As one of the worst hurricanes to make landfall in the U.S., Hurricane Ian was undeniably a catastrophic event. Its sweeping winds and heightened storm surge wreaked havoc on both the lives and property of Florida citizens. However, the insurance industry in the Sunshine State is also facing significant ramifications from the force of this storm, and only time will tell whether this event will change the face of Florida property and catastrophe insurance.

If you would like to know more about Hurricane Ian or are interested in following our hazard response in real-time visit hazardhq.com.

In this episode:

• Hurricane Ian and hurricane season overview (3:58)
• A comparison of Hurricane Ian to other historical storms (6:11)
• Loss estimates for Hurricane Ian review (7:53)
• What is the difference between an insured loss and economic loss? (11:22)
• Is this hurricane a market-changing event? (14:32)
• What happens to the homeowner if an insurance claim cannot be paid? (16:19)
• Reconstruction cost values estimates (17:33)
• What have we learned from these storms? What will future hurricanes look like? (20:20)

Maiclaire Bolton Smith:

Welcome back to Core Conversations: A CoreLogic Podcast, where we dive into the heart of what makes the property market tick. I'm Maiclaire Bolton Smith, your host and curious observer of all things related to property — from affordable housing to market trends, and the impacts of natural disasters to climate change — I want to converse about it all.

While we typically focus on the theoretical impacts of governmental regulations, climate change and natural hazards on the property market, today we're going to talk about a real-life case study that puts theories — and our CoreLogic data — to the test. Hurricane Ian. In late September, this storm became one of the most intense hurricanes in U.S. history. The storm, which reached Category 4 at its strongest, devastated Cuba and the Florida coast before moving northward to reform as a Category 1 hurricane and hit South Carolina.

Sadly, estimates are showing more than 100 people lost their lives, and hundreds of thousands of homes have sustained damage. Financially, not only was this hurricane catastrophic by historical standards, but within the current American economic context — inflation at a 40-year high, interest rates nearing 7%, labor is hard to come by and materials are difficult or expensive to source — the damage is even more pronounced, and the recovery from this hurricane will be slow and difficult.

By all accounts, Hurricane Ian was record-breaking, but now that the storm has passed and the news coverage has calmed down, the real work begins as people begin to repair and rebuild. To understand the magnitude of such an event and what it means for the residents and the local governments in the areas it touched, we have CoreLogic's Senior Catastrophe Response Manager Jon Schneyer. Jon, welcome to Core Conversations.

Jon Schneyer:

Thank you so much for having me, excited to be here.

MBS:

Okay, well, I do want to mention that we are recording this podcast on Oct. 6, and the consequences from the storm are continuing to unfold by the day.

So you're new to us here at CoreLogic, but you're not new to extreme weather and its impact. So can you tell our listeners a little bit about your background and your role here at CoreLogic?

JS:

Of course. Yeah, so still fairly new, within my first year here at CoreLogic, but I've been in the risk management industry for four or five years now. Began my career as a consultant on the CAT modeling side of the business. We worked primarily in the public sector, so away from traditional CAT model users, the insurance and reinsurance clients, working with federal, local, state governments, NGOs, research institutions, other consulting firms. The overarching goal is to help increase resilience to natural disasters.

MBS:

Awesome.

JS:

And CAT models are incredible when it comes to... the output for model is incredible for a use for that. So before joining CoreLogic, I worked at a major reinsurance brokerage firm, so helping our clients place reinsurance and using the CAT models to price those. But I was fortunate to get a message from you Maiclaire, to apply for this role here at CoreLogic. So it's been a wild ride since.

I guess as the Senior CAT Event Response Manager, we've sort of been in charge of running the show, making sure everything's still moving when there is a live event, responding to it to our different client bases, making sure everyone gets the information and the data they need to make the most informed decisions they can.

MBS:

Awesome. Well, I will take full credit for bringing you into CoreLogic, Jon. I've had my eye on you for a number of years. We've known each other, and I'm just thrilled to bring you into this role and chat with you today. The one thing I did want to clarify — you did mention CAT models — I did want to clarify for our listeners, we're not talking about fuzzy creatures with feather boas. We are talking about catastrophe models. So let's just clarify that.

But yeah, we are going to talk all about the CAT modeling industry and where we are. So, I do want to talk a little bit about hurricane season. It's been a very interesting season this year, and hurricane season does traditionally end in November — I'm a little worried that that's not going to happen this year — but first, let's talk about Hurricane Ian. So can you tell a little bit about this storm specifically where it hit and why it was so record-breaking?

JS:

Of course. So, Hurricane Ian's definitely going to be remembered as one of the worst storms in U.S. history, as far as landfalling hurricanes, for the number of fatalities, the catastrophic damage almost across the huge portion of the Florida Peninsula. So it's going to be a remembered one for sure.

So what made it unique is it sort of had the combined impact from a number of other historical storms that were particularly catastrophic in the U.S. It was a big, big slow-moving hurricane that made landfall on the Florida Gulf Coast, which is an important thing to remember from a storm surge perspective, right? Hurricanes that make landfall on the Gulf Coast because of the bathymetry — beneath the ocean surface there, it's kind of a gentle slope up to the coastline — it makes it a lot easier to push more water onto land.

So when you have a big hurricane that reaches really far, big radius and maximum winds, but also moving very slowly towards the coast, it's going to push more water. So you're going to see an elevated storm surge. It's one of the big things about this event and it made landfall as a high-grade Category 4 hurricane. We're talking 150-mile-per-hour winds. It was big. That's a lot of homes that are going to experience major hurricane-force winds, hurricane-force winds, and also, I mean tropical-storm-force winds were felt as far as Miami-Dade.

MBS:

Yeah. One thing we've never really talked about before is how storm surge happens. So I think that was really helpful. You did talk about bathymetry, that might not be something that many people are familiar with. I kind of think of bathymetry as — many people are familiar with topography. Bathymetry is basically topography underwater. So what does the ocean floor look like? And based on how the ocean floor is, it can impact what the storm surge is going to look like. And I think that's what you were saying is why we had such a significant storm surge from this event.

Another thing I want to talk about that you did touch is the size of this storm. I know a lot of people compared... initially were like, "Oh, this is going to be Hurricane Charley. It's going to have a similar landfall." But I know at CoreLogic we've done a bit of research on the size of Ian compared to some historical storms, Charley Ian, others, and that this storm was massive in terms of wind field size. Can you comment on that a little bit?

JS:

Yeah, so Hurricane Ian was a lot like Irma in that sense. So, both hurricanes were incredibly large in terms of how much area they covered. But they also underwent, which this actually contributes to their size and their intensity, underwent eyewall replacement cycles, which is basically, if you could think about the clouds within the storm center, basically a second eyewall starts forming around the first. The first one, the inner one, sort of dissipates. It gets much bigger and stronger. And so you had both of these (hurricanes) have one of these cycles happen right before landfall, which contributed to not only their intensity, the max winds in the eyewall, but the actual size of that radius of maximum winds. It is kind of a term that we use in meteorology, is to describe the distance across the hurricane where you're seeing those hurricane-force winds.

So, the thing about Hurricane Ian, relative to Charley or Andrew for example, is that it's more than twice the size of hurricane Charley, for example. So Charley — it is incredible — they both made landfall in the same locations, the same Hurricane Saffir-Simpson category, that Category 4 hurricane. Ian was twice as big.

MBS:

Wow. Okay. So that is huge. So not just immensely strong winds but immensely strong winds over such a wide geographic area is what really contributed to this. Okay, thank you for that.

I want to talk a little bit about loss estimates. So, CoreLogic has released two financial loss estimates for this storm. First, we looked at insured losses for wind and storm surge, which we released I think in the day or two after the event, probably within 36 or 48 hours. And those initially ranged between $28 and $47 billion.

And then, about a week later, we issued a second loss estimate, which included flood losses. So, then the flood along with the wind was estimated between $41 and $70 billion. So, can we talk a little bit about this, starting with why did we do two loss estimates? What did that include? And those are really big numbers, so can you just dive into them a little bit?

JS:

Of course. They are really big numbers. So there are a couple of reasons why we released them twice. And I want to make one point about those numbers before we dive into it. So the $28 to $47 billion that we released soon after landfall are insured losses. These are losses that are going to be covered by insurance companies in the U.S.

The $41 to $70 billion dollars includes not only the insured losses but the uninsured losses. So your home is damaged, but if that's not part of your insurance coverage you're going to be left to foot the bill for those additional losses. So-

MBS:

A question — I want to jump in —is why would something be uninsured?

JS:

It's a great question. So there are a couple of ways things could be uninsured. First of all, it could be uninsurable. It could be a type of structure or property that insurance companies won't even write policies for. I mean, you might be able to go to a specialty insurer and get an insurance policy, but that's a very special case. You're going to be paying an incredibly high premium for that.

The other issue is that insurance can be expensive if you are not required to have insurance, and there are some cases where you are required if you have a mortgage for your home in a Special Flood Hazard Area as defined by FEMA, the 100-year flood zone, you need to have flood insurance. You are required... for that mortgage, for the bank to write that mortgage, you're required.

Now, if you don't live in the Special Flood Hazard Area, you are not required to have flood insurance. And if it's too expensive or you don't want to pay for it, you don't have to. So, when we release an insured flood loss estimate, we are just talking about the losses to the insurance company that is above a deductible up to a limit for a given policy and then aggregated to all those insurers.

MBS:

Gotcha. Is it safe to say that wind is insured and it's flood that has places where it's not insured?

JS:

It's trickier, there's a bit of a distinction, yes. So wind will be generally covered under your standard homeowner policy. Flood is not covered under the standard policy. You can add an addendum. This is if you aren't required to have flood insurance, you can add something onto your policy to cover flood losses as well. Not required. But wind, in your typical home insurance policy that any one of us has on our homes, it will cover wind.

MBS:

Okay. Good to know. Okay, I want to keep talking about losses. We actually have talked about loss estimates before on this podcast in Episode 25 when David Smith joined us. And he's a key contributor from our science team who computed these losses that we are talking about, and I do encourage, if you haven't listened to that episode, do check it out because it is related to what we're talking about today.

But one thing I think that is really important is, as you mentioned, we are talking insured losses or uninsured losses sometimes with flood, but not economic loss. And I think sometimes headlines will talk about economic losses. Can you talk a little bit about what's the difference between an insured loss and an economic loss?

JS:

Yeah, of course. I mean, economic loss, think of that as the total damage from the hurricane. This is everything. It's homes, it's going to be your gazebo in your backyard. It'll be power lines and roads. Anything that can be damaged and was damaged will be in your economic loss.

As I mentioned, only a subset of everything is insurable. So there are things that are uninsurable that is included in economic, not in the insurable. A portion of anything that is insurable is insured, that's just a smaller portion of a circle. If you're starting with a big circle of economic, that's everything.

MBS:

And that would include things like infrastructure and such?

JS:

Exactly. It'll include everything. One of the things we focus on when we talk about resilience in any shape or form is the difference between the insured loss and the economic loss. So that gap is called the insurance gap, and those are the losses that you, me, any of us are going to have to cover. If we lived in Florida, we're paying for those repairs. Any federal assistance you get, which comes from FEMA or the government, the U.S. taxpayers are footing that bill essentially. So that insurance gap, shrinking it is a huge goal, especially in the flood insurance world to make sure more losses are covered by insurance companies.

MBS:

JS:

That's what our initial estimates of the flood losses are looking like. Yeah, so for Harvey, in particular, we a lot of, you can think of it... all that damage that happened in the Houston area away from the landfall location, all that precipitation-induced inland flooding, a lot of that flooding happened outside of the Special Flood Hazard Area, outside the 100-year flood zone. So these were homes that were not required to have flood insurance, and they didn't. Maybe if they were in lower-income neighborhoods that couldn't afford the rising prices of flood insurance, and they were impacted more materially than people in the Special Flood Hazard Area.

We are seeing some examples of that, though not to the same degree that we did in Harvey. We're seeing that in Florida. We are seeing some material flood losses, but they tend to be within the areas of the Special Flood Hazard Area, the examples we've seen so far. So yes, the proportion of insured to uninsured, that gap won't be as big we don't think for Hurricane Ian.

MBS:

Okay. Okay. Good to know. I want to keep talking a little bit about the private insurance market. I know before the storm hit, we at CoreLogic speculated that this would be a market-changing event and that this really could cause insurance companies to go bankrupt given the extent of the damage the storm looked like it was going to cause. Is there anything we can say about this now?

JS:

It's probably too early to say anything now about the impact to the private insurance industry as a whole. Claims will be coming in for the next year, and the magnitude of those claims, it's hard to say what the average claim will be. There has been a lot of analysis of this storm saying that the insured losses to the private insurance market are going to be unheard of before and that the private insurers and Florida citizens, which you can think of as an insurer of last resort or a reinsurer for all the okay carriers that write in Florida, the impact that they're going to take will be catastrophic.

We saw that with Hurricane Andrew. That was back in the early 90s when insurance companies just weren't really prepared. They didn't really understand the risk of their portfolios when it came to hurricanes. They hadn't seen an event so severe. What happens is when insurance companies can't pay the volume of claims that they're receiving, they go insolvent. Basically, they go out of business, and that leaves homeowners with no one paying the bill.

MBS:

Ah, gotcha. Okay.

JS:

So, to say that there will be catastrophic impact to the insurance industry in Florida, it's too early to say. There's been some speculation that it might be, there have been some speculations and modeling efforts to say no, they've got it pretty well covered right now. It does remain to be seen.

MBS:

Okay. So time will tell for sure. It's something we will definitely keep an eye on and probably continue to provide some insights as we see the industry change and as the story unfolds, I suppose, with the storm.

Okay. Staying on that topic of — you mentioned insolvency, potentially insurance companies going bankrupt — What does that do to the homeowner? What happens to the homeowner if the insurance company can't pay the insurance claim to them on them having damaged or lost home?

JS:

I mean, it's a great question, and the short answer is you're in trouble. I mean, you're going to be reliant on any sort of federal assistance, which is going to be minimal at best — tens of thousands of dollars. But if you have to rebuild your home entirely and that's talking half a million to a million dollars, that bill, it's going to be on you to cover that in the meantime. I mean, there will be safety nets in place where there might be payouts that can help with that. But if you think about you just lost your home, and the insurance company isn't answering the phone, you need a place to live.

MBS:

Yeah.

JS:

You're going to have to start footing that bill to start. And if people have the means to do so, great. But a lot of people don't. So, without the insurers, I mean it, you're in trouble if you need to rebuild.

MBS:

Yeah, no, it's definitely a scary situation. Something else I wanted to talk about, sticking with that press release that we issued before the storm made landfall, we also talked about reconstruction cost values, and I know we had a pretty hefty estimate of trillions of dollars of homes in the cone of uncertainty that were at risk to this storm.

Can you talk a little bit about how that estimate that we released before landfall differs from these insured loss estimates that we released after the storm made landfall?

JS:

Yeah, of course. So I mean, one of the things that CoreLogic has, that a lot of other companies don't, is we have this incredible database on all of the homes across the U.S. So we can really use that to our advantage when it comes to these estimates of homes at risk prior to an event making landfall. So, we published a couple of estimates prior to landfall looking at the number of homes in the total reconstruction value at risk to storm surge. You think of reconstruction value as the cost it would require to rebuild your home from 0% to 100%. It's the materials to rebuild, and it does not include the contents. This is if you needed to rebuild your house, this is what it is.

So, think of our estimates as the ultimate worst-case scenario. The very, very high end of any potential event. Will that number ever be realized? No, not every home that was in the cone of uncertainty or had storm surge risk is going to get damaged. They're not even all going to necessarily experience flood or winds just because they were in the cone of uncertainty or they had high storm surge risk. So only a portion of those that had high risk, even soft flooding or winds, and only a portion of those experienced damage.

So the high end of any estimate will be this number. This is the worst-case scenario. If everything at risk was damaged 100%. It's different from any sort of model loss estimate because we're now looking at the uncertainty associated with did a home even experience wind? The uncertainty around how much damage a specific type of building experienced for a given wind speed. That's basically how these models work. We know something about the potential range of damage that a certain wind speed would do to a specific type of building and we know something about the distribution, so we can make a statistical inference and we can say, "All right, well there's the highest likelihood that if the wind speed was 150 miles an hour, we had a wood frame home, it would be 75% damage, and if the home was valued at $500,000 and the loss is 75% of that."

So, when we use the models, that's a much more accurate estimate of what the losses will be because it accounts for all the uncertainty, and it's not like a worst-case scenario because not every home that could be damaged was damaged, and the ones that were damaged were not damaged 100% necessarily.

MBS:

Can you just talk a little bit about that?

JS:

Yeah, so I think one of the trends we're seeing for these storms, and I think Harvey, Irma, actually, Ida does a pretty good job of exemplifying this as well along with Ian, is that we're starting to see a lot more damage and risk further inland from the landfall location. And the reason for that is these storms are getting wetter. That is something that climate scientists are fairly confident about when it comes to climate change impact on hurricane activity. We aren't necessarily going to see more hurricanes. As a matter of fact, I think the research is pretty inconclusive on that.

There is some confidence in that we'll have a higher proportion of major hurricanes, Category 3, 4 and 5, all these ones we've been talking about. But if — it's a basic thermodynamics kind of thing — but if the air is warmer, it can hold more moisture. Hurricanes are going to be wetter, and as they move further inland, that rain's going to go somewhere.

So you're going to start seeing, I think one of the things we're going to start seeing and what insurers are going to have to start taking into account is the increased flooding risk, both pluvial: rainfall, flash flooding, and fluvial from overflowing river banks further away from the coastline. Farther inland, you're going to start seeing substantial hurricane-related flooding. A lot of these policies are based on, or at least from a reinsurance standpoint, if it's a named storm and if you think about a major rainfall event just happening in the Appalachian area or something like that, it's not a named storm, it's just a rainfall event. But if they're named storms — how Ida can go all the way up into the Northeast dumping rain, it's a big deal that there's a much higher risk inland because of these events.

MBS:

Okay. Well, that's a theme that we've talked about a lot here on Core Conversations this year is climate change and the impact it is having broadly across multiple industries. One thing you mentioned is named storms, and it made me just think of... I know with Andrew, Katrina, some of these big ones that we've talked about before, those storm names have been retired and we will never have another Hurricane Katrina. Will we ever have another Hurricane Ian?

JS:

Most likely not. No, I think Ian will definitely be retired. I mean, ifrom the fatalities and the damage. Even if this isn't going to bankrupt the insurance industry, this was a bad event, right? These damages, we said our estimates of insured and uninsured, we're talking up to $70 billion. This is a big event. It will be retired. Will there be other Category 4 and 5 hurricanes making landfall in the Florida Gulf Coast? Absolutely. I mean, it's going to happen at some point. There will never be another Ian though.

MBS:

Okay. Well, Jon, thank you so much for joining me today on Core Conversations: A CoreLogic podcast. It has been so great to chat with you.

JS:

My pleasure. Thank you so much for having me.

MBS:

All right. And thank you for listening. I hope you've enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts and subscribe wherever you get your podcast to be notified when new episodes are released.

And thanks to the team for helping bring this podcast to life. Producer Jessi Devenyns, editor and sound engineer Romie Aromin, and social media duo, Sarah Buck and Makaila Brooks.

Tune in next time for another Core Conversation.