Aon Benfield launches tool to estimate US thunderstorm losses
Impact Forecasting, Aon Benfield’s catastrophe model development unit, has launched a US severe thunderstorm (STS) scenario model to help insurers better estimate annual losses based on historical data.
Severe thunderstorms can produce damaging winds in excess of 57 mph, hail 1.00 inch in diameter or greater, and occasionally tornadoes, according to Impact Forecasting.
It said that the costliest US thunderstorm outbreak on record occurred in late April 2011 across the Lower Mississippi Valley and cost insurers $7.7 billion in today’s dollars.
Over the past 10 years (2006-2015), severe thunderstorms have overtaken tropical cyclone as the costliest peril for US insurers on an average annual basis, according to the firm.
“When aggregated, these losses from severe thunderstorms can significantly impact the profitability of an insurer’s treaty programme,” said Impact Forecasting.
“However, these may not be accurately assessed in probabilistic models which seek to identify the most probable maximum loss from a single event.
“The new model – STS RePlay – bridges this gap by incorporating the last 12 years of historical severe thunderstorm data from the Storm Prediction Center and replaying it to create nearly 7.5 million scenarios that are used to calculate average annual losses.”
The results from Impact Forecasting’s STS RePlay benefit insurers by offering a complementary view to a probabilistic model by drilling down to the annual average loss in addition to the probable maximum loss, as well as assessing historical severe thunderstorm events in 48 US states to quantify current loss expectations.
It also enables insurers the chance to make more informed reinsurance purchasing and underwriting decisions and supports insurers’ expansion into new US regions by identifying a credible loss experience to be expected.
Steve Drews, director at Impact Forecasting, said: “Stochastic models have historically underreported aggregate losses due to a lack of hail and convective wind historical data. STS RePlay leverages existing data and approaches it in a new way to better understand the actual extent of current loss behavior, allowing for more informed decisions for policy and rate makers.”
Stephen Hofmann, executive managing director at Aon Benfield, added: “Over the last decade, severe thunderstorms have contributed towards an increasingly large portion of the insurance industry’s global catastrophe losses.
“The roll out of Impact Forecasting’s new STS model now means that insurers and reinsurers can effectively manage their risk and use the model’s transparency to explain the details of their loss numbers and create their own view of risk from this peril.”
