When A Little Is A Lot

By: Dr. Gary Anderberg

By: Dr. Gary Anderberg

June 29, 2023 — Everyone remembers "the rain in Spain"* from My Fair Lady, but not everyone recalls the next lyric: "In Hartford, Hereford, and Hampshire/ hurricanes hardly happen." An item from NBC News (5 deaths reported in California storms; rare tornado near Los Angeles tears off roofs [nbcnews.com]) got us thinking about those hurricanes a couple of weeks ago. Here's why: "A rare tornado touched down in a Los Angeles suburb on Wednesday, ripping roofs off a line of commercial buildings and sending the debris twisting into the sky and across a city block, injuring one person." That EF-1 storm brought the total of tornadoes in California thus far in 2023 to nine, compared to the total of seven seen in an average year.

If you know folks who live in Tornado Alley in the central US, nine tornadoes may sound trifling, but the point is that this is in a place — California — that sees few such storms in normal years. It underscores an important point about changing weather-related risks. Not only are storms becoming more ferocious but we are also seeing weather-related risks migrating into places where they are not expected. We noted in these pages last year that Tornado Alley's footprint is growing and shifting east and north as we watch.

Another example of risks turning up in new places comes from Utah, where the state is scrambling to prepare for potentially unprecedented flooding as the record snowpack from this winter's extreme storms melts. According to the Associated Press: "[Utah] is among the many in the American West confronting the wet winter's consequences, with many places ending the season with more than double the 30-year median measurements for snow-water equivalent, federal data shows." The state government has allocated millions of dollars to prepare for the expected high water in normally dusty Utah.

Meanwhile, Spain is trying to cope with an unprecedented drought. A recent news story (Spain Dealing With 'Totally Unprecedented' 30-Month Drought [msn.com]) put it this way: "Spain as a whole has been in a long-term drought since the end of 2022, with the country having experienced three years of low rainfall and high temperatures. It only received 36 percent of its average monthly rainfall in March 2023, and while there were hopes April would bring rain, it wound up being the driest on record." If you think this is only a problem that affects Spain, check the price of olive oil, a major Spanish export, on the shelves of your supermarket this weekend.

Our point is not to play weather-caused whack-a-mole but to note that being a risk professional today means watching every sign that yesterday's normal may soon be irrelevant to insuring/mitigating tomorrow's risks. None of the examples we've cited here appears to be of Noah-like dimensions, but they are all harbingers of the same story — risks are migrating and metamorphosing in unprecedented ways. That's pretty scary for a business model — insurance — based on precedents like loss histories, USGS flood maps**, and time-tested underwriting formulas***.

January is named after the Roman god, Janus, who had two faces — one looking forward and one looking back. Since the beginning of actuarial science in the eighteenth century, we have all been trained to look mostly backward. We often make a big deal out of our troves of historical data going back to the day after the ark crunched ashore on Mount Ararat. We firmly believe the past is a prologue, and everything we need to know about risk has already happened.

What could possibly go wrong? Well, just ask a Spanish farmer about the rain in Spain.

*"The rain in Spain stays mainly in the plain." (Yes, you must be of a certain vintage to remember the 1964 movie.)

**Which have recently been significantly revised.

***For a different approach, take a look at this thought-provoking piece on parametric flood insurance fromITL-- U.S. Is Ready for Parametric Flood Insurance | Insurance Thought Leadership.