Some things are certain: As the earth spins, air moves swiftly around the equator, creating the trade winds.
What is a black box?
When it comes to insurance, you can't drop a “black box” or use it to record pilots before they crash a plane. The term is used in insurance circles to describe computer programs that analyze historical data and information about houses and buildings.Karen Clark, founder of AIR Worldwide, began using these programs in the late 1980s and early 1990s to analyze potential losses in the event of a hurricane. Other companies, such as Risk Management Solutions, have models of their own and have created programs to analyze potential losses in earthquakes and other disasters.Companies zealously guard their programs for competitive reasons, hence the term black box. Florida, however, has established a panel of independent experts to scrutinize these models because of their importance in rate-setting.
It's also certain that storms will form because the sun shines bright where these trades blow, turning sea water into sky-high clouds of steam that inevitably collapse, a process announced by torrents of rain and thunder.
And we know for sure from history and physics that a few of these air masses will spin counterclockwise, slowly at first, then faster and with enough momentum to flatten cities, alter destinies, and if hooked into some fantastic electric grid, pack enough energy to light every bulb on earth.
Beyond these certainties, hurricanes challenge us with their unknowns. They are so infinitely changeable that it may be mathematically impossible to predict their exact paths more than a few weeks in advance.
Because we can't predict the future, the beginning of hurricane season is a time of warnings and pleas to prepare. Like the humidity, anxiety settles in for the summer.
South Carolinians also try to tame this uncertainty by forking over $1.3 billion in homeowner's insurance premiums every year. How insurance companies set these rates is a story that touches all of us, but especially those who own homes in coastal counties.
It's a story that leads to globally recognized scientists, including some with data that show a home on the coast might not experience catastrophic hurricane winds for hundreds of years.
It features profit-seeking insurance companies that hiked rates, frustrated homeowners who scrambled to pay for these increases, and brilliant researchers who invented controversial computer models dubbed “black boxes.”
It shines a light on South Carolina's insurance regulators, who for the past decade watched rates soar but did almost nothing to find out how these secret black boxes truly affect homeowners' rates.
It could begin almost anywhere, but why not start at a cocktail party?
Fear of hurricanes
Three years ago, Daryl Ferguson and his wife were mingling with friends in Beaufort when a familiar topic came up: “Have you been watching TV?” a retiree from Connecticut asked Ferguson. “A hurricane is tracking right at Beaufort County.”
Another friend chimed in: “They don't hit us that often, but when they do it's awful. We almost got wiped out in 1893.” These fears got personal when two friends told Ferguson after church that they were moving back to Ohio. “I said, 'You guys love the Lowcountry, why are you leaving?' And my friend said that his wife just worries about the hurricanes all the time.”
Ferguson began to wonder: What is the true risk?
Ferguson, 73, isn't your ordinary retiree. He jabs the air when he makes a point and has an authoritative voice that seems to echo even in a carpeted room. For 10 years, he was president of Citizens Utilities, then the largest diversified utility company in the nation. (Editor's note: Earlier versions of this story misidentified Ferguson's role with the utility. The Post and Courier regrets the error.)
Between 2000 until his retirement in 2005, he was chairman of Hungarian Telephone, sometimes matching wits with Russian mafia figures. “I like complex problems,” he said. So three years ago he began to learn about the complexities of hurricanes.
Ferguson's first call was to the National Hurricane Center, the National Oceanic and Atmospheric Administration's concrete fortress in Miami. He spoke to the head of the center's science unit and other meteorologists. He filled binders with charts and notes.
Over time, Ferguson learned how the jet stream undulates like a dropped firehose across the United States, but that it tends to twist south in the fall, sending tropical storms south into the Gulf of Mexico or north toward the Outer Banks, away from South Carolina.
He felt more reassured as he discovered that wind fields on the west side of hurricanes usually are smaller and weaker than on the east side. He learned about a quirk in South Carolina's geography.
South Carolina is triangular, like a poorly cut piece of pie, with the crust side facing the ocean. This triangle is positioned in such a way that the northern part of the coast juts about 150 miles farther into the ocean than the southern section.
Put another way, North Myrtle Beach is 150 miles closer to the Atlantic hurricane lanes than Hilton Head.
The concave shape of the coast makes the area from Charleston to Jacksonville less vulnerable to hurricanes, said Chris Landsea, science and operations officer at the hurricane center, one of the experts Ferguson contacted.
“South Carolina does indeed get struck by major hurricanes,” Landsea said, but the state's risk “is relatively lower” than Florida, coastal Louisiana and North Carolina's Outer Banks.
Ferguson heard similar statements from other forecasters. “I was stunned. They all kept saying the words 'relatively low risk.'”
Relatively low risk? In Ferguson's mind, that went against the conventional wisdom that South Carolina is a hurricane magnet. It also seemed at odds with history.
Since 1851, 30 hurricanes had spun within 50 miles of South Carolina, according to NOAA records. That was one about every five years, which seemed to be the definition of vulnerable.
But a closer look at the data was revealing: Of these 30 storms, 23 were minor hurricanes, such as 2004's Charley and Gaston, which caused minimal damage.
The remaining seven had winds greater than 110 mph and indeed wrought devastation where they had gone ashore. The Sea Islands Hurricane of 1893 killed as many as 2,000 people around Beaufort; Hugo in 1989 took 26 lives in South Carolina and caused $6 billion in damage.
But even these catastrophic hurricanes often left large swaths of South Carolina unscathed. Hugo, for instance, did little damage south of Seabrook Island, and more than half of the state saw winds of less than 60 mph.
So while it was correct to say seven major hurricanes had touched some area in South Carolina since 1851, about one every 23 years, that didn't really say much about the long-term vulnerability of a particular house in Beaufort or Charleston.
And in the end, Ferguson asked himself: Don't people want to know what's likely to affect them personally?
When scientists look at specific locations instead of areas as large as states, the odds of a home being hit by a hurricane change dramatically.
Kerry Emanuel is a professor of atmospheric sciences at the Massachusetts Institute of Technology and one of the world's leading authorities on hurricanes. At The Post and Courier's request, Emanuel's company, WindRisk Tech LLC, looked at 14 places along South Carolina's coast to see what kinds of winds these spots might experience over time.
Most scientists use historical data on wind speeds, barometric pressures and other variables to make their predictions, even though they acknowledge that this data has its shortcomings.
Some observations go back to the mid-1800s, but truly reliable measurements have been taken only in recent decades.
Statistical analyses typically need vast amounts of data to be accurate, but Emanuel and other modelers overcome this dearth with a neat bit of mathematical sleight of hand: Using principles of physics and other factors, they generate tens of thousands of virtual hurricanes on their computers. Doing this creates an archive equivalent to 5,000 years of storms, he said.
The computer simulations showed that a point in Charleston was likely to experience 74 mph winds, or a minimal Category 1 hurricane, about every 37 years over a 5,000-year period. The model showed that a catastrophic hurricane, one with 115 mph winds, would on average affect a spot in Charleston once every 370 years.
The situation on Hilton Head was even less threatening. A Hilton Head homeowner would be expected to experience a minimal Category 1 storm every 51 years, and a Category 3 storm about every 430 years, the WindRisk model showed.
Emanuel, Landsea and other experts cautioned that these calculations, known as “return periods,” don't predict the actual timing of a hurricane's next visit.
“Hurricanes don't care what happened last year,” Landsea said. “You can get hit twice in one year, or one year after the next. So the return period is more of an abstraction.” But the studies do give people some idea of their vulnerability to hurricanes.
To Ferguson, data like this was a bombshell.
It meant that while South Carolina as a whole was likely to experience minimal hurricane-force winds every few years, the risk of those winds affecting him personally were about once every half century.
It meant that the truly disastrous ones were rare and certainly not the impending train wrecks that weather channels and emergency planners sometimes suggest are on the way.
But if that was all true, he wondered, why were his insurance rates so high?
What we pay
South Carolinians pay on average about one-third more for their homeowners' insurance than property owners in North Carolina and Georgia, according to a Post and Courier analysis of data from the National Association of Insurance Commissioners.
Last year, South Carolina insurers and the state's wind pool collected $1.3 billion in home insurance premiums, nearly three times what they charged in 1996. Statewide, average premiums have risen 71 percent during the past decade.
But this average understates the impact in coastal counties. The average premium for someone with $150,000 in insurance is about $2,000 in Charleston County and $1,840 in Beaufort County.
The farther inland you go, the less you pay. In Berkeley County, the average premium is about $1,200; in Dorchester County, it's $1,000, and upstate in Greenville County, it's only $720, according to S.C. Department of Insurance records.
Today, it's not unusual for some Lowcountry homeowners to pay more in insurance than property taxes. How did it get so bad?
The S.C. Insurance News Service, a nonprofit group funded by insurance companies, cites a mix of factors: dramatic growth in coastal South Carolina; rising property values; increased building costs; and new meteorological predictions that the world has entered a period of higher storm frequencies.
But it's also helpful to rewind to 1989, when Hugo rammed like a cannonball into South Carolina's midsection. John Richards was the state's insurance commissioner at the time. “We hadn't had much experience with catastrophes in the modern era until Hugo.”
The storm caused $6 billion in damages, which at that time made it the most expensive insurance disaster in the nation's history.
It also was a shining moment for the industry. Teams of agents swooped in. Amid the debris, they often wrote checks on the spot; billions of insurance dollars spurred a building boom. Richards said only two small companies were shut down because they were insolvent. Lawsuits were rare. “The insurance companies did a wonderful job after Hugo,” he said.
But it marked the end of an era — in meteorological terms and in insurance company boardrooms.
Scientists had long wondered why there had been a lull in Atlantic hurricanes from the 1940s until the early 1990s. Some researchers theorized that it was a natural climate cycle called Atlantic Multidecadal Oscillation.
Then Kerry Emanuel and Michael E. Mann, a prominent Penn State climatologist, noticed something else: Hurricane frequency seemed to correspond to pollution levels in the tropics.
They found that pollutants rose dramatically from the 1940s through the 1970s as the world's industrial production grew. These pollutants reflected sunlight, reducing the amount of energy hitting ocean waters in the tropics, the heat source that gives birth to the storms.
“We had suppressed them,” Emanuel said of the hurricanes.
But those pollutants began to dissipate with new clean-air laws in the 1970s and 1980s. More sunlight reached the tropics by the early 1990s. Emanuel and Mann theorized that the warming oceans in the tropics would fuel a frenzy of new storms, a theory supported by subsequent studies.
Meanwhile, insurance companies thought Hugo was an aberration, said Richards, the former South Carolina insurance commissioner. “They thought, Thank goodness, this is just a storm we'll never see again for a decade or two.”
Even after Hugo, insurance experts assumed that storms in heavily populated Florida would cause damages in the low billions of dollars, losses they figured they could swallow.
Then Andrew hit South Florida in 1992. It was a compact hurricane, more like a giant tornado; hurricane-force winds formed a bullet of wind 40 miles wide that entered south of Miami, churned through the Everglades and exited into the Gulf just four hours later.
Inside this maelstrom, 140 mph winds hammered the city of Homestead and other communities. Richards rushed south to help his colleagues.
“The night I arrived, I was in Tallahassee at the house of the Florida insurance commissioner. I said, 'One thing you have to be aware of is that your (insurance) industry is taking quite a hit. And you better send teams of examiners to those companies as soon as possible.' He laughed and said, 'John, I'm not worried.'”
Richards was right, of course. Andrew caused about $16 billion in insured damages that triggered more than 600,000 claims. Eleven insurance companies went belly up, and the finances of dozens of others were shaken.
Continue to Part 2
This is one of many documents that Daryl Ferguson has used in his research on insurance risk and rates.×
Ferguson, 73, has taken significant time to learn about the complexities of hurricanes.×
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