The US Army Corps of Engineers have stated that they are to revise their plans which will mean that the water levels in the lake will be maintained at a lower level during the hurricane season. However, the work to completely repair the dyke will not be completed for several years incorporating several hurricane seasons. Therefore, despite the improvements that are to be implemented, there is still a danger that the dyke may not be able to prevent a flood event, at least in the immediate future. According to the US Army Corps of Engineers, the work on the three reaches is expected to last for five years and is likely to cost approximately USD 10m per mile for the new design, equal to USD 500m. Until this repair work is completed, the risk levels associated with the Herbert Hoover Dike are elevated. Climate change Despite the unexpectedly quiet 2006 Atlantic hurricane season most experts maintain that intense hurricane activity will be above the longterm average for at least the next 20 years based on natural cycles in sea surface temperatures alone. Climate change can only exacerbate this, and insurers must plan for a higher frequency of extreme events, over a longer storm season and over a wider geographical area. Climate change has already had an impact on sea levels which are 10 to 20 centimetres higher than at begin of 20th century and rises in sea levels are expected to accelerate in the 21st century. Therefore, storm surges are likely to be higher offshore. If this is coupled with a flooding of inland lakes or rivers, this will prevent the run-off of flood water and inevitably lead to increased damage. Insurers must also take advantage of research papers, such as the SFWMD report and scientific advances to factor forecasts when pricing catastrophe exposed risks and not rely solely on long-term trends. Limitations of Catastrophe Models Recent events have shown the problems of over-reliance on vendor catastrophe models. Initial estimates of loss from these models for Hurricane Katrina were significantly underestimated. The models focus on losses from wind damage and in the case of Hurricane Katrina, a large proportion of the losses came from flooding and storm surge. Although insurance coverage is normally limited to hurricane damage, flood losses may end up being insured or contested. It is extremely difficult to separate the cause of loss, i.e. flood from wind damage, in an event as complex as Hurricane Katrina. Assumptions within the catastrophe models, for example, regarding building vulnerability and demand surge combined with poor insurer input data quality and underestimation of replacement costs also contributed to these erroneous estimates. Hurricane activity will be above the long-term average for the next 20 years 20 The vendor catastrophe model suppliers have never claimed to fully model all aspects of the risk, nonetheless they have done a lot of work to upgrade and improve their models since the events of 2005. However, the lessons of 2005 in respect of how to interpret model results must be learnt. While the models are useful tools, they should not be used in isolation. The US hurricane models, in general, do not model levee failure at Lake Okeechobee. Insurers must be aware of all possible sources of potential loss when pricing risks, managing portfolios of correlated risks and establishing capital requirements to support their business plans. The models,
Posted on: Sat, 05 Oct 2013 12:01:19 +0000
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