After Ian: Swiss Re models show population growth is driving a hurricane loss risk imbalance

As Hurricane Ian’s one-year anniversary approaches, a new Swiss Re analysis illustrates how rapid population growth has dwarfed accompanying efforts to reduce vulnerability to such events. This imbalance is driving loss expectations higher. Natural catastrophe models are a key element to understanding these powerful forces -- and guiding our efforts to adapt to evolving risks.

Those who toured Hurricane Ian’s destruction in Florida last year were struck by often contrasting images. Structures erected according to recent building codes fared well, sometimes going unscathed despite fierce wind and intense rain, while many older buildings were heavily damaged or destroyed by the third-costliest US hurricane ever.

These diverging outcomes are real-life illustrations of what Swiss Re Natural Catastrophe experts also found in their publication "Ian revisited: Disentangling the drivers for US hurricane losses". Using Swiss Re's inhouse model for North Atlantic tropical cyclones, they concluded that building standards improvements in Florida since the 1970s have trimmed the magnitude of annual losses expected to result from hurricanes by some 90-100%. 

In a sign of lessons learned, many of the houses that survived Ian benefited from new building standards enacted after Category 5 Hurricane Andrew in 1992 and more recently Hurricane Irma in 2017. This is the good news. 

Unfortunately, however, the authors came to a more sobering overall conclusion: even though Florida has fortified itself against hurricane losses through its improved building codes, these gains have been dwarfed by higher modeled loss expectations that arise from the state’s population growth and the accompanying accumulation of valuable assets.

Since the 1970s, Florida's residents have tripled to more than 22 million people as migrants sought out its sunny climate and tourism-industry jobs. Over this period, our data indicates, the state’s population-driven increase in modeled annual expected losses from hurricanes totalled 180-190%, or double the rate of improvements from better construction. 

Put simply, the benefits that Florida has reaped from strengthening its building codes over the last half century have been overwhelmed by population growth. Everyone from insurers to corporations to the public sector must adapt to that.

Hurricane Ian brought this into sharp focus in particular around Fort Myers, where the storm made landfall. It is evident in our models: Annual expected losses in Fort Myers due to population growth have risen 340-350% from 1970s levels, surpassing the building standards-driven gains in our models of 150%. 

Florida is by no means alone in seeing population growth eclipse adaptation, Swiss Re's models show. 

Across fast-growing regions, these forces are pulling in opposite directions, with population growth winning in fast-growing metropolitan areas in the US Southeast and Gulf States. This includes Houston, where the region's oil & gas industry has been a major growth driver. With a population now pushing seven million, four-fold 1970 levels, Houston's modeled expected loss from population growth has risen by a factor of 200-210%. By contrast, improvements through more resilient buildings rose by just 50-55% in the period.

Although cities like New York in the US Northeast have grown more slowly over the same period, they are hardly immune to expanding loss risks. With the bulk of the region's population and value creation growth prior to the 1950s – according to standards of that era -- fewer new buildings benefit from storm-resistant construction. 

Additionally, given generally weaker and less-frequent hurricanes – and lower risk awareness – in the Northeast compared to Florida or on the Gulf Coast, older buildings have not been the focus of adaptation. Combined, these factors leave the region more vulnerable to powerful storms like Hurricane Sandy in 2012 or Hurricane Ida in 2021. Both events spurred some progress in adaptation and resilience, albeit slow and unfinished.

Looking at many kinds of risks, the conclusions from this new Swiss Re analysis, while clearly focused on hurricanes, apply more broadly to a host of natural catastrophes including wildfire, convective storms, earthquakes, and flooding. Regardless of peril, there’s upward pressure on insured losses when there is an imbalance between population growth and corresponding adaptation to the risks.

When you factor in resurgent post-COVID inflation, you can see why the rising 5-7% average annual natural catastrophe insured loss trend seen over the last three decades continues. In just the first half of this year, losses from natural catastrophes were USD 50 billion, marking the second highest loss figure for that period since 2011.

Without a doubt, adapting existing buildings and infrastructure to today's heightened risk environment is challenging and expensive. One OECD-sponsored study puts the cost of necessary upgrades for flooding in more than 130 coastal cities worldwide at USD 50 billion annually. However, that’s just a fraction of the study’s USD 1 trillion per-year loss estimate, should nothing be done.

Fortunately, we are not approaching this challenge empty handed. Re/insurers offer a growing suite of powerful modeling tools, many of which rely on partnerships with industry and the public sector, to drive mitigation of, and adaptation to, rising natural catastrophe risk.

By combining maps and satellite imagery with information about clients' assets to keep pace with evolving natural hazard exposures worldwide, Swiss Re is already helping our insurance and corporate customers future-proof their activities. Our goal is to equip them to make good decisions about where to invest and grow, not just next year, but beyond the next decade.

With digital technology, we can tap vast amounts of data to inform adaptation decisions, to help our clients keep pace with macro trends while limiting imbalances that emerge with competing risk factors. Our industry's financial strength also makes us ideal investment partners for mitigation or adaptation projects to remedy longstanding risks exacerbated by a changing climate.

Our models show how the accumulation of assets and population growth have outpaced adaptation efforts, heightening loss risks. Hurricane Ian wasn’t merely a symptom of this; it was a clarion call for all stakeholders – the public and private sectors as well as re/insurers and their clients - to better understand often-competing forces, so we can work together to bring them closer to equilibrium