Global Hail: Kenya

Kericho, Kenya is said to be the most hail-prone place in the world and has up to fifty days of hail each year. Kericho is close to the equator and at an elevation of 7,200 feet, which contributes to it being a hot spot for hail. Other areas of the country have experienced a few notable hailstorms as well. One of these storms occurred in 2010, along with flooding and landslides, and attributed to the deaths of 93 people and displaced over 69,000. Another storm occurred in 2013 throughout Ol Kalou. The 2013 storm was deemed a “freak hailstorm” that hit Busara, covering a large portion of the region in a sheet of solid ice.

Hailstorms are especially devastating in areas such as Kenya because most Kenyans work in farming, creating significant growth potential for climate risk and agricultural coverage. After the 2013 hailstorm, for instance, tea farmers (which are part of a multi-billion-dollar industry in Kenya) lost over 12,890 kilograms of tea in a single day. Kenyan farmers would be wise to seek insurance coverage and protect themselves from histories repeated.

Second to South Africa, Kenya is the best-regulated insurance market in the region, accounting for seventy-percent of the East African insurance industry. Kenya is also one of the most developed African countries and maintains steady economic growth. According to the World Economic Forum, higher income directly correlates with a competitive insurance market. As of 2016, Kenya has forty-nine insurers and five re-insurers. However, the African insurance market could face bouts of disarray over the next few years stemming from the 2016 regulatory amendments to Insurance Act No. 487 of 1984. Essentially, the new regulations almost double companies’ capital investment requirements, and many underwriting companies (majority of which are family-owned) may be unable to meet them.

Despite these regulatory changes, Kenya’s insurance market has potential for growth. This is likely due in part to the fact that Kenyan farmers continue to excel as prominent exporters of goods (such as tea), and in turn, the need for property and/or agricultural insurance grows as well. As of 2015, the population size of Kenya was 44.9 million. However, according to recent statistics, property and/or casualty insurance only comprises less than thirty-percent of the non-life insurance market. While the imminent legislative changes may bring temporary chaos, the Kenyan insurance market is ripe for growth.

Posted by Jennifer Gibbs and Victoria Vish

A Scary Dam Cat

The February 12, 2017 emergency evacuation of nearly 200,000 California residents living in and around the town of Oroville, downstream from the Oroville Dam, was a stunning reminder of the ironic danger created by major dams.  Built to prevent flooding and control the flow and use of fresh water, large dams also create the risk of a sudden, catastrophic flood against which nearby residents have no effective defense.

The Oroville Dam was built in 1967 near the source of the Feather River, and it is the tallest dam in the United States at 770 feet.  Four tributaries – the rather unimaginatively named West Branch, North Fork, Middle Fork and South Fork -- join up to form the Feather River.  Prior to 1967, those four tributaries met in the area that is now covered by the Oroville Dam Reservoir.  Now the tributaries feed into the Reservoir with the dam used to control the flow out of the reservoir and downstream to Oroville and Yuba City, with the Feather River ultimately flowing into the Sacramento River north of Sacramento. 

Along its path, the waters of the Feather River are diverted for use in hydroelectric plants, for agricultural irrigation and by citizens and other businesses.  The Oroville Dam is of tremendous benefit to the citizens of California, but such a massive engineering project also poses a risk.  If the Oroville Dam were to collapse, experts believe there would be no way to effectively warn nearby residents to evacuate before they are inundated with floodwaters.

The catastrophic failure of a major dam is a highly unlikely scenario, but it is a risk that has the attention of government officials, particularly in the post-9/11 environment.  In fact, it has been reported that the evacuation plans for the Oroville Dam and other major U.S. dams have not been made public for fear that the release of the plans might provide useful intelligence to terrorists.  A successful terrorist attack involving the use of heavy explosives to collapse the Oroville Dam is a frightening doomsday scenario, particularly since – in the words of one critic – the emergency evacuation plan in the event of a sudden collapse amounts to nothing more than an announcement to “Get the hell out of town!”

Far more likely than the collapse of a major dam itself, is the failure of the dam’s spillways, which is precisely what led to the Oroville crisis and evacuation.  Recent heavy rains in Northern California swelled the tributaries feeding into the Reservoir, taking it record high levels.  The Dam complex contains a main spillway situated near the Dam itself.  The spillway is basically a long concrete chute that runs downhill and feeds water into the Feather River just below the point where the flow of water through the Dam emerges.  The spillway – also built in 1967 -- is rarely in use, since its purpose is to release additional water when the Reservoir reaches dangerously high levels.  When the spillway is opened, the speed and volume of water running down the concrete chute is tremendous, and in early February officials noticed that a huge section of the concrete chute had broken apart and been washed away into the Feather River.

Concerned that the entire spillway would collapse, officials closed the main spillway, but the reduction in the flow of water out of the Reservoir led to the topping of the Reservoir, which sent water pouring over the Reservoir’s emergency spillway, located near the main spillway.  The emergency spillway sends water down the raw hillside, and the force of that water severely eroded the hillside itself, creating the risk of a major collapse which could have flooded downstream communities.  Officials were forced to reopen the damaged main spillway in order to reduce the Reservoir water level, and wisely took the precautionary step of issuing the evacuation order.

The evacuation order was rescinded on February 14 and officials seem confident that enough water has now been released, and that they can repair the emergency spillway damage and eventually replace the main spillway – albeit at a cost of $100 million or more.

So what caused the main spillway to fail?  Theories abound.  The soil beneath the massive concrete chute may have lost stability during the recent California drought.  The roots of trees growing along both sides of the spillway may have weakened its stability.  The spillway may have developed cracks over time due to suboptimal engineering and construction 50 years ago.  Or the concrete may have been destroyed by a process known as cavitation.  When water rushes across a concrete surface at high speeds and with tremendous turbulence, tiny air bubbles can deliver great force to the concrete surface and create cracks and fissures that expand and multiply, leading to a massive failure of the concrete deck and the complete erosion of the deck and underlying soil.  Cavitation is believed to be the cause of spillway damage in Iran, Mexico, Turkey and several U.S. States over the last several decades. There are construction techniques – known as aeration – that prevent cavitation, but aeration was not utilized in the 1960s and the Oroville main spillway was not retrofitted with aeration features (a step that may have cost as little as 1% of the cost to replace the now destroyed spillway).         

The potential causes of the Oroville Dam problems are being analyzed now.  We would do well to use the Oroville crisis as a wake-up call to inspect other major dams in the U.S. to determine whether they are also at risk of similar problems.  The risk of failing to detect a similar failure and the potential for a major disaster are too great not to take careful and determined action now.

Posted by Dan Millea

Thunder and Lightning: Very, Very Frightening

The title for greatest reaper of catastrophe losses in the United States does not go to the hurricane, blizzard or ice storm but to the much more common thunderstorm. Thunderstorms don’t get cute names from The Weather Channel or National Weather Service but severe thunderstorms surpass their more press-savvy and notorious brethren in wreaking property damage in the United States. 

Each year, severe thunderstorms cause an average of $12.4 billion in insured losses in the United States. By comparison, winter storms cause about $1 billion in losses each year and hurricanes, the frequency of which vary widely year to year, average about $6.5billion in damage. In the first half of 2016 alone, severe thunderstorms in the United States caused about $8.5 billion in insured losses, far more than other natural disasters. Since tornados extend from thunderstorms, industry trackers often group them together for statistical purposes.

With a typical size of 15 miles across and lasting only about thirty minutes, thunderstorms do not affect nearly as large a geographic area as hurricanes or winter storms. But, thunderstorms pack a wallop and there are just so many of them.  

These relatively small, short-lived storms pepper the planet at an astounding rate. The sheer number of thunderstorms is mind-boggling. Over 100,000 thunderstorms occur each year in the United States, 10,000 of which are classified as severe.  Severe thunderstorms produce wind gusts of 58 mph or higher, large hail at least an inch in diameter, or tornados.   

Worldwide, there are over 40,000 thunderstorms a day. That means that there are nearly 2,000 thunderstorms occurring on Earth at any one time! 

As we know, thunderstorms can bring a nasty arsenal:  high winds, torrential rainfall which can lead to flash floods, hail, and of course, thunder and lightning. 

Lightning strikes from thunderstorms start over 24,000 fires a year in the United States, including 4400 house fires. Wildfires often start by lightning. As an interesting side note, scientists have discovered that lightning is essential to maintain the electrical balance between the earth’s surface and its atmosphere. Without lightening, this electrical balance would apparently disappear in five minutes.

Thunderstorms are most common in the spring and summer months but can occur any time of year.    Even winter storms occasionally bring thunderstorms which has led to the moniker, thunder snow.

Thunderstorms occur in every part of the United States and nearly every region in the world.    Florida, along the Gulf Coast, gets hit the most in the United States, but they are prevalent throughout the Southeast and Midwest.  

Losses from thunderstorms have been increasing in recent years, which probably reflects the growth in population and economic development in the parts of the country that see the most thunderstorms. Of course, the more property in its path, the more damage a severe thunderstorm is likely to inflict.  As development expands, insured losses from thunderstorms will continue to rise.

Posted by Jeff Gordon

Atmospheric Rivers Making Landfall in California and Causing Major Flooding

Last month, several powerful storms hit California, causing widespread flooding in both Northern and Southern California. 

The storms caused multiple rivers to flood in Northern California, including the Russian River in Sonoma County. Southern California experienced record-breaking rainfall in many places, including the Los Angeles Airport. Throughout the state, the storms prompted evacuations, forced thousands to flee their homes, caused mudslides and rockslides, knocked down power lines, uprooted trees, and flooded roads and freeways causing numerous accidents.  At least eight people died. Many of the damages from the storms will likely be covered losses under homeowners’ and commercial insurance policies. 

These storms were atmospheric rivers (ARs). This is a weather phenomenon consisting of water vapor forming over the ocean and being transported in long and relatively narrow regions of the atmosphere (on average 400-600 km wide). 

ARs can create extreme rainfall and major flooding when they make landfall over an area.  According to the National Oceanic and Atmospheric Administration’s Earth System Research Laboratory, a strong AR can transport an amount of water vapor equal to up to 15 times the average flow of water at the mouth of the Mississippi River. 

ARs are particularly significant in the west coast of the United States, where it is estimated that they generate about 30-50% of annual precipitation. A type of AR bringing water from the tropics near Hawaii is commonly known as a “Pineapple Express.” 

In the Golden State, ARs have been responsible for numerous winter storms and multiple floods over the last two decades. For example, from late December 1996 to early January 1997, a Pineapple Express struck Northern California, causing a major flood that became known as the “New Year’s Day Flood,” and resulted in over $1 billion in damages. ARs are therefore very significant events for the insurance industry. 

While ARs can lead to devastating floods, the precipitation they cause is critical to California’s water supply. In addition to heavy rain, last month’s winter storms also brought blizzard conditions in parts of the Sierra Nevada mountain range in Northern California, and significantly increased its snowpack, a key source of water for the state. These ARs have helped alleviate California’s six-year drought conditions – about 18% of the state is now free of drought. 

ARs can now be forecasted. The National Weather Service has techniques that can identify these phenomena and give advance warnings of their presence, 5 to 7 days before the ARs make landfall. Additionally, scientists within the ESRL have developed AR observatories along the west coast, to monitor ARs and improve our understanding of them. It is expected that these advances will help to mitigate the risk of major flood events, and at the same time improve water management decisions in California and the other western states. 

Nevertheless, experts are concerned that, as a result of climate change, ARs are projected to become more frequent and intense. This can result in major insured losses in the west coast.  The United States Geological Survey, Multi Hazards Demonstration Project, has developed a megastorm scenario called “ARkStorm” (for Atmospheric River 1000 Storm), studying the catastrophic impact of a series of extreme ARs in California. We will discuss this scenario, referred to by the USGS as “California’s other ‘Big One,’” in an upcoming post. 

Posted by José Umbert

The Wildfires in Chile—Impact on the Insurance Industry

It is well-known that South America is vulnerable to earthquakes, forest fires, floods, and volcanic eruptions. While the risk of catastrophe is high, no one could have anticipated the devastation wrought by the recent wildfires that have already blazed through 593,000 acres of Chilean terrain. The fires have destroyed thousands of homes and killed eleven people. Chile’s large monoculture plantations and record-high temperatures have contributed to the rapid spread and made it more difficult to prevent spreading into communities and towns. The devastation will only continue—of the 118 fires, 59 are still active.

In efforts to alleviate the loss, various countries have supplied troops of firefighters, donated money and provided resources to support humanitarian needs of the communities where homes were completely destroyed.

The amount of wildfire destruction to date is unprecedented. When matters of this magnitude are unprecedented in a geographic region, insurers are bound to incur heavy financial impact. Property is the most exposed insurance business when it comes to wildfires because the losses include not only the destroyed structures and contents, but living expenses and home cleaning as well. Most homeowners’ policies cover damage due to fire, and in turn, when a home is completely destroyed by fire, the insurance company may be responsible for completely rebuilding the home.

Comparing past wildfire catastrophes in the United States may provide insight as to the impact the wildfires could have on the Chilean insurance market. California has become notorious for wildfires over the last fifty years, and this has caused insurance companies to reassess which homes they will insure. Today, if an insurance company identifies a home as a “high risk location,” a California resident may be denied coverage or the policy cancelled. Insurers learned some lessons.

There are various large Chilean, American, and European insurers that compete for business in Chile. According to the Chilean Insurance Association, Mapfre carries the largest market share for fire and perils insurance; and after acquiring one of the largest Chilean-based insurance companies, Liberty Mutual is now the largest provider of property and casualty insurance in Chile. While the wildfires in Chile may be unprecedented, catastrophes in the country are not foreign. In 2010, Chile was struck by earthquakes and suffered heavy insured and economic losses and the large international insurers spent billions of dollars to rebuild and eventually re-stabilize the Chilean economy.

In the wake of this catastrophe, insurers are likely to re-evaluate their wildfire loss exposure throughout Chile. The risk of wildfires will only continue to rise in correlation with population expansion into less-developed areas, combined with longer droughts and heatwaves wrought by global climate change. In areas of particular risk (such as southern Chile), insurers should work to mitigate risk as much as possible by zoning certain regions and implementing early warning systems.

Posted by Victoria Vish