Resilience through the lens: Ten years on, Tropical Cyclone Yasi
Severe Tropical Cyclone Yasi slammed into the north Queensland coast near Mission Beach in the early hours of 3 February 2011. As a category 5 storm at landfall, it was one of the most powerful tropical cyclones to hit Queensland since records commenced. This was a major storm, with the Bureau of Meteorology estimating peak wind gusts of up to 285km/h near the eye wall1.
According to Insurance Council of Australia, Yasi generated AUD 1.4b of insured losses at the time, easily eclipsing the AUD 540m insurance payment from Tropical Cyclone Larry, which made landfall in a similar area five years earlier.
The industry's earlier estimates of Yasi's losses were closer to the AUD 1b mark, however, claims development continued to the AUD 1.4b sum, driven in part by post-event inflation factors in the wake of the Brisbane floods, only a few weeks prior.
Yasi - what if….?
As bad as Yasi was for those who experienced its fury (and paid its claims), it could have been far worse. Forecast maps a couple of days prior to landfall predicted Yasi to hit Cairns at Category 4 intensity. I was concerned and started running some rough disaster scenarios in my head. As one of the larger north Queensland cities, Cairns has some unique geomorphological and built environment characteristics that make it particularly vulnerable to cyclones, flooding and storm surge2. Whichever way I looked at it, if Yasi hit Cairns at Cat 4 intensity (and with storm surge), it was going to become one of the largest ever insured losses for Australia. Even without running a modelled loss scenario, an AUD4-5b insured loss seemed a real possibility.
Over the next couple of days Yasi strengthened to Category 5, but thankfully turned south, impacting a much less developed stretch of coast some 140km from Cairns, with the result being a much lower insurance payment.
Hit and miss
The cyclone-exposed Queensland coast has a series of what I call exposure 'gates'. Using the old Cresta (or ICA) zones as a reference, the market portfolio is characterised by alternating high and low exposure regions. For example: Zone 9 contains Townsville; Zone 10 (which was impacted by Larry and Yasi) contains much lower exposures; and Zone 11 contains Cairns.
This exposure profile tends to generate somewhat binary loss outcomes for landfalling cyclones in this region. Thankfully the 'hit or miss' nature of Queensland cyclone risk has been characterised mostly by 'misses' over the past couple of decades, with cyclones making landfall predominantly in those lower exposure gates.
I still haven't completed that scenario analysis for a Yasi direct hit on Cairns, but Swiss Re has considered similar as-if loss scenarios for major historical events – such as 1992's Hurricane Andrew directly hitting Miami, Florida. Analogous to the Yasi/Cairns hypothesis above, findings of the Andrew/Miami analysis highlight the loss sensitivity of cyclone paths relative to the geographical spread of (re)insured assets3. Our modelling suggests that if Hurricane Andrew were to directly hit Miami, rather than following its historical path a mere 20 miles to the south, the as-if losses would be as much as three times as high.
Scenario analyses and probabilistic catastrophe modelling are important methods to assess risk scenarios and inform underwriters about the correct price for risk, which is why Swiss Re is currently completing a full rebuild of our Australian Cyclone model.
Whilst we can hope that future Queensland cyclones continue to be 'misses', we must also be prepared, via risk-adequate pricing, for the 'hits' that will inevitably occur.