Insurers face rising losses from severe convective storms

Annual expected insured losses for the severe convective storms (SCS) peril, including catastrophe and non-catastrophe events, are approaching $25 billion, higher than the hurricane and earthquake perils combined, according to a new report by Karen Clark & Company (KCC).

SCS events can be defined as large storm systems that spawn tornadoes, hail, and high winds and form as warm air rises and cool air falls. Historical storm reports show a clear increasing trend in the total number of reported tornadoes. Climate change is causing increasing atmospheric and oceanic temperatures, and temperature plays a significant role in creating atmospheric conditions necessary for SCS formation, the report claims.

Insurers have experienced large losses from severe convective storms over the past several years, with above-average annual losses for each of the last 10 years, according to the report titled “Why Severe Convective Storm (SCS) Losses are Increasing”.

Multi-billion-dollar events are increasing in frequency. While in 2011, two major events caused over $7 billion of insured losses each, the first quarter of 2017 set a record with over $6 billion of insured loss.

The report states that individual event losses can exceed $10 billion and total annual losses can exceed $40 billion with a ten percent probability.

Hail is the dominant driver and accounts for over 70 percent of insured SCS losses. Historical databases underestimate the SCS loss potential, the report added.

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