The U.S. is witnessing a rise in both the frequency and the economic impact of weather and climate-related disasters, and the insurance industry must take notice.
That was the word from Steve Bennett, chief climate officer for The Demex Group, a company that designs risk management solutions for insurers and companies with exposure to non-catastrophic but extreme weather. Bennett also is chairman of the American Meteorological Society’s Forum on Climate Linked Economics.
With more than a quarter of the year still ahead, the U.S. already has broken a record for costly weather disasters, with 23 events causing more than $1 billion each in damages, totaling $58 billion in 2023 so far, according to NOAA. This surpasses the previous 2020 record of 22 such events.
This trend can be attributed to a blend of factors, including heightened exposure (meaning more assets and infrastructure at risk), increased vulnerability (referring to the extent of damage caused by specific environmental conditions like wind speed or flood depth), and the exacerbating influence of climate change on the occurrence of extreme events that result in billion-dollar disasters, Bennett said.
Although disasters such as the Maui wildfires and Hurricane Idalia in Florida grab the headlines, Bennett said, most of the damages caused by weather this year came from severe thunderstorms and accompanying hail, high winds and tornadoes. Of the record 23 extreme weather events so far this year, 18 of them were outbreaks of severe thunderstorms causing more than $43 billion in damage, he said.
“These are adding up for the insurance industry in a way that the industry hadn’t expected,” Bennett told InsuranceNewsNet. “It’s not just one severe thunderstorm. It’s not just one tornado. It’s dozens of tornadoes on a particular day, followed by dozens of tornadoes on the next day, followed by dozens of tornadoes a month later, and those things are adding up. And that’s where we’re getting the large dollar loss that we’re seeing.”
Property/casualty insurers are accustomed to dealing with losses from severe weather, Bennett said. “But the way they’re adding up across the year, they’re increasing in frequency – that’s what’s different.”
Reinsurers have largely stepped back from weather events such as thunderstorms to focus on major catastrophes, Bennett said. As such, “this is leaving primary insurers in a bit of quicksand.”
Weather-related disasters are not only happening more frequently, but they are occurring in places and at times of the year in which they haven’t happened in the past.
A ‘climate change signal’
“A good example of that is a couple of years ago, there were two tornado outbreaks in the upper Midwest and throughout Minnesota, South Dakota and Iowa in December and January,” Bennett said. “That was very unusual. And that has a lot to do with how the climate is changing. You must have an extremely unstable atmosphere, with requires some warm air in order to get tornadoes. And that’s a climate change signal – having warm air as far north as Minnesota in December or January.”
Insurers who have based their overall risk profiles on having a “quiet season” for severe weather in certain parts of the country “are having to rethink the risk profile across the year,” he said.
“It’s not like we’re suddenly seeing tornadoes in places that they’ve never been before. It’s just that they’re occurring at times of the year they wouldn’t have occurred before and the seasons for those severe weather events are getting longer.”
In light of the increasing frequency of climate change-related weather events, home insurance rates are experiencing significant upward trends, Bennett said. Insurers are adjusting pricing structures and coverage options, which is reshaping the financial considerations for both current homeowners and prospective homebuyers.
The insurance industry is observing these weather trends, Bennett said, deciding what actions to take.
Market is ‘taking notice’
“The market is taking notice and I think that will be followed quickly by an analysis phase,” he said. “I think we’re starting to see the phase where the industry is beginning to quantify these risks. Insurers are engaging the scientific community to understand how things are changing.”
One such change, he said, is that the swath of the middle U.S. known as “Tornado Alley” is moving.
“Tornado Alley used to be in the Kansas-Oklahoma corridor. Now there’s a tornado corridor in Missouri and Tennessee and Kentucky, with Arkansas probably being right in the center of that. I think insurance companies are already looking at this and beginning to quantity what this means for their business.”
Insurers also must analyze what they must do to protect themselves and their policyholders against these new risks, he said. “Some forward-looking insurance companies also are trying to impact policyholder behavior. As an example, push a storm alert to policyholders so they can prepare their property. So if there’s a hailstorm coming, you move the car into the garage.”
When it comes to weather risk, Bennett said, “We always think about New Orleans. And we always think about Miami. We don’t talk a lot about Dallas, we don’t talk a lot about Chicago. But those two metro areas stand to be the biggest surprise from a loss-causing event and it’ll be a tornado outbreak, a hailstorm or both in those metropolitan areas that will lead to losses that that just seem astronomical, because we’ve never seen them from that before. Both of those areas are sitting right in a prime severe convective storm zone and it’s just a matter of time until the insured values in those zones are affected by tornadoes and hail.”
Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.
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