Robert Muir-Woods of RMS has graciously provided for posting a response to the thoughts on forecast verification that I posted earlier this week. Here are his comments:

Scientifically it is of course not possible to draw any conclusion from the occurrence of two years without hurricane losses in the US, in particular following two years with the highest level of hurricane losses ever recorded and the highest ever number of severe hurricanes making landfall in a two year period. Even including 2006 and 2007, average annualized losses for the past five years are significantly higher than the long term historical average (and maybe you should also show this five year average on your plot?)

The basis for catastrophe loss modeling is that one can separate out the question of activity rate from the question as to the magnitude of losses that will be generated by the occurrence of hurricane events. In generating average annualized losses we need to explore the full ‘virtual spectrum’ of all the possible events that can occur. The question about current activity rates is a difficult one, which is why we continue to involve some of the leading hurricane climatologists, and a very wide range of forecasting methodologies, in our annual hurricane activity rate update procedure. In October 2007 an independent expert panel concluded that activity rates are forecasted to remain elevated for the next five years. While this perspective was announced and articulated by RMS, we did not originate it. Each year we undertake this exercise, we ensure that the forecasting models used to estimate activity over the next five years also reflect any additional learning from the forecasting of previous years, including the low activity experienced in 2006 and 2007. We don’t ‘declare success’ that the activity rate estimate that has emerged from this procedure over the past three years (using different forecast models and different climatologists) has scarcely changed, but the consistency in the three 5 year projections is interesting nonetheless.

You may also be surprised to learn that our five-year forward-looking perspective on hurricane risk does not inevitably produce higher losses than all other models, which use the extrapolation of the simple long-term average to estimate future activity. This is as shown in a comparison published in a report prepared by the Florida Commission on Hurricane Loss Projection Methodology for the Florida House of Representatives (see the Table 1 on page 25 of the report, which can be downloaded from here: http://www.sbafla.com/methodology/announcements.asp?FormMode=Call&LinkType=Section&Section=0)

Robert Muir-Wood
RMS

I was just contacted by a reporter who is doing a story based on a news release put out by a group called Environment Colorado. The news release says that Colorado has seen a 30% increase in extreme precipitation over the past 60 years, based on a new study called “When it Rains, It Pours” (PDF).

The thing is, there has been no increase in flood damage in Colorado (from 1955-2003 in our dataset), as can be seen in the following graph.

This data has only been adjusted for inflation. Given the pace of growth and development in Colorado, one could make a strong case that flood impacts have gone down pretty sharply in per capita or per unit wealth terms. So it may very well be the case that extreme precipitation has increased, but these measures of precipitation are not well correlated with flood damage, which is what Mary Downton and I found in a 2000 study.

Just for fun I also looked at California, which was the subject of a different press release put out by Environment California, and guess what? Extreme precipitation is up 26% in California, and there is no statistically significant trend in damage, even without considering population growth and development.

So while human caused climate change may be responsible for changes in “extreme” precipitation, these measures are not well correlated with damaging floods.

In the spring of 2006, a company called Risk Management Solutions (RMS) issued a five year forecast of hurricane activity (for 2006-2010) predicting U.S. insured losses to be 40% higher than average. RMS is an important company because their loss models are used by insurance companies to set rates charged to homeowners, by reinsurance companies to set rates they charge to insurers, by ratings agencies for evaluating risks, and others.

We are now two years into the RMS forecast period and can thus say something preliminary about their forecast based on actual hurricane damage from 2006 and 2007, which was minimal. In short, the forecast doesn’t look too good. For 2006 and 2007, the following figure shows average annual insured historical losses (for 2005 and earlier) in blue (based on Pielke et al. 2008, adjusted up by 4% from 2006 to 2007 to account for changing exposure), the RMS prediction of 40% more losses above the average in pink, and the actual losses in red.

The RMS prediction obviously did not improve upon a naive forecast of average losses in either year.

What are the chances for the 5-year forecast yet to verify?

Average U.S. insured losses according to Pielke et al. (2008) are about $5.2 billion per year. Over 5 years this is $26 billion, and 40% higher than this is $36 billion. A $36 billion dollar insured loss is about $72 billion in total damage, and $26 billion insured is about $52 billion. For the RMS forecast to do better than the naive baseline of Pielke et al. (2008) total damage in 2008-2010 will have to be higher than $62 billion ($31 billion insured). That is, losses higher than $62B are closer to the RMS forecast than to the naive baseline.

The NHC official estimate for Katrina is $81 billion. So for the 2006-2010 RMS forecast to verify will require close to another Katrina-like event to occur in the next 3 years, or several large events. This is of course possible, but I doubt that there is a hurricane expert out there willing to put forward a combination of event probability and loss magnitude that will lead to an expected $62 billion total loss over the next 3 years. Consider that a 50% chance of $124 billion in losses results in an expected $62 billion. Is there any scientific basis to expect a 50% chance of $124 billion in losses? Or perhaps a 100% chance of $62 billion in total losses? Anyone wanting to make claims of this sort, please let us know!

From Pielke et al. (2008) the annual chances of a >$10B event (i.e., $5B insured) during 1900-2005 about 25%, and the annual chances of a >$50 billion ($25 billion insured) are just under 5%. There were 7 unique three-year periods with >$62B (>$31B insured) in total losses, or about a 7% chance. So RMS prediction of 40% higher than average losses for 2006-2010 has about a 7% chance of being more accurate than a naive baseline. It could happen, of course, but I wouldn’t bet on it without good odds!

So what has RMS done is the face of evidence that its first 5-year forecast was not so accurate? Well, they have declared success and issued another 5-year forecast of 40% higher losses for the period 2008-2012.

Risk Management Solutions (RMS) has confirmed its modeled hurricane activity rates for 2008 to 2012 following an elicitation with a group of the world’s leading hurricane researchers. . . . The current activity rates lead to estimates of average annual insured losses that will be 40% higher than those predicted by the long-term mean of hurricane activity for the Gulf Coast, Florida, and the Southeast, and 25-30% higher for the Mid-Atlantic and Northeast coastal regions.

For further reading:

Pielke, R. A., Jr., Gratz, J., Landsea, C. W., Collins, D., Saunders, M. A., and Musulin, R. (2008). “Normalized Hurricane Damages in the United States: 1900-2005.” Natural Hazards Review, in press, February. (PDF, prepublication version)

Last week I took strong issue with a view of climate adaptation put forward by Australian economist John Quiggin. After some discussion, John has graciously provided an extended and considerably more nuanced view of his thoughts on adaptation, which we are happy to highlight here. (Thanks, John!):

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Thomas Henry Huxley once described science as “organized common sense where many a beautiful theory was killed by an ugly fact.” The same can be said of economics.

In a unpublished letter to Nature posted as a comment on the Nature Climate Feedback blog Australian economist John Quiggin responds to the recent Prins/Rayner piece in Nature. He explains how economics theory indicates that we really have no reason to worry about adaptation to climate change, because economics theory says so:

Prins and Rayner also assume that because adaptation is as important as mitigation, it should receive equal attention as a focus of public policy. But emissions of greenhouse gases represent a market failure. No individual or nation has a strong incentive to reduce their own emissions. Hence, mitigation requires a global policy response so that this externality is taken into account. By contrast, private parties, in deciding how to adapt to climate change, will, in the absence of policy intervention, bear the costs and receive the benefits of their decisions in most cases. There is no reason to expect too little adaptation.

I suppose one could argue that this thesis is supported by the obvious fact that the world today does indeed have an optimal level of climate adaptation.

But then again, one might also take a look at Bangladesh and the effects of Cyclone Sidr over the past week to see that such an argument is not only wrong but wrongheaded, and perhaps even morally bereft. The two “private parties” in the photo to the left (courtesy of The Boston Herald) are obviously practicing “optimal adaptation” in the “absence of policy intervention.”

Yeah, right.

From today’s Science:

L. M. Bouwer, R. P. Crompton, E. Faust, P. Höppe, and R. A. Pielke Jr. 2007. Confronting disaster losses, Science 318, 753.

Here is an excerpt from the Supporting Online Material:

Societal change and economic development are mainly responsible for increasing losses in recent decades, as convincingly shown in analyses of long-term records of losses (S1). After adjusting for societal changes, resulting time series accurately reflect documented trends (or lack thereof) and variability consistent with the observed climatological record of weather events (S1, S5). This implies that the net result of the adjustments has to a significant degree successfully removed the signal of societal change from the loss record. . .

Within the next 20 years projected changes in the intensity and frequency of extreme events—depending on the time scale and hazard—remain uncertain. The most severe effects of human-caused climate change are expected in the second half of the century
(S6). In the immediate future, disaster losses will increase as a result of societal change and economic development, independent of climate change.

We’ll provide the full text as soon as it is posted on our site. Meantime, subscribers to Science can find it here.

UPDATE: Full text here in PDF.

In what could become the most significant change to the National Flood Insurance Program since it started in 1968, yesterday Senate Banking unanimously passed out of committee its markup of H.R. 3121, which passed the House on September 27. H.R. 3121, the Flood Insurance Reform and Modernization Act of 2007, pushes through a small but significant number of changes to the NFIP, including some to address the biggest problem with the NFIP: that it does not (and cannot, because it is not isolated from political interference) charge actuarially-sound rates on the policies it writes.

The bill has 36 sections so I’m not going to pick it apart here, but here are a few things I latched on to (the Senate bill isn’t available yet so the section numbers refer to H.R.3121.EH):

- Quite a few authorizations for studies or reports (yea, I know, I know, but it’s something) on charging actuarially-sound rates, increasing policy holding, including building codes in flood management criteria (go figure); and the creation of a National Flood Insurance Advocate whose main purpose is to write reports.

- Section 4 specifically phases in actuarially-sound rates for non-primary residences and nonresidential properties. This is a great start, but of course specifically and purposefully leaves out setting actuarially-sound rates for most policy holders! It also caps the increase for buildings built before 1974 (known as “pre-FIRM” properties) at 20% and 25% for nonresidential and non-primary residences respectively.

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Keeping in line with similar research being done here on hurricanes (Roger and colleagues) and earthquakes (me), Stanley Changnon has a new paper out on winter storm losses. The abstract:

Winter storms are a major weather problem in the USA and their losses have been rapidly increasing. A total of 202 catastrophic winter storms, each causing more than $1 million in damages, occurred during 1949–2003, and their losses totaled $35.2 billion (2003 dollars). Catastrophic winter storms occurred in most parts of the contiguous USA, but were concentrated in the eastern half of the nation where 88% of all storm losses occurred. … The time distribution of the nation’s 202 storms during 1949–2003 had a sizable downward trend, whereas the nation’s storm losses had a major upward trend for the 55-year period. This increase over time in losses, given the decrease in storm incidences, was a result of significant temporal increases in storm sizes and storm intensities. Increases in storm intensities were small in the northern sections of the nation, but doubled across the southern two-thirds of the nation, reflecting a climatic shift in conditions producing intense winter storms.

The interesting zeroth- or first-order conclusion is that when using damage trends as a proxy for climatic trends, no climatic trends can be seen in hurricanes while a strong one can be seen in winter storms. From the latest Pielke et al. hurricane paper:

…it should be clear from the normalized estimates that while 2004 and 2005 were exceptional from the standpoint of the number of very damaging storms, there is no long-term trend of increasing damage over the time period covered by this analysis.

Whereas from the Changnon paper on winter storms:

Significant temporal increases in storm losses, storm sizes, and storm intensity have occurred in the United States. The national increase over time in losses, given the decrease in storm incidences, was a result of the increases over time in storm sizes and intensities. The marked temporal increases in storm sizes and storm intensities were greatest across the southern two-thirds of the nation.

Pielke, Jr., R. A., 2007. Mistreatment of the economic impacts of extreme events in the Stern Review Report on the Economics of Climate Change, in press, corrected proof.

Full text here in PDF.

The following paper has now been peer reviewed and accepted for publication in the journal Natural Hazards Review:

Pielke, Jr., R.A., Gratz, J., Landsea, C.W., Collins, D., Saunders, M., and Musulin, R., 2007. Normalized Hurricane Damages in the United States: 1900-2005. Natural Hazards Review (accepted) Accepted Version in PDF

The dataset is available here.