Despite Preparation, It's Hard to Avoid Hurricane Losses

My grandparents celebrated their fiftieth wedding anniversary in late August 2005 by throwing a party at the Naples Beach Hotel and Golf Club near their house in Naples, Fla. My then-girlfriend, now-wife and I flew down early to stay with them and have a short beach vacation — but there was a minor annoyance about halfway through the trip, when "Tropical Storm Katrina" sailed over us, relegating one afternoon to board games as rain whipped the windows. The rest of the trip went by and I didn't think much about the storm until, as we sat in Dulles Airport waiting for a connecting flight back to Buffalo, weather reports began streaming in about a storm barreling toward New Orleans. Turned out it was the same storm, refueling over the hot waters of the Gulf and heading toward a major American city built in the geologic equivalent of a soup bowl.

We all know what happened when the storm finally made landfall, and there's no reason to rehash that in this space. But it's obvious that since that event, the conversation around hurricanes has fundamentally changed: Coastal Americans don't want their city to be the next one featured in torturous images of devastation and flooding and looting on the news. With the approach of Hurricane Irene, which is said to be the biggest threat to U.S. shores since 2008, we're seeing the civilian reactions to hurricanes in a post-Katrina world in action: local newspapers in the Carolina cities expected to be hit hardest by the storm are already urging residents to begin preparations, nearly a week in advance of projected landfall. (See examples from Charleston, S.C.; and Wilmington, N.C.)

And yet, what may determine whether this storm will join the cascade of disasters from earlier this year in what has been a record year for insurance catastrophe losses is the level of development in the area where it makes landfall. The Reuters article we posted today on how Irene could affect insurance costs brings this point home:

The Carolinas, which were ravaged in September 1989 by Hurricane Hugo, one of the 10 worst natural disasters in the United States, are particularly vulnerable. The coastal population of the two states more than doubled between 1960 and 2008, according to U.S. census data. South Carolina has successfully wooed private insurers but its northern neighbor has been less successful, insurance executives say.

There's been a lot of debate this year about how many hurricanes should be expected in the U.S., and how damaging they could be. From this debate comes questions about how insurance companies, residents, and governments should prepare. But we should also remember that we're dealing with fragile areas, fragile property (How many tablet computers and flat-screen TVs were in coastal homes during Hurricane Hugo?), and unpredictable storms and weather patterns that can change day-to-day. The losses are going to come, for all stakeholders — the best we can do in advance is mitigate them through sensible loss reserves, simple evacuation procedures, and top-of-the-line construction practices.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio