Tropical cyclones, like hurricanes, are intense tropical storms that form over warm ocean waters and bring destructive rainfall–induced floods, storm surges, strong winds, and even tornadoes. These storms can grow to hundreds of miles across, affecting entire coastlines and causing massive disruptions when they make landfall.
1/ Warm Ocean Waters
The journey begins with warm waters, usually above 26°C (80°F). Warm ocean water heats the air above it, causing it to rise and create a low-pressure zone. This warm, moist air continues to rise and condense, releasing heat and forming clusters of thunderstorms—a crucial ingredient for hurricane formation.
2/ Favorable atmosphere
In addition to warm water, the atmosphere above needs to be just right. Calm winds and low wind shear help these storm systems organize without being disrupted. The rising warm air in the storm cluster meets cooler air above, causing condensation and creating towering cumulonimbus clouds. These clouds are the building blocks of a hurricane's powerful structure.
3/ The Eye Forms
As the storm intensifies, a unique feature emerges: the eye of the hurricane. At the center of the storm, warm air rises quickly, creating a calm, low-pressure area known as the 'eye,' surrounded by a fierce wall of thunderstorms. This ‘eye wall’ contains the strongest winds and the heaviest rainfall, making it the most dangerous part of the hurricane.
4/ Gaining Strength & Making Landfall
Fueled by warm ocean waters, the storm grows stronger. But once it reaches land, it begins to weaken, as it loses its warm water energy source. However, the intense winds, rain, and storm surge it brings can devastate coastal communities, causing flooding, property damage, and power outages. Even a weakened hurricane leaves a lasting impact after landfall.
One of the costliest natural disasters
Tropical Cyclones, i.e. hurricanes, typhoons, or cyclones, are among the most expensive natural catastrophes. The majority of losses from tropical cyclones are largely underinsured. Around the world, economic loss due to major hurricanes continues to be one of the most devasting perils on record since the start of the 21st century.
Corporates and public entities exposed to hurricanes encounter significant expenses in the aftermath of these storms that range from damage related expenses to non-damage related, such as business interruption that causes revenue loss. Many of these costs remain unaddressed by conventional insurance policies, resulting in coverage gaps or uninsured losses. Global losses from tropical cyclones totaled $2.1 trillion between 1980 and 2023, with just $790 billion insured.
In the United States, the Atlantic hurricane season is one of the main coastal areas where hurricane activity occurs and causes highest financial losses, resulting from mostly wind damage, as well as economic loss from the business interruption that occurs as a result of major hurricanes.
The benefits of parametric insurance against tropical cyclones
Descartes offers two parametric tropical cyclones solutions, designed and structured as “Cat-in-a circle” or “Wind speed at location”, leveraging the latest scientific research to assess tropical cyclone exposure and design bespoke covers for our clients. Find parametric protection ahead of hurricane season – Descartes’ parametric insurance offers protection against both property damage and loss of revenue to business interruption following a named storm.
Step 1 : Assess
We assess and evaluate the client's tropical cyclone exposure, leveraging our proprietary risk model.
Step 2 : Customize
Design a customized index cover, fit to the client’s needs, in which payout structures are indexed according to specific wind speeds and distance to storm track.
Step 3 : Monitor
Upon policy inception, we monitor the insured's location for tropical cyclones to determine whether a qualifying storm has occurred.
Step 4 : Payout
Insured client receives a payout within days of reporting a loss, accelerating financial recovery and reconstruction.
