meta tag 

Author: jproeve

Categories
Hurricane Risk

Hurricane Preparedness Week: The Best Time to Prepare

Hurricane Preparedness

It only takes one devastating storm to lose your home or change your life. Extreme weather events are impacting more people and it’s more important than ever to understand your personal risks and prepare accordingly. The 2021 Atlantic hurricane season is approaching quickly and will officially begin on June 1.

Hurricanes are increasing in frequency and intensity . The National Oceanic and Atmospheric Administration (NOAA)’s Climate Prediction Center (CPC) announced in April 2021 that an “average” Atlantic hurricane season now reflects 14 instead of 12 named storms and 7 instead of 6 hurricanes. These higher averages are based on the most recent 30-year climate record. For those living in hurricane-prone areas along the coast, hurricane season is impossible to ignore.

It’s vital for you to prepare for the upcoming hurricane season now, before the first storm approaches, a message that is shared during the annual Hurricane Preparedness Week.

Hurricane Preparedness Week

Hurricane Preparedness Week is a dedicated time to focus on the steps you can take now to increase your preparedness . Initiated by NOAA and proclaimed by President George W. Bush in 2001, Hurricane Awareness Week was started to spread awareness of the dangers and hazards of hurricanes. However, as history has shown, being aware of disaster risk is not the same as being prepared . Consequently, NOAA updated the name to Hurricane Preparedness Week in 2004 to encourage both awareness and action for preparing for hurricanes.

How to Participate

The best way to participate in Hurricane Preparedness Week is to take time out of your busy schedules and physically and mentally prepare! Start by determining your hurricane risk and developing an evacuation plan. Stock up on hurricane emergency supplies and check on your current insurance policies. Practice how to prepare your home for a hurricane and offer support to your neighbors as they prepare.

Help spread the word about Hurricane Preparedness Week (May 9-15, 2021). The National Weather Service has provided text and images to post on your social media platforms. Encouraging your friends, families, and neighbors to prepare for the upcoming hurricane season helps to create more resilient communities – something that we need more of in 2021.

How to Prepare for the Next Hurricane

Parachute Insurance was started with the goal of building resilience for climate disasters. As Hurricane Preparedness Week is approaching, we are here to remind you that preparation is an important step to increasing your resilience. We have already created our guide to preparing for the next hurricane. Here are a few key points:

  • Create an Emergency Plan

During and after a hurricane, you will be under enormous pressure, therefore having a plan set in place will reduce your stress and allow you to focus on your recovery. Your emergency plan should include maps to your nearest shelters, planned meeting spots, and evacuation routes. Also make sure that you understand the different types of alerts.

  • Assemble an Emergency Preparedness Kit

A hurricane can cut off your power and water supply. Your car may be damaged, and roads may be blocked or flooded. Therefore, you should ensure your home and cars are stocked with emergency supplies including food, water, medicine, cash, and more. Create a checklist to make sure you include everything for your kits.

  • Get Your Home Prepared

Purchase storm shutters or pieces of plywood to cover up windows and doors during a hurricane. Even before hurricane season, you should make sure you know how to turn your power off, have a working carbon monoxide detector, and know your plan of action in the event of an oncoming storm.

  • Financially Prepare

Create a plan to ensure you are financially prepared for the aftermath of a hurricane. Understand what is covered in your current homeowners’ policy and add additional insurance coverage as needed or add to a savings account to cover the potential short and long-term expenses and any deductibles.

Consider emergency cash insurance, such as Parachute Insurance, which offers you liquidity immediately after a disaster with no deductible. As your first line of defense against hurricanes, Parachute Insurance builds financial resilience to climate disasters.

Visit our blog, How to Prepare for the Next Hurricane  for a full list of items to have and ways to prepare!

Hurricanes are a threat to your home, your family, and your life. While hurricanes can undoubtedly be destructive, you have the ability to keep your family and home as safe as possible with a little preparation.

Categories
Hurricane Risk

How to Prepare for the Next Hurricane

Hurricanes are strong storms that can cause severe hazards including flooding, storm surges, or high winds and can even be life-threatening. A few small steps you can take now will help make hurricane season less stressful. For those living in hurricane-prone areas, preparation is key!

The Atlantic hurricane season runs from June 1 through November 30 each year. The 2021 hurricane season will occur during the COVID-19 pandemic, which may affect your hurricane preparation and planning, but also makes it even more important to do so. If the COVID-19 pandemic taught us anything, it is to prepare for the unexpected. It’s much easier to prepare for a hurricane while the weather is still normal rather than waiting until the last minute during an already stressful time.

Here are a few actions you can take now to prepare for the next hurricane season.

Create an Emergency Plan

During and after a hurricane, you will be under additional pressure, therefore having a plan set in place will reduce your stress and allow you to focus on your recovery.

  • Talk with your family about what you will do during a hurricane. Especially for younger children, discussing hurricanes ahead of time will reduce stress and fear.
  • Understand the different types of alerts. The two types of alerts are a hurricane “watch” which can be announced 48 hours before tropical-storm-force winds are expected and the more serious hurricane “warning” which can be announced 36 hours prior.
  • Write down emergency phone numbers and program them into your cell phone.
  • Have a family communication plan. If you get separated and can’t reach one another, you will need to know how to get back in touch. You can designate a friend or family member to call and check in with.
  • Print or save electronic copies of important documents including emergency phone numbers and insurance information.
  • Locate the nearest shelter and map out the different routes you can take to get there from your home. Factor in any health or medical concerns, especially for older members of your family. If shelter locations in your area have not been identified, learn how to find them in the event of a storm.
  • Pet owners: Pre-identify shelters, a pet-friendly hotel, or an out-of-town friend or relative who can take care of your pets in an evacuation. Call your local animal shelter for advice on what to do with your pets if you need to evacuate your home.
  • Create a financial preparedness plan. Understand what is covered in your current homeowners’ policy and add additional coverage (such as flood insurance) if needed. Add to a savings account to cover the potential short and long-term expenses and any deductibles. Consider parametric insurance as a useful building block for your hurricane preparedness plan. With Parachute Insurance, you will receive emergency cash within hours after a hurricane hit.

Assemble an Emergency Preparedness Kit

A hurricane can cut off your power and water supply. Your car may be damaged, and roads may be blocked or flooded. Therefore, you should ensure your home and cars are stocked with emergency supplies. Create a checklist to make sure you include everything for your kits.

For your emergency kit, stock up on:

  • Emergency food. Choose foods that require little or no cooking, water, or refrigeration and have a long storage life. Consider any family members who are on special diets, babies, and pets. Avoid salty or spicy foods that would increase the need for drinking water (which may be in short supply).
  • Emergency water. Store at least 1 gallon of water per day for each person and each pet and at least a 3-day supply. The CDC offers advice on how to store and clean water containers.
  • Emergency medicine supply. It is recommended to keep a 2-week supply of any medications and medical supplies needed.
  • Make sure you have extra batteries available.
  • ATM’s and banks may be inaccessible during a storm.
  • Cell phones, chargers, and spare batteries.
  • Cleaning products. Store hand sanitizer, disinfecting wipes, toilet paper, feminine products, face masks, first-aid kits, soap, and any supplies needed for children such as baby wipes or diapers.
  • A battery-powered or hand-crank radio. Purchasing a radio will allow you to access local news and weather broadcasts. You can also receive weather alerts from your cell phone alerts, NOAA Weather Radio, or (@NWS) Twitter alerts.
  • A fire extinguisher. Ensure that members of your family know where to find the fire extinguisher and how to use it.

Get Your Home Prepared

In the event of a hurricane, you will need to prepare your home. Even before hurricane season, you should make sure you have the supplies and practice how to get your home ready for an oncoming hurricane.

  • Purchase storm shutters or pieces of plywood to cover up windows and doors during a hurricane.
  • Know how to turn off your power. If flooding occurs, power lines are downed, or you must leave your home, you will need to switch off your power.
  • Have clean water containers to fill with drinking water in case you lose your water supply during a storm.
  • Check your carbon monoxide (CO) detector’s battery regularly to prevent CO poisoning.
  • Plan where to store outdoor items. Lawn furniture, toys, gardening tools, and trash cans should all be stored away to prevent them from being moved by high winds and possibly causing harm to someone.
  • Clean loose and clogged rain gutters and downspouts. This will prevent flooding in the event of heavy rains.

For those living in hurricane-prone areas, it is never too early to prepare. The important thing is to take the actions needed to keep yourself and your family safe!

Categories
Behavioral Science

The Relationship Between Disaster Risk Psychology and Insurance

Psychology
Psychology

The U.S. has more natural disasters than any other country in the world. An estimated 35 million homes, nearly a third of all homes, are at “high risk” of a natural disaster, ranging from hurricanes along the Gulf and Atlantic Coastline to tornadoes and droughts in the Midwest and wildfires and earthquakes in the West. A total of 22-billion-dollar weather and climate disasters impacted the U.S. in 2020, according to the National Oceanic and Atmospheric Administration.

A recent study from The Zebra found that over 65% of U.S. homeowners and renters believe that climate change is causing worse storms in the place where they live. Regardless of the cause, three in four study participants fear that their homes, cars, or personal property could be damaged by a natural disaster in the next year.

So, the threat of a natural disaster is real in many parts of our country. But why do so many people fail to properly prepare for it? Why do people ignore evacuation warnings? And why do people pass on purchasing appropriate insurance coverage that could save them thousands of dollars in the event of a natural disaster? The answer may be rooted in the psychology of human nature.

The Psychology of Disaster Risk

People’s perceptions of risks are not easily represented quantitatively through a statistically probability of coming to harm. Once we start to characterize events with the word ‘risk’ and try to quantify the level of risk, we are entering the domain of subjectivity and emotion.

Normalcy Bias

Psychological biases often prevent people from preparing properly for disasters. Very common is the “normalcy bias”, which explains why most people, an estimated 70%, underestimate the threat associated with natural disasters like hurricanes and floods, and why people are plagued by inaction during a crisis. People assume the best will happen and situations will resolve the way they normally do because they do not want to think about a worst-case scenario. While people are “protecting” their mind from scenarios that feel unsafe, they underestimate the likelihood and effects of a disaster.

Fatalism

Another psychological state is fatalism, the phenomenon that occurs when dangers are so far outside someone’s control, they believe they can’t do anything about it. Fatalistic attitudes cause individuals to attribute damage to uncontrollable natural causes as opposed to human actions, like risk management or disaster preparation. This fatalistic attitude that nothing can be done deters people from taking preventive action.

Cognitive Biases

Two Wharton professors, Howard Kunreuther and Bob Meyer, researched the psychological limitations that prevent humans from better preparing for natural disasters, and underinvest in protection against low-probability, high-consequence events, like hurricanes. In their book “The Ostrich Paradox: Why We Underprepare for Disasters” they outline six cognitive biases related to decision-making under uncertainty:

  • Myopia: a tendency to focus on short-term horizons.
  • Amnesia: a tendency to too quickly forget things that have happened in the past.
  • Optimism: a tendency to underestimate the likelihood that losses will occur and think “bad things won’t happen to me.”
  • Inertia: a tendency to prefer to maintain the status quo, or to “do nothing”.
  • Simplification: a tendency to selectively choose only a subset of relevant facts when making choices involving risk.
  • Herding: a tendency to base choices on the observed actions of others.

When it comes to evacuation orders during natural disasters, policy makers often assume that fear is the best motivating factor in getting people to leave and they design legislation and word warning messages accordingly. Yet, as Brad Swain, behavioral researcher at the Common Cents Lab, explains “What policy makers fail to understand is that individuals who are making these decisions are constructing their preferences in real time, and optimizing across a host of goals and motivations.”

Overcoming Biases to Increase Preparedness

Human behavior is hardwired to avoid threats, and we retain many aspects of the mentality of our Stone Age forebears. Understanding these individual biases is a valuable first step in increasing disaster preparation. And for local authorities, they can use existing biases to better communicate disaster risk, encourage preparation, and express impact.

With regards to insurance coverage, the lack of incentive to purchase proper full coverage insurance for natural disasters, combined with the lack of education of available insurance products and their respective coverage gaps, presents challenges to preparedness. Understanding behavioral science can help to simplify the insurance buying process and reframe how people are informed to help people purchase the right insurance. In their book, Kunreuther and Meyer suggest using an opt-out versus an opt-in program. For example, for homeowners living in flood-prone areas, insurance could include flood coverage by default unless the homeowner opts out.

Insurance companies can analyze disaster risk psychology to help encourage people to be better prepared for disasters while still respecting their freedom of choice. But ultimately, the insurance products need to be affordable and provide great customer value in order to convince a buyer that it’s a worthwhile investment.

Do you live in a hurricane-prone area? Find out if you are financially prepared for the next hurricane.

Categories
Hurricane Risk

Predictions for the 2021 Atlantic Hurricane Season

The 2021 Atlantic hurricane season will officially begin on June 1. With the increase in extreme weather events and the COVID-19 health pandemic, it’s more important than ever to understand your risks and prepare for hurricane season. While the National Oceanic and Atmospheric Administration (NOAA) will not issue its initial seasonal outlook until May, climatologists can still offer a prediction for the upcoming season earlier in the year. The record-breaking 2020 hurricane season was brutal, will 2021 be the same?

What are the predictions?

Early hurricane predictions for the upcoming season typically come from two authoritative bodies, Colorado State University and Tropical Storm Risk (TSR), a consortium of tropical weather specialists based out of the University College London. These two groups meet at the end of each year to discuss their research and provide predictions for the upcoming season. In December, 2020 these two groups met virtually, due to COVID-19, to discuss their initial predictions for the 2021 season. Based on their individual research, both groups agreed that the upcoming season will likely be an above average season, although not as active as the 2020 season.

In a study conducted by Dr. Phil Klotzbach of Colorado State University, his research team determined that there is about a 60% chance of 2021 being another active season. Dr. Klotzbach’s research also found that there is a 68% probability of one or more category 1-2 hurricanes and a 52% probability of one or more category 3-5 hurricanes landfalling along the US coastline. TSR’s research also predicts that North Atlantic hurricane activity in 2021 will be above the long-term normal, but not as intense as the previous season.

What is the long-term normal for an Atlantic hurricane season? As determined by NOAA, from 1991-2020, the average hurricane season produced 14 named storms, of which an average of 7 developed into hurricanes and 3 became major hurricanes. Last year, 2020, was an extremely busy season with 30 named tropical storms of which 13 developed into hurricanes and 12 made landfall on the US coastline.

What factors affect these predictions?

While climatologists can’t forecast the exact number of tropical storms or hurricanes this early in the year, they are able to examine the slow-motion drivers that promote or reduce hurricane activity. The two main factors that determine how active the next season will be are the status of El Niño Southern Oscillation (ENSO)  and changes in water temperatures in the northern Atlantic, the Atlantic Multidecadal Oscillation (AMO). These two factors are both related to water, but weather also plays a role in hurricane activity in the Atlantic. Weather patterns are more short-term and will be evaluated as early as April.

El Niño Southern Oscillation (ENSO)

Occurring every three to five years, El Niño Southern Oscillation (ENSO) is an ocean-atmosphere phenomenon that causes an increase in sea surface temperature. La Niña is the colder complement to El Niño that causes the tropical Pacific Ocean to turn colder than normal. A La Niña cycle has caused water temperatures to cool in the Pacific since last summer. A colder tropical Pacific Ocean can influence the entire tropical wind flow and storm steering currents. During La Niña cycles, there is an increase in low-level winds blowing from East to West in the Atlantic. This wind flow scenario promotes the development of Atlantic hurricane activity and pushes the hurricanes toward the United States. The good news is that recent analysis from NOAA suggests that the current La Niña cycle will end this Spring, before the start of hurricane season on June 1.

With no expected El Niño or La Niña cycle this summer, the expected number of Atlantic hurricanes could decrease. Yet, it is important to note that the El Niño ocean-atmosphere pattern is very hard to predict and is only one factor in determining hurricane activity.

Atlantic Multidecadal Oscillation (AMO)

The Atlantic Multidecadal Oscillation (AMO), a climate cycle affecting sea surface temperature, has caused water temperatures in the Atlantic to be naturally above average for the last 25 years. This is crucial to hurricane development in the Atlantic because an enhanced AMO cycle slows down the Bermuda High, the semi-permanent, subtropical area of high pressure in the North Atlantic Ocean located between Bermuda and the Azores during hurricane season. The Bermuda High is largely responsible for pushing tropical waves, storms and hurricanes west away from Africa and toward the Caribbean and United States. If the Bermuda High is rotating slowly, the tropical systems have more time to develop and intensify.

Currently AMO is projected to be at its peak of the average 60-year cycle. As the last five hurricane seasons have been unusually active, higher than normal water temperatures due to AMO is predicted again for 2021. However, AMO can be unpredictable and it’s possible for a year or two to not follow the warm sea surface temperature trend even at the height of the AMO cycle.

What can I do to prepare?

Here are a few actions you can take now to prepare for the upcoming hurricane season:

  • Ensure your home and cars are stocked with emergency Items include emergency food, water, and medicine supplies.
  • Create your family disaster plan. Factor in any health or medical concerns, especially for older members of your family and don’t forget to make a plan for your pets as well.
  • Print or save electronic copies of important documents including emergency phone numbers and insurance information.
  • Create a financial preparedness plan. Understand what is covered in your current homeowners’ policy and add additional coverage (such as flood insurance) if needed. Add to a savings account to cover the potential short and long-term expenses and any deductibles. Consider parametric insurance as a useful building block for your hurricane preparedness plan. With Parachute Insurance, you will receive emergency cash within hours after a hurricane hit.

For those living in hurricane-prone areas, it’s never too early to prepare. While it is impossible to say with certainty how active the hurricane season will be this year, 2020 taught us to prepare for the unexpected.

Categories
Parametric Insurance

The Rise of Parametric Insurance

Insurance is finally changing. New, reliable data sources, digital technologies, and shifting customer dynamics are the driving forces behind this transformation. Customers are demanding more convenience, faster payments, and affordable, practicable solutions to manage their risks. Climate change and an increasing number of people being exposed to weather extremes make it more important than ever to build climate resiliency.

Parametric insurance is not new. In fact, it has been successfully applied for years in life insurance and in risk-linked securities, such as catastrophe bonds. One of the better-known examples of parametric insurance is the Caribbean Catastrophe Risk Insurance Facility, which was established in 2007. This facility pooled the risk of 16 Caribbean and Central American countries and purchased parametric insurance against weather catastrophes, such as hurricanes, extreme rain and earthquakes.

Driven by the mentioned trends parametric risk management is now primed to go “mainstream” and make a much broader impact to consumers.

What is Parametric Insurance?

The concept of parametric insurance is simple: a pre-defined payment occurs if a pre-defined parameter surrounding an event is triggered. For example, the event could be a hurricane that unleashes winds over a certain speed, the “trigger”. The insurance contract defines the specific parameters (metrics, characteristics, and thresholds) of events that will trigger a payment.

This design has many advantages. As the payment amount is established in advance and not linked to the actual loss, like in conventional indemnity-based insurance, there is no need to adjust the claim after an event. Instead, claims can be paid out almost instantly. This is important as speed is a crucial factor for individuals and organizations to stay resilient and recover after a disaster.

A key requirement for parametric insurance is reliable and consistent data that is highly correlated with an anticipated loss and comes from an independent, recognized, and well-respected organization, such as the National Oceanic and Atmospheric Administration (NOAA) for hurricanes.

Parametric insurance is appealing to many customers because it offers protection and financial support while eliminating everything people dislike about insurance: complicated policy forms, high deductibles, a long-drawn-out claim process, or claim disputes that sometimes end up in court. For example, over 1,250 business interruption lawsuits have been filed in US courts against insurers for claims arising from shutdowns in response to COVID-19.

Where is it Used?

There are many areas where parametric insurance is already used including hurricanes, earthquakes, droughts, excessive rainfalls, floods, extreme high or low temperatures, and many more. Parametric insurance is also starting to see traction for non-tangible losses, such as travel delays, business interruptions, and even power outages. With more accurate data from weather stations, satellite images, and other sensors as well as improved risk modeling capabilities, there will be even more applications in the future.

Several recognized insurance players around the world have already released parametric products. For example, Swiss Re offers parametric products for wind storms and earthquakes. Sompo has introduced parametric crop insurance. And AXA offers parametric insurance for renewable energy, agriculture and the hospitality industry. There are also several new players that offer parametric insurance specifically targeting consumers. Parachute Insurance for instance is developing a parametric hurricane protection product for homeowners.

Benefits of Parametric Insurance

Parametric insurance has many advantages for customers as well as for insurers.

Benefits from a customer’s perspective:

  • Fast – When a policy is triggered, payments can reach customers almost immediately.
  • Easy – The policy language is explicit and clear. Customers do not have to file a claim or deal with a claim adjuster.
  • Affordable – With easier underwriting and practically no claim adjudication, costs can be significantly reduced, making it affordable for many customers.  

From an insurer’s perspective:

  • Efficient – Parametrics offers insurers a chance to reduce their notoriously high expense ratios which has been hovering at around 30% of premiums.
  • Fast – The value of claims is known almost immediately, and maximum losses are capped, even in a catastrophe.
  • Growth – Parametrics offers insurers an opportunity to expand into new risks that were previously uninsured or underinsured.

Concerns

Parametric insurance also has downsides, most notable the basis risk and lack of customer literacy.

Basis risk is the risk that a customer suffers a loss but doesn’t receive a payout. This might be due to the fact that parametric insurance only triggers a payment when an index meets a specific threshold, not by the actual loss itself. You can reduce basis risk by choosing an index highly correlated to the actual loss as well as by granular data. Also, it is important to keep in mind that even conventional insurance includes “basis risk” in the form of policy wording with deductibles, exclusions, and limits.

The other concern is consumer illiteracy, meaning consumers might not fully understand the payout process of a parametric product. It is important to stress that parametric insurance is not as comprehensive as traditional insurance and is therefore often marketed as a supplemental cover.

Why Now?

Until recently, mostly governments and large corporations were buying parametric insurance, but it is now gaining momentum for smaller businesses and individuals. The rise in parametric insurance can be attributed to a few connecting factors. Customers are demanding easier insurance products with faster payouts. With more frequent and intense natural catastrophes, there is a growing need for more affordable risk management solutions. Finally, new data sources make it possible to develop new parametric insurance products. When designed well, parametric insurance products can help satisfy many of these customer needs and keep the insurance industry evolving with the times.

Categories
Hurricane Risk

Reflections on a Record-Breaking 2020 Atlantic Hurricane Season

The 2020 Atlantic hurricane season was extremely active and broke many records:

  • 30 named tropical storms – more than ever recorded and exceeding the alphabetical list of 21 Atlantic storm names.
  • 12 tropical storms hit the U.S., of which 5 came ashore in Louisiana – 3 more than the previous record from 1916.

Tropical cyclones impacted the entire U.S. coastline from Texas to New Jersey last year but hit particularly hard the Caribbean and Central America. In this blog, we are taking a look back at the major hurricanes making U.S. landfall and what damages they caused before we share our perspective on how you can prepare for 2021.

The Storms

The 2020 Atlantic hurricane season produced 30 named tropical storms of which 12 made landfall in the U.S. The season got off to an unusual early start with tropical storm Arthur in mid-May, two weeks before the official start of hurricane season on June 1st. By July, three tropical storms, Edouard, Fay, and Gonzalo, broke the record for earliest fifth, sixth, and seventh named storms, respectively. Many more hurricanes and tropical storms formed over the summer. In the month of September, 10 tropical storms formed, more than in any month on record. By the end of October, hurricane Zeta became the 27th named storm of the season, the most since 2005, and the 11th storm to make landfall in the U.S. Eta was the last tropical storm impacting the US in 2020. It made landfall twice in Florida on November 8 and 12 after having steamrolled as major hurricane into Central America.

Tropical cyclones with maximum sustained winds of 39 mph or higher are called tropical storms (and receive a “name” from the National Hurricane Center). Storms with maximum sustained winds of 74 mph or higher are called hurricanes. They are categorized from 1 to 5 on the Saffir-Simpson Hurricane Wind Scale. The higher the wind speed, the higher the category, and the greater the hurricane’s potential for property damage.

Here is an overview of the most notable hurricanes (from a U.S. perspective):

  • Hurricane Hanna: Category 1 Hurricane Hanna, the earliest 8th named storm on record, made landfall at Padre Island, Texas on July 25. High winds and heavy rainfall, up to 12 inches, caused widespread flooding in the Rio Grande Valley.
  • Hurricane Isaias: Tropical storm Isaias brought high winds and heavy rain to Puerto Rico on July 29-30 before traveling north passing by the coast of Florida, Georgia and South Carolina. It intensified over the Atlantic and made landfall as a Category 1 hurricane near Ocean Isle Beach, North Carolina on August 3. High winds and heavy rains were experienced much further inland than normal reaching from Virginia all the way to New England. Millions of people lost power and 5 people died as a result of the hurricane.
  • Hurricane Laura: On August 27, Hurricane Laura made landfall near Cameron, Louisiana as a Category 4 hurricane with sustained winds of 150 mph before downgrading to a Category 2. It tore off roofs while knocking out power to hundreds of thousands of people. A large storm surge occurred over much of Louisiana’s coastline and flooding rainfall extended into western and central Louisiana. Over 500,000 residents were evacuated. 98% of households in Cameron County lost power. At least 27 people were killed. The total economic losses are estimated at $16 billion.
  • Hurricane Sally: Hurricane Sally made landfall near Gulf Shores, Alabama, as a Category 2 hurricane on September 16. Flooding along the Alabama-Florida border forced thousands of rescues. In Florida alone, Sally dumped four months of rain in four hours causing widespread flooding. Due to high winds and flooding, hurricane Sally left many communities heavily damaged in its wake.
  • Hurricane Delta: On October 6, Hurricane Delta rapidly intensified from a tropical storm into a Category 4 hurricane over the Caribbean Sea putting much of the Gulf Coast, from Texas to Florida panhandle, on high alert. It eventually made landfall near Creole, Louisiana as a Category 2 hurricane, only 12 miles away from where hurricane Laura caused massive destructions only 6 weeks earlier. Four people died and nearly 150,000 people lost power. The hurricane also caused 10 tornadoes to develop causing additional damages.
  • Hurricane Zeta: Category 2 Hurricane Zeta made landfall near Cocodrie, Louisiana on October 28 taking the lives of 6 people. The hurricane caused over 2 million people to lose power.

Visit here for a full breakdown of all the storms in the 2020 Atlantic hurricane season.

To watch a great visualization of all 2020 hurricanes and tropical storms, watch this clip produced by NASA.

The Impact

The total economic losses from hurricanes and tropical storms in the U.S. in 2020 are estimated to be $37 billion, ranking the eighth highest total on record. All while scientists are attributing an increasing frequency and intensity of hurricanes to the effects of climate change.

For families living near the Atlantic and Gulf of Mexico coasts, the threat of costly damages from hurricanes is a real concern. There is a large gap in standard home insurance coverage that leaves many families financially vulnerable. Standard insurance policies exclude damages from flooding and limit the insurer’s financial responsibility in the form of hurricane deductibles.

Looking Ahead

The reality is that standard homeowners insurance policies are not sufficient to protect families from the very real and increasing threat of hurricanes. One option to help fill this insurance gap is parametric insurance, a new form of insurance that offers quick and painless support in the immediate aftermath of a crisis. Parachute Insurance is designed to increase financial resilience for hurricanes and removes the need for an adjuster or a lengthy claims process. It pays homeowners emergency cash within hours after a hurricane hit.

The 2020 hurricane season was brutal, and the unfortunate reality is that the next hurricane season could be the same – or worse. We want you to be physically and financially prepared before the next hurricane hits so you can stay resilient to these storms!

Visit our blog to learn more about how you can increase your financial preparedness before the next hurricane.

Categories
Protection Gap

Are you financially prepared for the next hurricane?

Hurricanes are a common phenomenon for people living along the East Coast and Gulf of Mexico. Hurricane season runs from June to November. Last year, a record number of six hurricane made landfall on US shores. Yet, despite living with the threat of hurricanes, many people find themselves badly prepared and don’t realize the extent of their financial vulnerability until it’s too late. With climate change increasing the frequency and intensity of hurricanes, this is a growing concern for many families living in areas affected by hurricanes. Parachute Insurance interviewed homeowners in Texas, Louisiana, Florida and North Carolina who suffered damages from recent hurricanes to learn more.

“I didn’t understand my insurance policy before the hurricane struck…I wasn’t aware of everything that was excluded, like flood damages. I didn’t know what a 5% hurricane deductible meant…But I have learned my lesson.” – Parachute Insurance market research participant from Texas.

Many people are financially vulnerable to hurricanes, yet don’t realize the extent of their vulnerability until it’s too late. Let’s discuss why.

Misguided Trust in Standard Homeowners Insurance

While home insurance policies certainly provide protection and have many benefits, there is a misperception around what is – and what isn’t – covered. For starters, standard policies do not cover flood damage, a common and costly side effect of hurricanes due to heavy rain and storm surges. According to FEMA “just a few inches of water can cause tens of thousands of dollars in damage.”

Most standard insurance policies also exclude expenses for tree removal. And yet they are extremely common due to the high winds generated from hurricanes.

Additionally, homeowners insurance policies in hurricane-prone regions often have deductibles for damages caused by hurricanes. This deductible typically ranges between 2% to 5% of the home’s insured value. In other words, for a house valued at $400,000 and a 5% hurricane deductible, the homeowner has to chip in up to $20,000 before the home insurance policy kicks-in. A lot of money not everybody has available. Unfortunately, over half of homeowners either are not even aware of these deductibles or are confused about how to apply them correctly.

Finally, the claims process can be stressful and daunting, especially for families already struggling through a difficult time.

“I had to fight with the claim adjuster over the reimbursement amount. Lots of back-and-forth negotiation. I hated it.” – Parachute Insurance market research participant from Louisiana.

Exclusions, high deductibles and slow claim payments are aspects of insurance policies that are often not planned for yet can cause intense financial and emotional stress on families.

Lack of Emergency Savings

Watching your home get damaged by a hurricane is already a stressful event. Not knowing what portion of this damage will be covered by your home insurance, how you should finance the large hurricane deductible or how to pay for immediate necessary repairs, puts additional pressure on you.

According to the Federal Reserve, 37% percent of adults either cannot pay for an unexpected $400 emergency expense or have to borrow or sell something to do so. Even for families that have some savings, the immediate aftermath of a destructive hurricane will cause additional expenses that can easily cost tens to thousands of dollars. The wait time to receive their insurance claims can deplete any savings left.

As a research participant from North Carolina expressed: “It took my insurer 3 months to approve and pay my claim. I couldn’t wait that long with the repairs. It was a weird situation, but I had to beg my uncle for money.”

Some claims can even be rejected altogether. Having a standard home insurance policy alone is often not enough protection from the financial impact of hurricanes.

Increase your Preparedness

There is not one “hurricane insurance policy” product that covers everything in terms of damages and financial effects from a hurricane. Your best course of action is to develop a hurricane preparedness plan that includes a combination of insurance policies and savings to cover short and long-term expenses. You don’t want to wait until after a hurricane strikes to discover the shortcomings of your home insurance policy. By understanding what will be covered, you can fill any gaps accordingly.

As a rule of thumb, save between three to six months of fixed expenses in cash as an emergency fund. This money can help you recover in the immediate aftermath of a hurricane, be used towards your deductible, or give you some financial freedom as you wait for your claims to be paid.

Parametric insurance can be a useful building block for your hurricane preparedness plan. With Parachute Insurance, you will receive emergency cash within hours after a hurricane hit. We redefine what insurance stands for: quick, easy, and reliable financial protection in times of need so that you stay resilient and recover quickly. It’s that simple.

As you build out your hurricane preparedness plan, consider Parachute Insurance for your first line of defence against hurricanes. You may not be able to predict when the next hurricane will happen and if your home will be affected, but you can ensure that you are financially prepared.