NEW YORK--(BUSINESS WIRE)--Four thousand lives lost during the 2005 hurricane season, 80% of the city of New Orleans flooded, US $125 billion in overall damages and 1.7 million insurance claims filed: Hurricane Katrina, which struck the Gulf Coast on August 29, 2005, remains the largest-ever windstorm loss. To mark the 10-year anniversary of Katrina, a new risk bulletin from Allianz Global Corporate & Specialty (AGCS) Hurricane Katrina 10: Catastrophe Management and Global Windstorm Peril Review analyzes windstorm risks and losses and examines the business lessons learned from Katrina for future global windstorm loss mitigation, given increasing weather volatility.
“Katrina will always be remembered as an extraordinary natural disaster that affected millions of individuals and businesses and left an indelible impact on the global insurance industry,” says Hugh Burgess, head of corporate lines of AGCS. “Even without considering the influence of climate change, the prospect of increasing losses due to storms is more of a result of continued economic development in hazard-prone developed coastal areas. Preparedness limits windstorm exposure and Katrina has taught us many lessons on this front.”
Forty percent of natural hazard claims windstorm-related
Whether it is hurricanes in the US, typhoons in Asia or winter storms in Europe, strong winds can easily cause property and business interruption losses for companies, as an analysis of more than 11,000 AGCS major business insurance claims worldwide (> 100.000 EUR) indicates, from 2009-2013. Over 400 storm-related claims were filed during this period, meaning windstorm ranks fifth in the top 10 causes of loss for business according to value of claims. Windstorm losses account for approximately 40% of all natural hazard losses by number of claims and 26% by value, according to AGCS analysis.
The US is the top loss location, accounting for half (49%) of the global claims analyzed, followed by Europe (19%), Asia (6%) and Central America (3%). Growth of exposure is far outpacing take-up of insurance coverage resulting in a growing gap in natural catastrophe preparedness.
Marine sector accounts for majority of windstorm claims
Claims analysis reveals the maritime industry accounts for 60% of windstorms claims analyzed by number compared with 30% for property. Destruction of high-value pleasure craft, commercial vessels and cargo can significantly increase the loss tab. “Claims can also be incurred due to water ingress into ships damaging the cargo,” explains Captain Andrew Kinsey, senior marine risk consultant, AGCS. “Storms can also damage or destroy ports or coastal infrastructure, including warehouses and stored cargo, cranes, quaysides, terminals and sheds. Windstorms can have a negative effect on safe navigation, impacting channel depths and navigation aids. This can lead to extended port closures until safe navigation can be restored.”
Lessons learned from Katrina
Storm Surge - Katrina and other storms such as Sandy have helped to greatly improve catastrophe risk research and modeling. Katrina showed the impact of storm surge can often be more damaging than high wind speeds and that the physical size of the hurricane can affect the surge itself. Storm surge has been a contributing factor in half of the top 10 costliest storm losses in US history, with these five storms having collectively caused almost $125bn in insured losses.
US Levees - The flooding caused by Katrina showed the state of the levee systems in the US to be substandard and in need of repairs estimated to be $100bn, according to the National Committee on Levee Safety. There are many levee systems throughout the US that would reveal similar deficiencies if subjected to the same level of scrutiny as those in New Orleans.
Wind Damage - Most of the wind damage caused by Katrina occurred to the building envelope, comprising of roof covering, walls and windows. After Katrina, Allianz developed enhanced roof surveys, placing greater scrutiny on the condition and age of roofs.
Demand Surge - The aftermath of Katrina was marked by a surge in demand for building materials, resulting in rising prices and supply shortages; this can also have peripheral loss consequences, as were seen post-Katrina with the use of substandard, hazardous resources.
“Today, the Gulf Coast is better prepared to withstand the effects of a hurricane due to better education, improved construction guidelines and increased third party inspection,” says Thomas Varney, regional manager, North America, Allianz Risk Consulting.
Extreme weather risk mitigation
Based on Allianz’s analysis, the severity of losses from weather events, including windstorms, is increasing. The average amount paid for extreme weather events by insurers between 1980 and 1989 totaled $15bn a year. Between 2010 and 2013, this rose to an average of $70bn a year.
Adequate preparedness before a storm arrives can mitigate potential losses, particularly in areas such as construction sites that are extremely susceptible. The four primary areas of windstorm loss mitigation are:
- Pre-windstorm planning includes the development of a comprehensive, well-tested emergency plan, site and equipment inspections and preparations for possible flooding.
- During a windstorm, response personnel should monitor for leaks, fire and damage.
- After a windstorm, the site should be secured to prevent unauthorized entry. An immediate damage assessment should be conducted if safe to do so.
- Business continuity management is crucial as just-in-time production, lean inventories and global supply chains can easily multiply negative effects. Property damage and business interruption are usually covered by insurance policies, but often there is loss of market share, suppliers, clients and staff. Businesses should develop and test business continuity plans and communication cascades.
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About Allianz Global Corporate & Specialty
Allianz Global Corporate & Specialty (AGCS) is the Allianz Group's dedicated carrier for corporate and specialty insurance business. AGCS provides insurance and risk consultancy across the whole spectrum of specialty, alternative risk transfer and corporate business: Marine, Aviation (incl. Space), Energy, Engineering, Entertainment, Financial Lines (incl. D&O), Liability, Mid-Corporate and Property insurance (incl. International Insurance Programs).
Worldwide, AGCS operates in 29 countries with own units and in more than 160 countries through the Allianz Group network and partners. In 2014, it employed more than 3,500 people and provided insurance solutions to more than half of the Fortune Global 500 companies, writing a total of €5.4 billion gross premium worldwide annually.
AGCS SE is rated AA by Standard & Poor’s and A+ by A.M. Best.