Hurricanes, typhoons and cyclones
Tropical cyclones — The natural hazard with the highest insured losses
Hurricanes, typhoons and cyclones are among the most costly natural hazards
In 2017, the hurricanes Harvey, Irma and Maria caused record losses within just four weeks - Insured losses totalled more than US$ 90bn
Tropical cyclones have enormous destructive potential. Hurricane Katrina, which hit New Orleans in 2005, was the most costly natural disaster of all time for the insurance sector, with losses totalling more than US$ 60bn.
Tropical cyclones usually develop from the large-scale clusters of thunderstorm cells that are often seen over tropical oceans. They get their energy from the evaporation of surface water with a temperature higher than 26–27°C. When they reach hurricane force (>118 km/h), they are given the name "hurricane" in the Atlantic and north-east Pacific regions, "cyclone" in the Indian Ocean and South Pacific, and "typhoon" in the northwest Pacific.
Tropical cyclones can be active for several weeks and can stretch across a large area, while wind speeds can reach more than 250 km/h — in some cases even exceeding 300 km/h. They mainly affect coastal regions and islands between latitudes 10° and 40° north and south of the equator. Tropical cyclones rapidly lose power as they move inland, but the large volumes of water picked up over the warm sea can trigger extreme flooding and landslides.
In Japan and in the southeastern coastal regions of the United States, the high concentration of assets means that hurricanes and typhoons often cause losses running into the billions. In developing and emerging countries, by contrast, extreme tropical cyclones generally trigger humanitarian disasters with significant loss of human life and a very low proportion of insured losses.
Hurricanes: Biggest loss drivers in North America
Losses from hurricanes 1980-2019
In North America, cyclones are one of the biggest generators of losses for the insurance industry. Wind speed is not the only factor involved; the storm surges and inland flooding that frequently accompany hurricanes also have a significant impact on the scale of the loss.
In addition to the southeastern US states, the northeastern coast of North America (including Canada) is also vulnerable to hurricanes. Examples include Hurricane Sandy, which resulted in extreme losses across the New York metropolitan area in 2012, and Hurricane Juan in 2003, which severely impacted the Canadian province of Nova Scotia.
Severe storms likely to become more frequent
It is not just natural climatic cycles, such as warm and cold phases affecting the surface temperatures of tropical oceans, that impact cyclone activity — climate change is also playing a role. This is what we currently know:
- For the most part, the latest scientific studies indicate that tropical cyclone numbers will remain virtually unchanged in most ocean regions until the middle or end of the 21st century.
- However, it is expected that major storms (categories 4 and 5 on the Saffir-Simpson scale) will occur more frequently in most regions.
- Precipitation in the core area around the centre of a storm is likely to increase as a result of the higher levels of evaporation from rising ocean surface temperatures. A recent study indicated that climate change has already significantly increased the probability of extreme precipitation such as that seen in 2017 in the Houston area during Hurricane Harvey.
- We anticipate that years with exceptional hurricane activity, such as 2004, 2005 (Katrina) and 2017 (Harvey, Irma, Maria), will become more common in future.
Enhanced modelling required for flooding
As we saw with Harvey in 2017, flood damage can dominate the overall losses resulting from hurricanes. Most hurricane models only simulate losses relating to wind and storm surges, often neglecting losses resulting from flooding further inland as a result of heavy rainfall. This means that the interplay of these three hazards is not adequately mapped, and losses are underestimated.
Similarly, models that map flooding do not include tropical cyclones; so again, a component of the hazard has not been factored in. Numerous tools for delivering an improved risk assessment have been developed over the last few years. These range from simple flood zoning that can be used for risk selection and insurance ratings through to fully probabilistic models to calculate loss accumulations. Munich Re uses such models for severel regions or is developing them.
Risk assessment and risk management solutions
Preventive measures and better risk management, including improved building standards or different land use, can limit losses caused by hurricanes and help to protect people. Insurance products are a key component in providing financial support to people, business and public services following catastrophe events. In highly developed markets such as the United States, the majority of homeowners, small businesses and industries have insurance cover for storm damage.
Flood risk is a different story: Only a relatively small proportion of material assets is covered for flood damage, and this means that the insurance gap is considerable. In developing and emerging countries, the gap is often close to 100%. Munich Re collaborates with organisations such as the Insurance Development Forum (IDF) to help develop practical solutions as part of public-private partnerships; these solutions are intended to improve loss prevention and the management of catastrophe losses in low-income countries.