New technological developments are now poised to reduce the likelihood of hurricane wind damage and to improve our understanding of the impact hurricanes have on existing building inventory. These innovative technologies combine to improve building sustainability and provide cost-efficiency comparisons across a wider range of mitigation strategies.
Executive SummaryBringing together the new hurricane mitigation technologies and modeling science, AeroEdge USA and Risk Management Solutions studied three property loss mitigation strategies, finding that aerodynamic roof edging typically reduces more losses than other strengthening options (new roofing, new opening protection) across several different construction-occupancy combinations for both commercial and residential buildings. Results are presented here.
Mitigation: The Only Way to Reduce Risk of Loss
It’s no secret that the U.S.—and Florida, in particular—has experienced a lull in hurricane landfalls since 2005. During this time, the insurance and reinsurance market has undergone an excessive softening period. Despite the fact that hurricane risk has remained fairly constant, as shown by more recent events, premium rates have plummeted due to the influx of financial capital overflow from an uncharacteristically soft stock market.
Without real risk reduction, premium rates will continue to fluctuate based on market volatility and not the actual underlying hurricane risk. The only proven and sustainable way to reduce both risk and premium rates is through mitigation.
Currently, state and local government regulations almost exclusively drive mitigation, such as through building codes and mandated insurance credits. These methods focus on strengthening structures and are based on post-hurricane and engineering studies with the goal of improving a building’s resiliency and reducing the risk of loss.
While these strengthening methods can be effective in reducing hurricane losses, they can also be expensive to install and materially add to the cost of new construction. And with respect to existing buildings, the cost of strengthening retrofits can be prohibitive and disproportionate to the actual risk reduction.
For example, roofing is the most likely building component to be damaged, but the cost of replacing roofing exceeds the cost of other mitigation options including opening protection and structural strengthening (Figure 1). Ideally, mitigation of the most likely damaged and most important building element (roofing) should cost the least, followed by opening protection and structural upgrades. But, in fact, it is the other way around.
In peak hurricane zones like Florida, the residential insurance market has had government-mandated mitigation insurance credits that have historically focused on options that strengthen building components. These techniques include re-roofing, installation of opening protection (windows and doors) and other general structural strengthening.
The theory behind the mandated insurance credits is that they would promote widespread hardening of the building population. Prior RMS studies have suggested that these programs have at most been moderately effective. And in the commercial insurance sector, where mandated insurance credits don’t exist, the incentives provided by insurance have traditionally not been large enough to properly incentivize the commercial building owners to harden existing buildings.
Innovations in Mitigation
Despite over a decade of building code improvements since Hurricane Andrew, the landfalling storms of the 2004 and 2005 Atlantic hurricane seasons provided a stern reminder that roof failures continue to represent a disproportionate share of the total economic and insured hurricane losses. This discrepancy motivated RenaissanceRe to search for a more cost-effective way to protect roofs, which led them to aerodynamic roof edging—a building component designed to reduce wind loads as opposed to strengthening a roof. Tested and validated by full-scale strength testing, wind tunnel tests and independent evaluations, the aerodynamic roof edging was proven to reduce maximum wind loads by as much as 50 percent. This is roughly equivalent to reducing maximum Category 4 wind uplift as if they were only Category 2 winds. This new product was patented as AeroEdge. What is unique about this aerodynamic modification is that it leaves existing building components alone while reducing the severity of possible damage during a hurricane.
Innovations in Catastrophe Loss Modeling
Alongside the rise of new mitigation technologies, advancements in technology, science and computational capacity have enabled catastrophe model vendors to develop more detailed probabilistic loss models. High-fidelity modeling tools can combine wind tunnel test results with component-level probabilistic load-resistance modeling to better quantify wind load reduction benefits for individual buildings. This approach represents the next step in improving the quality and granularity of risk mitigation modeling which in turn enables better cost-benefit comparisons across a wider variety of mitigation strategies.
Using High-Resolution Modeling to Compare Mitigation Options
Bringing together the new mitigation technologies and modeling science, Risk Management Solutions (RMS) partnered with AeroEdge USA to conduct an internal study comparing the risk reduction and insurance benefits of new load reducing technology versus legacy strengthening mitigation options using a high-resolution, detailed catastrophe loss model. The study evaluated the benefits of three mitigation strategies—new roofing, new opening protection and aerodynamic roof protection—across several different construction occupancy combinations for both commercial and residential buildings. The study showed that overall, aerodynamic roof edging typically reduces losses more than the other two strengthening options.
A representative three-story office building with a flat roof was selected by RMS from its detailed loss analysis to illustrate a cost-benefit case study comparison. Using a construction date of 1998, the 37,500-square-foot building was modeled at approximately 21,000 locations in Florida. Loss reduction benefits for each mitigation option were benchmarked against a standard structure without any mitigation.
Loss Reduction: As shown in Figure 2, using aerodynamic roof edging yielded an average reduction in loss costs (Expected Losses/ (Total Insured Value/1000)) between 27 percent and 53 percent, with an average reduction of 38 percent. This compares to 32 percent for opening protection and 16 percent for new roofing.
Cost-Benefit: Estimated construction costs were compared to insurance premium reductions to determine the number of years required to re-coup the corresponding, initial mitigation investment. While each mitigation strategy reduces estimated wind losses, the case study found that opening protection and new roofing cost five- to 10-times as much as aerodynamic roof edging, respectively. The average, undiscounted payback period for aerodynamic roof edging was less than five years compared to 30 years or more for the other mitigation options (Figure 3). A payback period this short means that the effort to protect a building is much more affordable for the building owner than in the past.
To accelerate and further embed the adoption of new mitigation technologies such as aerodynamic roof edging—a “next-generation,” high-fidelity, detailed loss model that can evaluate a wider range of building characteristics—RMS has developed RiskAssessor for risk managers, insurers and reinsurers.
As cost-effective hurricane risk mitigation innovations like aerodynamic roof edging become more widespread, it is clear that the landscape of resiliency and disaster mitigation will change. Combining these technological advancements with more detailed catastrophe models can help building owners, government officials, insurers and reinsurers to better quantify and compare the cost benefits of different mitigation strategies and improve long-term sustainability.
The results of this study show clearly that insurance companies that embrace this kind of technology and create insurance products that incentivize loss reduction will be well-positioned to identify the best risks to add to a portfolio and ensure that the portfolio is positioned to weather the next hurricane well. RMS is excited to see how the intersection of such new and emerging technologies and insurance pricing approaches can accelerate grassroots support of disaster mitigation, thus promoting building resiliency alongside existing building codes and other government efforts.