The Great Storm of 1987 – 30 years on

After the devastating effects of Storms Harvey, Irma and Maria on the US and Caribbean Islands, we revisit the great storm of October 1987.  Experts are already saying that Storms Harvey, Irma and Maria could end up being three of the costliest storms in modern times. AIR Worldwide has put potential insured losses for the three storms in total at an astonishing $155bn. We are lucky in the UK that we don’t get storms of this type hitting our shores. Indeed, major storms causing losses in excess of £1bn are rare events in the UK. On the 16th October 2017, it will be thirty years on from the Great Storm of 1987.

Referred to in the industry as ‘87-J’, the storm took everyone by surprise and at the time, was classed as the UK’s worst storm since 1703. It still remains one of the most severe and costliest windstorms the UK has ever experienced. One in six households made a claim at the time and losses to the industry for commercial and residential cover exceeded £1.3bn.

Striking in the middle of the night, the 1 in 200-year storm left behind a trail of damage and devastation in the South East of England and Northern France with 18 people losing their lives and extensive damage to property and infrastructure. Many houses were without power for several days and fallen trees blocked roads and caused travel chaos. An estimated 15 million trees were uprooted and Seven Oaks famously became One Oak.

The worst affected areas were parts of Greater London, the Home Counties and the East of England. The South East of England experienced unusually strong wind gusts in excess of 81 mph lasting for 3 to 4 hours and gusts of up to 122 mph were recorded at Gorleston, Norfolk.

The exact path and severity of the storm were very difficult to predict using the forecasting methods and data available at the time.  The Met Office’s Michael Fish faced a backlash for dismissing a viewer who had asked about whether the UK could expect a hurricane but at the time it was hard to forecast the precise path the storm would take. The path of the storm and the direction of the wind were very unusual; running from south to north, with the storm striking the more densely populated areas of the South of England.  The South of England has higher concentrations of sums insured and this resulted in a large loss for the Insurance Industry. Subsequently, changes were made to the way forecasts are produced and the National Severe Weather Warning Service was created.

A better insight into windstorm risk

Data modelling and analytical tools to help underwrite and price property risks accurately for natural perils have come a long way since 1987 when data on individual properties was scarce and geographic risk assessed by postal district. Insurers are now much better equipped to gain an in-depth understanding of risk exposure with access to risk models that are based on up-to-date, accurate information and that take account of changing risk patterns.

Business Insight’s ‘Storm Insight’ risk rating model. is based on extensive research, huge volumes of explanatory input data and cutting-edge analytical techniques. Storm Insight utilises the largest source of storm claims information available in the UK, detailed property vulnerability data for every street and over 100 million historic windspeed data points recorded in urban areas across the UK.  We also have access to an archive of actual storm event footprints over the last 150 years to gain insight into rare events such as the 87-J Storm.

What would the industry loss be if 87-J were to happen again?

In 1987 the losses from the great storm on 17th October resulted in over £1 billion in insured losses to domestic property as well as significant damage to commercial property. Things have moved on since then, in terms of housing development, levels of affluence and insured values at risk. Over the last 30 years, there have been significant increases in housing development across the South of England in areas that were in the path of the storm in 1987.

Official figures from ONS show the number of residential properties in England increased by 28% between 1987 and 2017. In London (Outer and Inner) the increase has been 32%. Coupled with that inflation has more than doubled over the last thirty years and, perhaps more significantly, the wealth across the South East of England and London has increased enormously. Many more properties across the housing stock have been extended in 2017 compared with 1987 and the total insured values at risk is of an order of magnitude higher. The level of wealth is also far higher with one in ten households now reported as having assets worth more a £1 million.

If the UK were to encounter the same storm again in October 2017, the loss to the UK Insurance Industry would not be in the same league as recently reported losses in the USA and Caribbean though it would still break all previous UK records. In our view, it is likely that losses to the UK insurance industry for such an event would exceed £6bn.

The floods of Summer 2007: 10 years on

Whilst the UK has been enjoying very hot temperatures recently, 10 years ago it was a different story.

The Summer of 2007 was the wettest since rainfall records began in 1766.  Heavy rain triggered two extreme rainfall events; on 25th June and again on July 20th.  The Met Office reported that from May through to July 2007 more than 387mm of rain fell across England and Wales which is double the average for the period. Despite a relatively dry April, by mid-June the ground was saturated and low sunshine levels meant that there was little evaporation.

On 25th June, intense rainfall led to severe flooding in parts of the North East including Sheffield, Doncaster and Hull; areas in which the level of penetration of insurance is low compared to other parts of the UK.  In Hull, over 6,000 properties were flooded and more than 10,500 homes evacuated as flash flooding led to drainage and sewage systems being overwhelmed.  The flooding caused major disruption to homes and businesses with almost half a million people without a water supply for up to 3 weeks and left many residents unable to return to their homes for up to a year.

More heavy rain on July 20th caused flooding in many parts of England and Wales with some areas hit particularly bad such as Gloucestershire, Cambridgeshire, Wiltshire, Hampshire and Oxfordshire where properties were flooded for the second time in less than a month.

 The impact on the insurance industry

The Environment Agency (EA) estimated the total costs of the 2007 floods to be £4 billion.  Around £3 billion of this loss was covered by insurance, making this one of the costliest events to date for the UK insurance industry.   In terms of insurance claims, the ABI reported around 165,000 claims with 132,000 of those claims for damage to domestic households.   Thankfully this was a rare event and believed to be somewhere between a one in 500 years and a one in a 1000 years event. This estimate though is very much a guess given the amount of data used to base this estimate on and with a changing climate calling into question the assumptions underpinning the analysis.

How flood risk mapping has changed since 2007

Whilst it is not unusual for the UK to experience extreme rainfall in the Summer, a much higher proportion of the flooding of Summer of 2007 was due to surface water flooding rather than any other type of flood risk (e.g. river flooding). By its very nature, surface water flooding is very localised and is caused by large volumes of rain water, making it very difficult to accurately predict exactly where flooding will occur geographically.

At the time, there were no surface water flood maps and insurers did not factor it into their ratings.  Today over 3 million properties are estimated to be at risk of surface water flooding in the UK.

Following the 2007 floods, the Pitt Review found that work was needed to improve the management of flooding from surface water and poor drainage.  It also identified the need for surface water flood maps for England and Wales. Subsequently, JBA Consulting developed the first nationally produced model of surface water flooding to supply to the EA.

The Flood Map for Surface Water (FMfSW) in England and Wales was developed in 2009 and included:

  • an additional rainfall probability
  • the influence of buildings
  • reduction of effective rainfall through taking account of drainage and infiltration
  • a better digital terrain model that incorporated the Environment Agency’s high-quality LIDAR data.

In 2013, an updated Flood Map for Surface Water (uFMfSW) was produced.  The new surface water flood map for England and Wales shows the worst-case flood extents, depths, velocities and hazard ratings for the 30, 100 and 1,000-year return period storm events of one, three and six-hour durations.

The EA maps were not intended to be used for insurance purposes to assess the risk to a particular property but were intended to provide an indication of whether your area may be affected by surface water flooding and to what extent.

Lessons learned for the future?

Recent flooding events have revealed the UK’s vulnerability to extreme rainfall events.  Peter Stott, Head of the Met Office’s climate monitoring and attribution team, believes there is strong evidence that extreme rainfall events are increasing and are likely to become more frequent in future years.

The general scientific consensus is, however, that the summer 2007 floods were not a “climate change event” but rather were a consequence of a combination of unusual (but normal) events such as prolonged heavy rainfall and saturated soil which made it unable to absorb the additional rainfall.

One thing that is clear is that this problem is not going away anytime soon. The NFRR (National Flood Resilience Review) concluded in September 2016 that it was plausible that rainfall experienced over the next ten years could be between 20% and 30% higher than normal.

Insurers are ensuring they are better equipped to deal with the impact of extreme weather events by using data models that are based on up-to-date information and that take account of changing risk patterns to better predict, assess and monitor risk. However, this is not just an insurance issue; it involves government, house builders, local authorities and insurers all working together to ensure the UK becomes more resilient to flooding. With a changing climate and potentially more frequent and more severe flood events in the future, we need to make sure that we take action considering what could happen – failure to adapt is not an option.

Current research indicates that if we are not able to control the average rise in global temperatures then we will subsequently see a significant increase in the risk of flooding. For example, failure to constrain average global temperature rises to within 4 degrees will see the overall risk of UK flooding increase by 150%. It’s a problem that won’t go away and one that needs to be addressed now, not after the next cluster of events.

 

Flood, building on flood plains and the profile of those at risk

It is estimated that there are currently 1 in 6 properties or 4.7 million properties in Great Britain at risk from flooding, with 2.7 million properties at risk from flooding from rivers and sea alone.  Between 2001 and 2011, around 200,000 new homes were built on land that has a significant chance of flooding, either from a river or the sea. During the 1990s, this figure was even higher as there was less focus on flood and no obligation on planners to carry an analysis of flood risk at the time.

After the devastating effects of last winter’s storms and the subsequent costs to the insurance industry, building residential properties on flood plains continues although admittedly not in the same volumes.

Recent figures obtained by the i newspaper under the Freedom of Information Act show permission has been given to build more than 1,200 new homes on flood plains despite official objections from the Environment Agency about the risk of flooding on such sites. With all the publicity and available data relating to flood risk, it does seem slightly unbelievable that construction even at these levels is allowed to proceed, or at least without an obligation on builders to ensure that properties are built to be flood resilient.

New housing built in areas thought to be protected by flood defences may also be more at risk than first thought. Flood defences are built to withstand a certain magnitude of event, e.g. a flood with an estimated return period of 1 in 200 years, yet the underlying techniques modelled from relatively small data samples are based on extreme value theory which is sensitive to the underlying assumptions. I know there are still some people in senior roles in the world that are sceptical about climate change, however it does undermine the accuracy of these models and mean that defences may be more vulnerable than when first built or constructed. A good recent example being in Carlisle which flooded in 2005 (1925 homes and businesses) with flood defences that were breached. The defences were improved at a cost of £38 million yet these failed again in 2015 following a more extreme event than had been considered in the planning.

Profiling those areas hardest hit by flooding
We used our geodemographic risk profiling tool Resonate© to analyse the demographic profile of those affected by the Winter floods in 2015 in Carlisle and areas of Cumbria.   Our analysis revealed that there was an over-representation of properties flooded from working class and disadvantaged rural areas across the distribution of those hit.

Further analysis of these areas revealed a large number of properties flooded were from the Resonate lifestyle group ‘Rural & Village Survivors’ and those worst affected were predominantly from ‘Blue Collar Heartlands’; which are characterised by blue-collar workers in pre-war terraced properties where the proportion of terraced properties is almost thirteen times the UK average percentage. There is a high proportion of this type of neighbourhood in Carlisle.

Looking at all the areas across the UK that have a high risk of flooding does reveal that there is an over-representation of older, disadvantaged and more vulnerable neighbourhoods. In the future, we will no doubt continue to see more occurrences similar to that of Carlisle with poorer and more deprived neighbourhoods being disproportionately hit.

Conclusion
As long as there is still a demand for new houses, building on flood plains will continue. There is an increased demand for new housing particularly in the South East in areas where flood defences do exist, though climate change may limit the level of protection envisaged when some of these defences were built. A geodemographic analysis of the make up of the high-risk flood areas is quite startling – higher volumes of older, more disadvantaged and more vulnerable members of society dominate.

This highlights the important role that insurance plays and how the availability of affordable flood insurance for everyone is essential.  The introduction of Flood Re goes some way towards offering flood-prone properties a degree of cover but does not yet guarantee affordable insurance for everyone. The Government will need to put more investment in maintaining and improving flood defences and will need to look at helping make properties in the highest risk areas more resilient to damage from flooding.

Long range Winter forecast 2016/17

The past few days have been distinctly chilly and have fuelled speculation of a harsh winter to come.  After last year’s mild and very wet winter, we look at early indications as to whether this is an accurate reflection.

There is an art to reading and understanding seasonal forecasts issued by the various weather services of the world.   Very few of the available forecasts use the same metrics making a consensus very difficult.

The Met Office released their 3-month outlook the beginning of November and in it they highlighted the risk of a cold start to the winter, but they were quick to point out that “This does not necessarily imply that the UK will experience cold and snow – in fact, the most likely outcome is for conditions to be relatively normal on average over the next 3 months.”

We asked our data partners at Weathernet if there were any indicators to suggest we are heading for the severe winter the press is speculating about.  The Weathernet team advise that beyond two weeks ahead, all forecasts should be treated as very speculative.

However, they report that certainly cold days – and night time frosts – are set to persist for at least another week. According to Steve Roberts of Weathernet this is due to a combination of factors and these include ENSO (El Nino Southern Oscillation) in a neutral state, QBO (Quasi-biennial Oscillation) in its easterly phase, SST (Sea Surface Temperatures – around Newfoundland) that are very warm, and the record lack of Arctic Ice.  So, the odds are already stacked significantly in favour of a December that is considerably colder (and drier) than normal.

Beyond then, from late January into February, things are less clear, or certain – but there are some grounds to believe conditions might revert to stormy and wet, leaving winter 2016-17 as a whole only a little colder and drier.

Beyond then, from late January into February, things are less clear, or certain – but there are some grounds to believe conditions might revert to stormy and wet, leaving winter 2016-17 as a whole only a little colder and drier.

If we do see temperatures as low as those of winter 2010/11, the insurance industry should be ready to brace themselves for a large number of Freeze claims.

The next big climate risk?

supervolcanoes and climate change1816 – the year with no Summer, dramatic climate change and a worldwide recession.  What caused it and could it happen again?

Exactly 200 years ago there was a dramatic change in the earth’s climate. It snowed heavily in July, the River Thames was frozen over, crops failed and there was a worldwide recession. Similar events are believed to have also brought about a dramatic change in climate during the Middle Ages often referred to as the ‘Little Ice Age’. What caused this and more importantly could it happen again?

Scientist believe that the ‘Little Ice Age’ was caused by the cooling effect of a large volcanic eruption or ‘super eruption’.   The last recorded supervolcanic eruption was 201 years ago at Mount Tambora in Sumatra, Indonesia in 1815. It had a massive impact on the world economy due to damage to human life, property, machinery and agriculture and severely impacted the world’s climate for many years afterwards.

Tens of thousands of people were killed by the eruption and in subsequent months, thousands more people died in the surrounding areas from starvation due to the resulting crop failures and disease.    Twenty-four hours after the eruption, the ash cloud that had formed is reported to have covered an area approximately the size of Australia.  This ash cloud took years to clear, changing the climate dramatically and causing a ‘volcanic winter’ that blocked out the sun for between six to eight years.

With the resulting lowering of temperatures, 1816 became known as the year without Summer; with snow drifts on hills until late July and it is reported that the Thames was completely frozen over in September.  There was a subsequent worldwide recession. A similar event happening today would be catastrophic.

supervolcanoesYellowstone National Park, Wyoming, USA has one of a number of active supervolcanoes, although the last eruption is believed to have been over 70,000 years ago.   The United States Geological Survey (USGS) conducted a study on Yellowstone. The study used a program called ‘Ash 3D’ to model the effects of a Yellowstone super eruption, focusing on how much ash would fall, how far it would travel and the major effects it would have on infrastructure.

The study found that cities up to 300 miles away from Yellowstone would be covered by up to three feet of ash.  With the sun not able to penetrate the thick blanket of ash and particles in the atmosphere, the average global temperature would drop by an estimated 10ºC for about a decade which would have a dramatic impact on Earth.  Scientists think that a succession of large volcano eruptions had a similar impact on the climate in the Middle Ages when very severe winters were more frequent.

NASA have also been using state-of-the-art climate models to simulate the response to a major volcanic eruption.  They found that some types of evergreen and deciduous trees virtually disappeared for a number of years due to the lack of sunlight.  However, despite all the scaremongering from the press, the Earth’s climate is more resilient than once thought to a supervolcanic eruption. The research from NASA showed that the climate returned to near normal conditions within a decade in most simulations.

Scientists are continuing to monitor the pressure of underground magma.  From these observations, they have concluded that a large scale eruption is not imminent.  Using various factors and calculations, they suggest a confidence of at least 99.9% that 21st century society will not experience a Yellowstone super eruption.

Will Summer ’16 bring a surge of subsidence claims?

deckchair squareThere was a lot of speculation by the press after Easter that Summer 2016 would be the hottest for 40 years.  Several statements were made by long range weather forecasting companies in the press that the UK would be headed for a long, dry and hot Summer. In contrast, the long range forecasting model from our data partner Weathernet indicated this Summer to be mild but much wetter than average. Given the extremely wet start to June, Weathernet appear to be right and a surge in Subsidence claims seems unlikely at the moment.

We haven’t had a surge in Subsidence claims for over a decade and these have been more frequent in earlier decades. What should insurers expect when we do get the right conditions for a surge in subsidence claims?

The British Geological Survey (BGS) estimates that 1 in 5 homes (or 6.5 million) in the UK are at risk of subsidence.  Houses built on clay soil are particularly susceptible due to the clay soil shrinking during periods of drought.   It is estimated that around 70% of subsidence claims are as a result of clay shrinkage. Other external causes of subsidence are low rainfall, influence of trees and other vegetation next to properties, leaking drains and erosion due to flooding.

drought smallThe ABI statistics show that UK property insurers receive around 35,000 domestic subsidence claims in a normal year, at a cost to insurers of around £250 million.   With an average subsidence claim having a value of £15,000, insurers need to gain a deeper understanding into the potential risks of subsidence claims.

With an average subsidence claim having a value of £15,000, insurers need to gain a deeper understanding into the potential risks of subsidence claims.

What can the industry expect in an event year?  The dry summer of 1989 resulted in the number of claims reaching 60,000 for the period 1990-1991.   At this peak, subsidence claims surpassed over £1.1 billion in today’s money for one year. Subsequent hot, dry summers of 2003 and 2006 also led to an increase in subsidence claims and large costs to the industry; with 54,100 claims in 2003 costing an estimated £400 million and 48,000 claims in 2006 estimated to have cost around £301 million.

The construction industry and loss adjusting industry have been become much more efficient at managing claims and carrying out remedial action cost effectively, so the average subsidence claim size has dropped in real terms. However, the same volatile cycle in terms of the number of claims related to weather keeps recurring and when we have had a dry summer this has resulted in a spike in claims compared to the previous year.

Whilst we haven’t experienced an event as extreme in terms of number of claims since 1990-1991, climate change may make claims volumes in the future much more volatile. It is this volatility that can take an insurer by surprise and hit the book hard, turning a promising set of numbers into a poor result for the year.

Legislation relating to solvency requirements and pressure to prove capital adequacy has prompted many insurers to make increased use of mapping technology and external data models to understand their exposure to a ‘worst case’ scenario.  This type of analysis involves an insurer comparing the vulnerability profile of its book of business and its geographic concentration in the context of a ‘worst case’ scenario. The problem is ‘what is a worst case scenario?’

This question is difficult to answer and would be slightly different for each insurer as it would need to be answered in the context of the property profile of each insurer’s book as this would have a marked effect on the degree of vulnerability to subsidence risk. Property vulnerability and understanding which policies are prone to making a claim is a large part of the overall risk profile. For example, it is worth making the point that areas of modern housing are much less likely to be affected. Also areas of older housing that have been hit in the past will have had the most vulnerable properties strengthened via partial or full underpinning. New properties are built to different standards with deeper foundations than certain older properties and so in general have lower vulnerability. Property type is also important, for example, single storey dwellings or Bungalows are lighter structures and so in general these are more vulnerable to damage through smaller amounts of ground movement than say a 2-storey or heavier structure.

Business Insight use detailed property data together with vegetation and tree data, geology, long term climate data and claims to model the level of subsidence risk for insurers. ‘Drought Insight©’ is licenced by a large number of household insurers and is recognised as the market leader in providing insurers with a deeper understanding of exposure to drought related subsidence claims.

For more information about managing subsidence risk, contact us on 01926 421408.

Winter Storms and the proposed ‘flood tax’

flood squareThe Government’s plan to increase council tax for those householders in areas already hit by severe flooding will affect those on low incomes and the socially vulnerable the most.

Analysis by Business Insight using our demographic risk profiling system RESONATE© showed that the proposed ‘flood tax’ will affect predominantly older, disadvantaged and more vulnerable communities. 

Closer inspection of the demographic profile of those affected by the Winter floods revealed that there was an over representation of properties flooded from working class and disadvantaged rural areas such as Carlisle.  Characteristics of these groups include struggling families on modest incomes and rural areas with a high proportion of elderly people over retirement age.   The penetration of insurance amongst these groups is also not as high as other demographic types.

Many homeowners in these areas affected are facing huge clean up bills and a disproportionate number of low income households are without insurance altogether making them even less able to recover from the financial impacts of the Winter floods.   The recent floods have highlighted the importance of the availability of flood insurance and the vital role it plays in society as a safety net.

The planned imposition of additional council taxes on homeowners is, we believe, grossly unfair and likely to cause further distress in areas that have suffered enough.

Long, hot Summer?

long. hot summerIn November 2015, with the onset of El Niño we looked at what kind of Winter weather we could expect.  Our data partners at Weathernet predicted that Winter 2015 would be mild and wet whereas others predicted colder weather and even snow.  The Met Office’s forecast of above average temperatures with a risk of above average rainfall certainly proved to be true.

So with this in mind, what can we expect for Summer 2016?  Experts are saying that rainfall is likely to continue to become more polarised in the future with Winters becoming wetter and Summers becoming drier.

Adam Scaife, Head of Met Office long-range forecasting, stated that they expect 2016 to be the warmest year ever, primarily because of climate change but also due to El Niño.  Steve Roberts of Weathernet agrees with this statement, commenting that 2016 is likely to be a very warm year globally, not least due to the continuing strong El Niño event in the eastern Pacific.  He also added that for UK latitudes North Atlantic sea temperatures may be lower than average – which would favour a cool but dry summer compared to the recent average.

Looking ahead at the Weathernet long range forecast, above average rainfall and a higher number of raindays are expected over the Summer.  So it may be mild, but hot and dry is certainly not forecast at present.

 

Why weather data matters

The insurance industry has been incorporating historical weather patterns into underwriting and pricing models for years.

How far back do weather records go? The Met Office use 1914 as the official start of the records of weather data as this was when observation stations became more uniform in the way they collect data but they do have records dating back to c1200.

The England and Wales Precipitation series, which measures rainfall and snow, goes back to 1766.  Some weather stations have been collecting data since the 1800s.  We asked our colleagues at Weathernet for a copy of the first weather entry they have and the earliest entry they have dates back to 11th March 1872.

weathernet4.png

Information on rivers and peak flows has only been collected for decades rather than centuries and the first surface water yearbooks were published in the 1930s by the Inland Water Survey.

There are a number of challenges in identifying trends in the frequency and severity of extreme weather events and these include the relatively small amount of historical data available.

If we only have reliable records for the last 100 years or so, should we be concerned about our capability to understand and forecast extreme weather events like those of the recent December floods?

The rainfall in December produced a new record of 341.4mm at the Honister Pass rain gauge, Cumbria which was more rainfall in a day than an average month. This has been estimated at over a one in a 1,000 year event.  However, we keep seeing records broken so clearly a more accurate assessment of the return period or frequency of extreme events is required.

We also need to have accurate estimates of extreme weather, particularly rainfall, to ensure the right level of investment is put into the design of flood defences. In the recent flooding in Carlise, defences built to withstand events up to a 200 year return period failed.  This is only 10 years on from the previous flood event and after a £45m investment in a new flood defence scheme.

So is climate change a factor?
There has been an increase in storminess in recent years and we do seem to be in a flood rich era.  Many scientists accept that climate change is a contributing factor to the pattern of weather we have been experiencing in recent years.  A recent study by Oxford University and the Royal Netherlands Meteorological Institute has calculated that climate change has made the recent flooding events 40% more likely.

So in summary, weather data is really important in understanding, validating and helping us to assess natural perils risk.  There are a lot of really useful risk models and data sources that can give a detailed insight into weather-related risk, particularly flooding.  However, we still have someway to go in getting a fuller understanding of more extreme events, how they will impact us going forward and what role climate change has to play in all this.

 

More misery for homeowners in flood risk areas

floodWith many parts of the UK still being battered by storms, the Government’s plan to increase council tax bills in areas already hit by severe flooding is not proving popular.

Analysis by Business Insight using the demographic risk profiling system RESONATE© shows that this policy will hit predominantly older, disadvantaged and more vulnerable communities.

People in these areas are already facing huge clean up bills and this regressive form of taxation will impact those who can ill afford it the most.

Read press release here: Press release 040216 More misery for homeowners in flood risk areas