Forecasts for summer 2014 are taking shape as we move toward the start of the season, which should serve as a reminder to property owners, insurance carriers and financial institutions that severe weather may be on the way and up-to-date valuations for residential structures are important for Insurance-to-Value (ITV) and collateral value monitoring.
Will the expectation of a mild hurricane season pan out?
Meteorologists are predicting a fairly calm hurricane season this year, although Americans living in states along the Gulf Coast and Eastern seaboard could still experience property damage. Current forecasts indicate that two storm systems could make landfall during the 2014 hurricane season.
Investors seem to be embracing the sunny narrative offered by meteorologists. Purchases of so-called catastrophe bonds, which suffer principal losses if specific disasters occur, soared during the first quarter. According to CNBC, total issuance of these financial products hit $1.2 billion during Q1, up almost 40 percent year over year.
Despite the mild forecast, it is still essential for property owners and insurers to be prepared for potential damages. It is difficult to predict the weather with certainty, as we have seen in the past. During 2013, the National Atmospheric and Oceanic Administration predicted that there would be five major hurricanes and almost 20 named storms. Instead, there were 13 named storms and no major hurricanes. Furthermore, hurricanes are only one of the weather-related risks that escalate during the summer.
Insurers must account for other risks
It does not take hurricane conditions to do damage to a residential property. Tornado activity has already started to pick up since a late-April outbreak caused the first tornado-related fatalities of the year. Less intense storm systems can also have significant impacts, such as flooding and fallen trees.
Meanwhile, the ongoing drought in the southern and western states is expected to intensify this summer. High temperatures and limited rainfall are drying out the terrain and heightening the risk of large-scale wildfires, which are already affecting the region.
There have already been dozens of major wildfires in the United States this year, with several states hit particularly hard. According to the California Department of Forestry and Fire Protection, the state recently suffered an estimated $22 million worth of property damage in a single week as a result of wildfires.
Meteorologist: 'there WILL be fires'
AccuWeather's Ken Clark, an expert on the western climate, said that fires will become an increasingly large concern throughout the summer as soil and vegetation become more dried out.
"What people need to know, and prepare for, is that there WILL be fires," Clark said. "We don't know where, we don't know when, but if they live in a place that is prone for potential fires they need to prepare and have a plan."
It is vital for any homeowner in a high-risk area to have a plan that can ensure the safety of their family during a wildfire. However, being able to escape the immediate danger is only one aspect of a complete plan. Afterwards comes the hard work of recovery.
Accurate replacement costs and insuring to value help property owners rebuild the same structure and receive sufficient contents coverage. It helps avoid a decline in asset value for REO properties and provides the proper value for flood insurance for mortgaged properties. To ensure policyholders are covered appropriately, accurate valuations are essential.