catastrophes

ISO’s Property Claims Service Unit said insured losses from hurricanes, tropical storms, wildland fires, and wind/thunderstorm events (which include flood, hail, and tornadoes) totaled almost $35 billion in 2012. Here is how they ranked the top five events for the year.

1 Superstorm SANDY

Date: Oct. 28-31, 2012

Estimated Insured Losses: $18.75 billion

Estimated # of Claims: 1.5 million

Affected States: CT, DC, DE, MA, MD, ME, NC, NH, NJ, NY, OH, PA, RI, VA, VT, WV

Date: March 2-3, 2012

Estimated Insured Losses: $2.5 billion

Estimated # of Claims: 300,000

Affected States: AL, GA, IN, KY, OH, TN

Date: April 28-29, 2012

Estimated Insured Losses: $2.5 billion

Estimated # of Claims: 370,000

Affected States: IL, IN, KY, MO, TX

Date: June 28–July 2, 2012

Estimated Insured Losses: $2 billion

Estimated # of Claims: 450,000

Affected States: DC, IL, IN, KY, MD, NC, NJ, OH, SC, VA, WV

Date: May 25-30, 2012

Estimated Insured Losses: $1.7 billion

Estimated # of Claims: 207,500

Affected States: KS, MN, NY, OK, PA, TX