Windstorms are set to cause huge damage once again in 2024. February’s Tropical Cyclone Djoungou [1], with windspeeds exceeding 135mph in the Indian Ocean, largely missed major land masses, but other systems have proved more deadly.
In January, Tropical Storm Alvaro [2] killed 12 people in Madagascar, and there were further fatalities in Reunion and Mauritius from Tropical Cyclone Belal[3].
In the Northen Hemisphere, the 2023/2024 European winter windstorm season got off to an active start with storms Babet, Ciarán, and Henk causing widespread damage[4], while forecasters also warn the 2024 North Atlantic hurricane season is set to be extremely active[5].
Windstorms are already one of the biggest causes of catastrophe losses worldwide – and certain types of storms are expected to become more common in a world warmed by climate change. It is a threat that organizations all around the world should be thinking about and preparing for.
There are two broad types of windstorms: tropical storms including hurricanes, and extratropical storms which form at higher latitudes.
Tropical storms are caused by a combination of factors such as warm ocean temperatures and areas of low atmospheric pressure. These storms form over water and typically fade as they make landfall. Tropical storms are known by different names in different parts of the world: hurricanes in the Atlantic, cyclones in the Indian Ocean and southwest Pacific, and typhoons in the western Pacific.
74mph is the windspeed when a tropical storm is named and categorized by the local meteorological office.
Once a tropical storm’s windspeed exceeds 74mph, the tropical storm is named and categorized by the local meteorological office. In the North Atlantic, meteorologists use the Saffir-Simpson scale, from Category 1 (74-95 mph) to Category 5 (above 157 mph).
Extratropical storms occur when cold air from the Polar regions collides with warm air from the tropics, and can form over land or sea.
Both types of storms can create winds powerful enough to cause damage to trees and buildings. They can also cause secondary dangers such heavy rain, flooding and landslides and coastal flooding, which can also cause significant damage and disruption.
The science on whether climate change is driving a change in the behavior and characteristics of windstorms is complex.
To better understand these phenomena, the WTW Research Network is collaborating with leading research institutions to uncover the science behind these systems, including changes in historical and future frequency and severity of these storms. Such research is crucial as rising global temperatures could lead to higher sea surface temperatures, which may result in tropical storms reaching higher latitudes.
A warmer atmosphere can hold more water, potentially increasing the intensity of rainfall from storms. And increased heat content in the oceans could cause storms to move more slowly, to produce more rainfall, and to last longer.
Catastrophe modeling tools make it possible to measure and quantify the risk posed by windstorms to an organization.
These tools take into account detailed location characteristic information, and potential vulnerability by including details on the occupancy type and construction of the business’s property; they then calculate the probable financial losses.
This gives an organization a projection of their potential exposure to windstorm losses. The model can estimate the likely financial loss from the storm scenarios modelled, the likely average annual loss and the probable maximum loss in the worst-case scenario. It can also estimate how frequent losses are likely to be.
$570b+ total economic losses caused by tropical storms globally over the past decade.
Quantifying potential losses in this way is crucial – not least because the scale of the damage caused by windstorms is often not fully appreciated. Globally, tropical storms have caused total economic losses of more than $570bn [6] over the past decade, nine times’ more than in the 1970s.
Armed with accurate data and loss estimates, organizations find it much easier to make decisions about how to manage their windstorm risk. However, they may also need further support. Specialist consultants can help with risk analysis, hazard modeling and catastrophe engineering vulnerability assessments. This produces more – and higher-quality – insight to support better-informed choices about how to reduce their risk through insurance and mitigation.
There are multiple ways to mitigate the risks posed by windstorms, often combining improvements and protections to property with traditional insurance solutions. The optimal mitigation strategy will often only be determined through careful modeling work and cost-benefit analysis.
In one recent example of such a project, an Australian hotel group wanted to get a better understanding of its risks and potential losses from tropical cyclones and associated storm surges. This required an assessment of the most exposed 20 sites– each of which carried its own vulnerability characteristics and location risk differences. The project also considered the likely impact of increased storm surges related to climate change on coastal properties.
The conclusion of this project was that the hotel group faced average annual losses for flood and windstorm damage and disruption that were 60% higher than it had previously expected.
Recommendations for mitigation at each of the 20 sites included a cost-benefit analysis of their implementation, with the actions ranked by the value for money they offered. The hotel group was then able to prioritise its most vulnerable sites and set insurance limits across its wider portfolio.
Traditional insurance products may provide cover for windstorm damage to buildings and contents, and cover costs such as business interruption.
However, they are not the only way to put protection in place, with alternative risk transfer solutions available too. These can be effective where insurance is unavailable or too expensive.
Parametric insurance can be useful for covering gaps left by property policies – perhaps where certain types of risk are not covered, or where higher excesses or lower limits apply.
“Parametric insurance can be useful for covering gaps left by property policies – perhaps where certain types of risk are not covered, or where higher excesses or lower limits apply.”
Marc Hindman | Risk Control and Claim Advocacy Practice Leader
Typical parametric windstorm policies pay out when a windstorm reaches a certain magnitude in a set location, as measured on a scale or by a formula (known as an ‘index’) specified in the cover.
For example, a policy might pay part of the policy limit if wind exceeds 100mph at a particular location, or the full limit if windspeed goes above 125mph. As long as the parametric trigger has been met, the pay-out is triggered irrespective of the damage caused to the client’s assets.
The index that underpins a parametric study does not solely have to be based on hazard thresholds, other factors such as population impacted by a certain hazard threshold can be integrated, depending on the client and what activities they would likely use the payout for (e.g., capturing the impacted population by a certain wind speeds could be used as a proxy for the funding that might be required for humanitarian activities after a triggering event).
Such cover is transparent – policyholders know what claim amount they will receive in specific circumstances – and claims are usually settled quickly, since no formal loss adjustment process is required.
The pay-out can often be used in any way the organization sees fit – including for costs such as non-damage business interruption or supply chain disruption, which traditional property insurance may not cover.
However, policyholders must accept the policy won’t pay out if the trigger level is not met, even if they have suffered losses – this is called basis risk and is inherent to all parametric policies.
In practice, however, the most appropriate way to manage risk will vary from one organization to the next, depending on its individual circumstances. The starting point is to assess exposure – that will define the right response.
Contact us now to discuss how we can help you through this process to manage risk more effectively.
