Hurricane Katrina caused wide-scale damage to the Louisiana coast and New Orleans in particular. However, there are other less well-known areas that are also extremely vulnerable to hurricanes.
Lake Okeechobee in Florida is one such location and the region forms the focus of a latest report by Lloyd’s.
The report is called ‘The Herbert Hoover Dike – A discussion of the vulnerability of Lake Okeechobee to levee failure; cause, effect and the future’. It reviews why this area is still a risk, what is being done to mitigate this risk, and the issues facing insurers and reinsurers if the Herbert Hoover Dike (which lies around the waters of Lake Okeechobee) should fail. The Lloyd’s report considers the insurance implications of concerns raised by the South Florida Water Management District (SFWMD).
Trevor Maynard, Manager of Emerging Risks at Lloyd’s, explains that one of the reasons the study is so important is that it focuses on non-modelled perils. “Some models don’t model absolutely everything that an insurer is attempting to cover – and of course they don’t claim to. So when you are underwriting you have to be aware of these other non-modelled risks. They add to the risk, so in theory should add to the premium wherever flood coverage is sold.
“We were very interested in the study by the SFWMD and wanted to bring it to the attention of the market. This is another example of where levees can break and we all know how damaging that can be.”
Lake Okeechobee came second in a list of 'top ten' US danger areas compiled by the International Hurricane Research Center. Known locally as 'The Lake', it is the fourth largest lake in the United States, covering approximately 730 square miles and is particularly relevant to scientific research because it has a long history of hurricane activity. In 1926, the Great Miami Hurricane killed around 300 people while the 1928 hurricane is the second most deadly natural disaster recorded in the United States. Mainly due to the flooding of Lake Okeechobee, 2,500 were killed.
The potential for catastrophe in this region may not be fully accounted for by the insurance industry in either the capital modelling or pricing of potentially affected policies. In fact, Maynard suggests that “many scientists believe that there is even more chance of a major hurricane going over Lake Okeechobee than before because of the effects of natural cycles and climate change.”
