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Expect 4″ of rain in NYC at least one day a year

The National Climate Assessment came out last week, and used one striking number to distinguish climate changes in the Northeast and elsewhere in the U.S.: “between 1958 and 2010, the Northeast saw more than a 70% increase in the amount of precipitation falling in very heavy events (defined as the heaviest 1% of all daily events).”

from p. 47 of the National Climate Assessment

from p. 47 of the National Climate Assessment

 

 

 

 

 

 

 

 

 

 

 

 

 

This is a number worth unpacking, since it’s easier to make sense of rainfall as inches than as a percent of a percent. The raw data is not readily available, but I’ve approximated it using data with the same methodology from the same researchers from 2004. (Article here, my excel calculations here.)

Annual precipitation increased slowly over the twentieth century. It used to be that only 8% of that precipitation came in the top percentile of days with rain. Since since there is rain every 3-4 days, this means roughly 8% of the precipitation used to come on the wettest day of the year.

The 71% increase means that now 14% of that precipitation comes on the wettest day of the year.   So here in the Northeast we can expect one day a year with 106mm, or 4 inches of rain.  That’s an average for the reason, and since New York City is right in the middle of that region, it’s probably a reasonable figure for New York in particular.  That’s a lot of rain for city infrastructure to handle.

By comparison, Central Park had 5 inches of rain on April 30th, two weeks ago. And the wettest period of Hurricane Irene, even more rainfall-intensive than Hurricane Sandy, was 4 inches of rain in Central Park on August 28, 2011. These may have seemed like freak events at the time — but if current trends continue, New Yorkers can expect rains that heavy about once a year.

Year Annual precipitation Precipitation in very heavy events % of Precipitation in very heavy events
1955 (averaged) 750 mm 65 mm 8%
2012 (estimated) 780 mm 106 mm 14%
Increase +4% +64% +71%

Aqueous Advisors asks the White House CEQ about Flood Insurance

I was just at the BICEP breakfast (Business for Innovative Climate and Energy Policy) at the Ceres Conference in Boston.

Mike, Acting Chair of White House CEQ

Mike, Acting Chair of White House CEQ

The acting chair of the White House Council on Environmental Quality, Mike Boots was the lead speaker at the breakfast, promoting actions on fuel standards.

I had a brief conversation with him about the Homeowner Flood Insurance and Affordability Act, signed by President Obama in March.

He says that it’s unfortunate that flood insurance premiums do not reflect economic risks, and that the day when they do reflect economic risks will be delayed.

As background:  The federal government currently subsidizes flood insurance, which encourages people to build and rebuild homes in flood-prone areas.  This in turns makes it harder for us to have a country and an economy which is robust to the risk of storms.

The Biggert-Waters Flood Insurance Reform Act, from 2012, was going to remove those subsidies.  I wrote my Congressman in January, supporting those reforms.  But because of this new law from March, only the industrial and commercial subsidies will go away, while the homeowners’ subsidies will stay.

The White House now hopes to moves forward on this by giving homeowners tools for understanding and dealing with flood risks.  I hope that Congress and the White House will move forward on this and on the fair pricing of flood risk.

Where is the profession of risk management going?

A colleague recently asked me:  Where is the profession of Risk Management going?

Or, to focus the question a bit more:  What will the profession of risk management look like in the U.S. in 2019?

First, the profession of risk management will grow, both in its profile and in its number of people.  The world may not be any riskier than it was 10 or 100 years ago, but failures have become more visible, and that makes managing risk more important.

In the era of commercial satellite photos and crowdsourced datasets, searchable public records and ubiquitous email, it is easier to find and document when things go wrong.  Executives will want to be more alert to risks that might show up, and that will lead to elevating the role of risk managers.

Second, these risk managers will deal with large data sets, and will be expected to make sense of them.

Internal data will be one focus, since it will be easy to collect.  Risk managers may be given email metadata and asked to identify the individuals at greatest risk for improperly disclosing data.  They may be given energy usage by the device and by the hour and asked for ways to reduce energy costs.

Other data will be external.  Risk managers may be given data about mortgages in default, delinquencies on credit cards, or high users of health insurance, and asked to propose policies which will reduce those risks.  In these areas, marketing teams may own the data and have more experts on big data, and if so risk managers will collaborate with those teams.

Third, the risk management profession will focus on different risks than it has in the past.   These will include:

a) Technological risks.   Executives will be judged on their ability to ensure that technology works as intended.  This will especially require more management of the risks in software development.  Where risk managers now compare credit risks across different divisions of a company, they will need quantitative comparisons of technological risks in the future.

b) Climate risks.  Annual variation in weather risks has long been a concern for agricultural producers and utility companies, and weather derivatives are available in many markets to hedge some of the risk.  Secular variation in climate will now be a concern for a wider variety of companies, and risk managers will be called upon to propose both financial and operational strategies to manage it.

Meanwhile, the current concerns of risk managers will continue.  Credit risk, liquidity risk, market risk, and operational risks will still be concerns for all companies.  Asset-liability management, project management and auditing will still be concerns for many risk managers.  And as the profession of risk management grows, risk managers will find themselves with new roles and new topics as well.