The Role of Tropical Cyclone Induced Flooding in Economic and Insurance Losses

Tropical cyclones are usually considered wind events and/or coastal surge events. This is reflected in the main tropical cyclone classification systems, such as the Saffir-Simpson Scale, which is based on their wind intensity or central pressure, and in some cases, storm surge height. However, this line of thinking ignores the precipitation-induced flooding hazard related to tropical cyclones. Around the world, there are many examples of historical tropical cyclones that produced damage and losses relating to precipitation-induced flooding. In Central America in 1998, for example, Hurricane Mitch generated noteworthy amounts of rain in Honduras and Nicaragua causing nearly 20,000 flooding-related deaths. Similarly, Tropical Storm Allison (2001), which never reached hurricane intensity, caused more than USD 5 billion in flood-related losses in Houston, Texas. Relatedly, precipitation-related losses are not always covered by insurance companies. In the United States, for example, residential insurance does not cover flooding. Yet, in other regions, such as China, Japan, and Central America, flood coverage is offered under a standard policy or as an extended coverage. To comprehensively analyze hurricane risk both from economic and insurance loss perspectives, it is necessary to consider the tropical cyclone-induced flood peril, along with winds and storm surge. Tropical cyclone flood potential is not well correlated with the storm's wind speeds and thus should be modeled separately to determine accurate flood risk for a region. In this paper, extreme rainfall events from around the world are discussed in regards to the damage and losses. Additionally, similarities among these events are investigated, and the use of CAT (catastrophe) models to estimate economic and insured losses for such events are presented.