Understanding the 2025 hurricane season

Transcript:

Allie Barefoot: Welcome back to Data and Context. I'm Allie Barefoot with Cotality. This episode is a part of a new series on this channel, and we're going to be diving deeper into the major natural disasters and their consequences, one by one, exploring factors creating risk and opportunity in the housing market today.

By the end of the 2025 hurricane season, there were zero U.S. hurricane landfalls. It was truly a reprieve. And this near-miss season delivered a stunning paradox that is fundamentally changing the way that we understand risk. For millions of residents along the coast or near the coast between the months of June and November, there's one thing on their mind: it's a constant threat of a complete catastrophe. These acute perils, they're sudden, disastrous, and they can leave your insurance premiums soaring through the roof. That's why today we're going to be breaking down the data with Cotality's director of research and content, Jon Schneyer. And we're going to be exploring what exactly this near-miss season taught us. Let's go on ahead and jump into today's questions with Jon. Jon, thank you so much for joining us again on Data and Context.

Jon Schneyer: Hi Allie, great to be back.

Allie Barefoot: So, I want to talk to you a little bit here about the acute peril hurricanes. And this is really timely as the 2025 hurricane season just came to a close and it actually ended with zero U.S. landfalls, yet three category 5 storms formed. Since a hurricane is an acute peril, how rare was this American dodge? And what does this near-miss season tell us about the fundamental difficulty in predicting these intense hurricanes wherever they may land?

Jon Schneyer: Well, I think what it tells us about predicting hurricanes or forecasting hurricanes in the beginning of the season is that it boils down to luck sometimes. The National Hurricane Center and a number of different research outlooks all forecasted an above-average season in terms of activity. Now, you can define above-average in terms of the number of storms, how many of them become major hurricanes, or how much total energy there was in the storms, but pretty consistently it was going to be above average. And it turns out it ended up being an above-average season. They actually weren't wrong.

What was interesting is that, you know, this is the first year after nine consecutive years where there's been a Gulf Coast hurricane that made landfall. The first year we didn't have one. And like you said, we had three major hurricanes. A fairly active season—technically about the 67th percentile in terms of total energy from those storms. So a more active season than two-thirds of the other hurricane seasons on record. It just came down to a roll of the dice; it didn't hit the U.S. this year, which, in the grand scheme of things, is great news.

Allie Barefoot: And Cotality's 2025 hurricane risk report came out just slightly before the hurricane season started and it identified over 11.7 trillion dollars of reconstruction cost value in the U.S. spanning from Texas to Maine. But risk is a very individual thing. That's why we look at street-level data and individual homes here at Cotality. How should communities and insurers rethink high-risk zones when parcel-level data shows that small differences in elevation or distance from the coast can change a property's risk score completely?

Jon Schneyer: Yeah, it's a really good point because I actually happen to live in a home where this is the case. I live in a coastal community in New England, and my home is less than a mile from the ocean. But we are 75 feet above sea level; we happen to be at the top of a very large hill. So if you look at our flood risk, it's zero, despite the fact that I would be in a high-risk zone just from a flood standpoint. Now, it doesn't account for wind, which is a big consideration when you're so close to the coastline, but it does matter when you think about the individual characteristics that comprise the buildings built along the coast.

If we go back to any of the big hurricanes that have made landfall in, say, Florida over the last few years—I think about Hurricane Ian a lot—I saw a lot of pictures of properties that were completely destroyed, but also a lot of beachfront homes that looked like they were untouched. They looked untouched because they were built to a very modern, very stringent building code. Now, luckily in Florida, they have really good building code design rules in place along the coastline especially. When homes are built to those codes, when the roofs are tied down strong enough, if they have hurricane shutters, and if they make sure that the shingles are attached appropriately, you can survive a Cat 4 or Cat 5 hurricane and have very little damage.

I'll say from a flood standpoint, we talk about first-floor height here at Cotality a lot. It's really important because a property could be in the flood zone along the coast, but if it's elevated a foot or two above the base flood elevation—that 100-year flood elevation—well, the likelihood of there being flood damage is reduced extremely. So while a property's location is a good firsthand approximation of the risk, the actual characteristics that make up that building can play a huge part in just how much risk is actually there.

Allie Barefoot: You know, it's interesting. I guess you're the perfect person to talk to considering where you live on the coast. Wind isn't the biggest factor where it may possibly be like you said in a Florida, but we do know that a hurricane is obviously such a disastrous acute peril because it's a mix of so many things: wind, inland flooding, coastal flooding, or the rainfall alone. So since flood insurance is often separate from wind coverage, how does Cotality's catastrophe risk model and platform untangle and quantify the financial loss from the storm surge alone?

Jon Schneyer: It's a good question and like you said, flood is typically not covered under a standard home insurance policy. For the most part, flood is covered by the National Flood Insurance Program provided by FEMA and the federal government. So insurers really care about potential wind damage at the property, especially when they're modeling hurricane risk to their portfolio. A catastrophe modeling platform like Cotality's NATE or RQE has the ability to just account for, say, the wind damage versus storm surge flooding. It's as simple as checking a box when you're setting up the model run. You can say "no storm surge" and it won't include those losses; you can look at just the wind.

What is really important when you're looking at these model losses is considering something called "leakage." It's an industry term because when a hurricane hits, an insurance policy only covers wind damage, but you don't always know if that damage was wind or water. Sometimes some water damage gets called wind damage and your insurer covers it. So sometimes what we'll do is turn off storm surge but include a 5% leakage to account for that. The models are actually really good at separating the different sub-perils—wind versus water—whether that be coastal flooding or inland flooding. Water damage is water damage. In the long run, wind versus water is really what the insurers care about.

Allie Barefoot: Water damage is nobody's friend.

Jon Schneyer: Not at all.

Allie Barefoot: Like you said, there could be numerous different categories of what this hurricane damage actually is in terms of insurance. And you have to also think about the costs of materials and labor to rebuild. We know that Cotality tracks this and it's calculated that there are 33.1 million residential properties in hurricane-prone areas, which is astronomical, with a combined reconstruction cost value of 11.7 trillion. How does constantly integrating data on soaring material costs and labor shortages allow insurers and homeowners to understand their true financial exposure, whether it's before a hurricane comes or after a hurricane has hit?

Jon Schneyer: It's probably the most important consideration to be honest, relative to, say, how storms are changing in terms of frequency and severity. What's really driving changes in insurance premium costs? A lot of these macroeconomic factors are the reason why premiums might be increasing in one area versus another. Having an updated reconstruction cost value estimate is paramount to pricing a policy.

If you don't know the full reconstruction cost of that home or you underestimate it—maybe you didn't have the square footage down correct, or it was a different type of roof or material—and you assume if this home was 100% damaged, you would have to pay out a million dollars, but in reality, it's about $1.5 million to rebuild. Well, there you go: that's $500,000 that you didn't account for in setting premiums. When you snowball that through your entire portfolio, you start thinking that the reserves you have on hand to cover claims isn't adequate. At Cotality, we're really proud of how we continuously update our modeling and data sources for those reconstruction cost values. It speaks to just how much value there is tied up in our financial system that is at risk to hurricane winds or flooding.

Allie Barefoot: You know, sort of like Tornado Alley. When I think of tornadoes, I think of Oklahoma and the Midwest. When I think of hurricanes, I tend to lean more towards Florida and near the Gulf Coast. I want to shift here to Florida because I think they're a really good example; this was the first time in four years where a U.S. hurricane landfall did not hit Florida, which is fantastic news. I wanted to ask you, did this 2025 reprieve allow local insurers to significantly recover and stabilize from those previous hurricanes because they did not have to reconstruct this past season? And is it still pushing premiums out of reach for middle-class homeowners, or do they finally get to take a breather this year?

Jon Schneyer: So my answer is going to be sort of yes and no. It's incredibly complicated. A year without hurricane cat loss in Florida is great for the regional insurers, and even national carriers with exposure in Florida are happy they don't have another $40 or $50 billion loss on the books. But just because we had one year without a landfall, that doesn't mean things are perfect.

I would say the Florida insurance market is really starting to stabilize for the better. A lot of those trends are actually legislative actions that have been taken in Florida to minimize litigation claims that go to court. Insurers don't have to bake those costs into their premiums as much as they used to. There is also increased competition; more carriers are entering the Florida market. That reduces the number of policies under the state-backed insurer of last resort, called Citizens. You don't want the state-backed insurer to be the one that takes the biggest hit because then everyone in the state through taxes or assessments has to make up the difference. More carriers entering, fewer cat losses... Citizens is even thinking about rate reductions for policyholders, which is great news. It means they have capital on hand to pay claims. However, it's the nature of the beast: it is still more likely that there’d be a hurricane in Florida than anywhere else in the continental U.S. Relative to the rest of the country, premiums are still probably going to be higher in Florida, but there is some stabilization.

Allie Barefoot: It's definitely a good positive note to end on because it's just kind of inevitable. You mentioned severe convective storms. I want to look ahead to 2026; as the Atlantic starts to quiet down, the focus shifts to the central U.S. Tornadoes, hail, and straight-line winds are now the single largest driver of insured losses in the U.S. What makes SCS (severe convective storms) a different kind of acute peril compared to a hurricane?

Jon Schneyer: I think it's because this concept of a "season" is a bit of a misnomer with SCS. With hurricanes, oceans cool off and there steering patterns that keep them away; there really is a season. But severe convective storms can happen all year. There's just more time of the year when you can have damaging hail, winds, or tornadoes. It creates a sort of "death by a million paper cuts" where you don't have one big $50 billion hurricane, but over the course of an entire year across most of the country, those single days of hail and wind add up to that same $50 billion in insured loss. It's not limited to one area or one time of year; it's this constant ongoing hit to your books. It's become the center for cat risk management because of the losses it causes in the long term. It ties back to those macroeconomic trends—things cost more to rebuild, and if you're constantly being hit, it adds up.

Allie Barefoot: I have a final question. If you had to name a challenge the property insurance ecosystem must tackle in the next 12 months, what would you say that is? I know at Cotality there are big events that talk about these situations, like Interconnect coming up in January. How do they help turn that necessity into real-world solutions?

Jon Schneyer: I'm glad you brought up Interconnect because the tagline for our industry conference this year is "Intelligence Beyond Bounds." We are a data, model, and insights company focused on understanding all those individual characteristics of a property that comprise a home or building. One of the challenges insurers, lenders, and real estate professionals struggle with is data granularity and quality.

Another challenge is just bringing these different groups together. We like to think about the entire lifespan of a policy, from underwriting and getting a better understanding of what is on that parcel to cat risk management and capital management, all the way to the claims and restoration process. We want to help rebuild that property so whatever family was impacted can return home. Bringing all these groups together to have those conversations helps address the challenges that arise because our industry can be so segmented.

Allie Barefoot: Yeah, I'm definitely looking forward to Interconnect and seeing what Cotality's leaders bring to the table. That is all I have for you today, John. Thank you so much for joining me again on Data and Context talking about the 2025 hurricane season.

Jon Schneyer: Absolutely. Thanks for having me, Allie.

Allie Barefoot: Thank you again to Cotality's director of research and content, Jon Schneyer, and thank you so much for joining us here on Data and Context. If you haven't already, feel free to leave a review and hit that subscribe button. And as always, if you want to learn more information, head over to cotality.com.