Event: Southern Plains drought, 2011
Location: Houston, Texas, US
Economic cost: $14bn, including direct losses to crops, livestock and timber. Direct financial losses to crops and livestock of $7.62bn in Texas represented about 43% of the average value of agricultural receipts over the four years to 2012. As a major hub for agricultural business, Houston felt the impact acutely. Insured losses relating to the most significant drought-induced wildfire in Texas were $530m.
Description: Texas experienced its driest year and hottest summer on record in 2011, with drought, water shortages and wildfires.
Damage: Drought and accompanying fires caused widespread crop failure and livestock damage – Texas lost about 600,000 animals and around half of its cotton crop. The dry earth caused the foundations of structures to crack, and burst water mains exacerbated the water shortage.
Insight: One area that is receiving investment is the use of Big Data to determine drought claims. Such an approach is being used by Monsanto-owned Climate Corp, as well as a number of microinsurers. "By installing an increasingly dense network of weather stations, you can have instrumentation information which determines claims payouts that don't rely on sending an inspector out into the field," explains Paul Nunn, Head of Natural Catastrophe Risk Modelling at SCOR. "This eliminates a very time-consuming step with a potential reduction in moral hazard, so there are opportunities in terms of improving claims settlement practices in agriculture and weather station data.”
Insurance solutions: The Lloyd's market offers cover in relation to Drought. Examples of this include but are not limited to: Crop and agriculture insurance, property catastrophe re/insurance products, commercial and residential property, home and contents, professional indemnity, business interruption and contingent business interruption insurance, as well as parametric covers (eg. rainfall-triggered crop insurance products).
Image: A reservoir in Copper Breaks State Park, Texas, is reduced to little more than a puddle during the Southern Plains drought of 2011 (Getty Images)
Sources: Agricultural and Applied Economics Association; American Meteorological Society; National Oceanic and Atmospheric Administration; National Weather Service
