Why the 2023 hurricane season gives insurers a worrying glimpse into the future

On the official end of the 2023 Atlantic hurricane season, MS Amlin’s head of risk analytics Dr Jessica Turner takes a deep dive into the battle between two competing forces – El Niño, which works to suppress hurricanes, and warmer seas that help fuel them…

Today (30 November) marks the official end of the hurricane season, and while the active period was relatively benign, it has provided valuable insights into potential future trends.

For the insurance industry, 2023 was a battle royale between two competing hurricane drivers that were projected to be acting throughout the summer.

The first, working to intensify activity, was extremely high sea surface temperatures across the north Atlantic. At nearly 1°C above average, they were the warmest on record, beating the previous high in 2010 by nearly half a degree, a staggering value.

The second driver was the El Niño conditions that had developed by early June, and which typically act against hurricane activity by increasing wind shear in and around the main development region in the tropical north Atlantic.

The multi-billion dollar question was which of these influences would hold the upper hand. Most producers of seasonal forecasts predicted a normal year with between six and eight hurricanes, although some agencies still predicted above-average activity.

So, which of the rival natural elements won out? And what can insurers learn from this year’s hurricane season?

Both the warm north Atlantic sea surface temperatures and El Niño persisted, and even strengthened throughout the summer, continuing the tension between the competing influences.

As of the last week in November there have been 20 named storms, seven hurricanes and three major hurricanes, validating those seasonal forecasts that called for a nearly normal year in terms of both hurricanes and major hurricanes.

Notable, however, is the increased number of named storms this year relative to an average of 14, indicating that storms were forming but struggling to intensify in the unfavourable El Niño conditions.

Here, we may have seen a foreshadowing of future climate change impacts in that El Niño years should bring below-average activity (although this was certainly counteracted this year by the extremely warm ocean waters).

This season’s abnormally high sea surface temperatures have also given insurers a worrying glimpse into the future. Numerous studies have associated rapid intensification of tropical cyclones (identified as an increase in the maximum sustained winds of 30 knots in a 24-hour period) with warming sea surface temperature and climate change.

Such storms are becoming more common and can cause greater losses due to the lack of warning communities may receive. There were two notable such events during the season: Idalia, and over in the east Pacific, Otis. Warm waters in the Gulf of Mexico contributed to the rapid intensification of Idalia from 75 to 130 mph in 24 hours. Florida residents and insurers were fortunate in that Idalia’s landfall occurred in a relatively unpopulated area.

However, intensifications such as this challenge forecasts, and shrink the window of warning for residents to evacuate or implement property-protecting measures. Just a small deviation of Idalia from its final landfall location would have seen a very different outcome.

As we stand at the official end of the season, it was a relatively quiet year for insured losses from hurricanes in the US – a marginal victory for El Niño. However, this season’s warmer north Atlantic seas, and the resulting rapid intensification of storms, provided a sobering insight of what could be to come.

As our climate changes, communities and insurers will need to consider new ways to prepare for, and respond to, the growing risks posed by storms that gather pace with little or no warning. It is also worth considering that, as the profile of storm activity continues to evolve, the theoretical beginning and end of the season may become something of a real-world irrelevance as the period expands.

Even without a significant hurricane event in 2023 so far, global insured losses will likely surpass the $100bn mark again. Among the costliest events this year have been the Turkey earthquake, the Hawaii wildfire and a series of severe convective storms in the US, which saw multiple billion-dollar events stretching from March to late-June.

Therefore, after one relatively quiet north Atlantic hurricane season, it should not be concluded that the environment for insured losses is more benign, or that it’s time to see a market softening.