Build Resilience for an Extremely Active Atlantic Hurricane Season

July 10, 2024 10 mins

Build Resilience for an Extremely Active Atlantic Hurricane Season

Record-warm Atlantic Ocean temperatures and a shift to La Niña conditions have led forecasters to predict an extremely active Atlantic hurricane season in 2024. Learn how to build business resilience to mitigate risk for hurricane-prone properties.

Key Takeaways

Persistently rising sea surface temperatures caused by climate change and La Niña, create conditions that are conducive to storm formation as wind shear is reduced.
Updated predictions for the Atlantic hurricane season include 25 named storms, 12 hurricanes and six major hurricanes.
Ensure a strong business continuity plan is in place prior to the peak of the Atlantic hurricane season, which runs from late August through mid-September.

An expected mid-summer transition from El Niño to La Niña conditions, coupled with a warmer-than-usual tropical Atlantic, have tropical storm forecasters predicting an “extremely active” 2024 Atlantic Ocean hurricane season. Risk managers with occupancies in hurricane-prone areas are therefore encouraged to have a strong business resilience plan in place for an expected intense season.

The category five strength of early-season Hurricane Beryl is a likely precursor to a “hyperactive season,” prompting hurricane researchers at Colorado State University (CSU) to slightly increase their July 2024 prediction with “above-normal”confidence.¹ National Oceanic and Atmospheric Administration (NOAA) forecasters in May predicted an 85 percent chance of an above-normal season.²

Sea surface temperatures in the Atlantic Ocean are anticipated to maintain record-warm levels, creating the thermodynamic engine that enables hurricanes to intensify prior to making landfall. These rising temperatures can be attributed to the effects of climate change, but also El Niño itself, which tends to bring warm ocean waters back to the surface.³

“The transition to a moderate or stronger La Niña is forecast to coincide with the peak of the North Atlantic hurricane season in late August through mid-September,” says Dan Hartung, managing director for Aon’s U.S. Reinsurance Catastrophe Analytics practice. “This could result in reduced wind shear across the main development region of the Atlantic Ocean, which is more favorable for tropical cyclone formation. La Niña also brings a greater chance of a stronger Bermuda High, which could potentially steer storms that do form further to the west, increasing the likelihood of U.S. impacts.”

25

Named storms predicted by Colorado State University hurricane researchers.

Source: CSU Hurricane Seasonal Forecasting (colostate.edu)

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Florida Cat-Prone Risks Remain in a Difficult Property Market

While overall U.S. property rates continue to soften, and capacity is also more readily available, the Florida property picture is different for risk buyers with hurricane-exposed occupancies:

Rates for Florida-only accounts or those accounts with significant Florida natural catastrophe exposures are up 10 percent or more.
Capacity also continues to be constrained for Florida windstorm risks. It is adequate, however, for well-engineered and protected risks with limited or no natural catastrophe exposures.
Overall, U.S. property rate increases moderated considerably, from 9.6 percent in Q4 2023 to 3.4 percent in Q1 2024. Rate softening is expected to continue into Q2 2024.⁵

With challenging property conditions continuing for Florida hurricane-prone risks, buyers should consult with an experienced risk advisor early in the renewal process to maximize resilience and risk transfer options, which may include innovative alternative solutions such as parametric insurance.

Parametric is an innovative risk solution that is well-suited for grey swan catastrophic events, including tropical storms. It is designed to complement and supplement a traditional indemnity program and better match capital to the broad nature of risk caused by natural disasters.

The core mechanics of parametric insurance can be defined by three key attributes:

Coverage is triggered by the occurrence of an independent event as determined by neutral third-party data providers, simplifying the underwriting process.
With an independent data trigger and pre-agreed amounts, recoveries occur quickly — as soon as 10 days after an event. This is critical for businesses that need immediate access to capital following an event.
Any economic exposure arising from an event can be insured. As a result, uninsurable exposures become insurable.

Case Study: Deploying Parametric Capacity as a Hurricane Risk Supplement

An energy services firm on the Gulf of Mexico Coast was concerned about the potential impact of a catastrophic hurricane to its facilities. The firm retained a substantial property risk with a $10 million deductible. Its existing insurance covers property damage only, with no coverage for business interruption and additional expense.

Parametric Solution:

The client’s traditional insurance program was augmented with a $50 million limit parametric solution triggered by a named storm track coming within 20 to 40 miles of the facility, as determined by the National Hurricane Center.
Coverage attaches at a category three strength storm and increases incrementally as its proximity narrows or intensity increases.
The parametric solution covers any economic loss of the triggering event.

Prepare Now: 4 Steps to Build a Strong Business Continuity Plan for Hurricanes

Organizations with hurricane-prone exposures must commit to protecting their operations by having clear and actionable plans in place before a hurricane occurs to protect employees, operations, minimize property damage and drive operational resilience.

The overall goal is to allow for an orderly and timely recovery process, with an emphasis on worker safety, as well as a focus on accurate loss documentation. An effective hurricane preparedness and response plan should include critical action steps addressing protective and health safety activities before, during and after a storm.

Businesses or critical suppliers located in hurricane-prone areas should take control of the impending risk by consistently including windstorms in their business continuity plans. This advanced planning and preparation will help mitigate a storm’s impact and assure continuity of crucial business processes. Flexibility and clear, frequent communications will be key in successfully responding to events as they occur.

With an active hurricane season predicted, Aon recommends taking these steps when building and reviewing a hurricane response plan:

1. Identify key stakeholders

A critical element of a proactive hurricane response plan is to identify and have the contact information for key personnel, external consultants and resources. This includes insurance brokers and adjusters, legal counsel, accounting/finance and restoration contractors, should an event cause damage or render sites temporarily inoperable.
2. Designate a response leader

It’s important to designate an internal leader, such as the CFO or risk manager, as well as alternate staff to coordinate the response and claims teams to ensure all plan elements are implemented on a timely basis. Creating a flowchart or playbook will help make the entire process more efficient. Plan simulations using various event scenarios can also help address any issues. Consider implementing “call trees” to confirm all team members can be successfully reached during and after an event. These items should also be included or cross-referenced in business continuity plans.
3. Understand business interruption risks

Include a comprehensive evaluation of the organization’s plants and locations situated in hurricane-prone regions to ensure a full understanding of their risk exposure, business interruption and asset values. There are several mobile applications available that provide business continuity plans to ensure all team members have these details at their fingertips. Further, Aon’s Emergency Response: Hurricane Season Template & Checklist outlines key parts of an enterprise-wide response and recovery process.
4. Address wind, flooding, power outages and loss of communication resources

Planning should consider more than just wind-related loss. It should also include storm surge, flooding, extended power outages and interruption of land line, cell phone and internet access, as well as site inaccessibility.

Learn more about catastrophe preparedness and response readiness at the Aon Hurricane and Natural Catastrophe Planning and Response Site. This offers valuable resources designed to support an organization against the potential impacts of natural disasters.

Aon’s Thought Leaders

Dan Hartung

Managing Director, U.S. Reinsurance Catastrophe Analytics
Michal Lorinc

Head of Catastrophe Insight, Aon Impact Forecasting
Ondrej Hotovy

Catastrophe Analyst of Catastrophe Insight, Aon Impact Forecasting
Michael Gruetzmacher

Head of Alternative Risk Transfer and Innovation, North America

¹ Q1 Global Catastrophe Recap | Aon, April 2024
² NOAA predicts above-normal 2024 Atlantic hurricane season
³ Global ocean temperatures spike to record levels as El Niño nears | Axios
⁴ Forecast for 2024 Hurricane Activity | Colorado State University, April 2024
⁵ National Property Market Dynamics Report | Aon Q1 2024

This material has been prepared for informational purposes only and should not be relied on for any other purpose. You should consult with your own professional advisors before implementing any recommendation or following the guidance provided herein. Further, the information provided, and the statements expressed are not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information and use sources that we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.

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