Aging homes, growing values driving up insured losses from convective storms

Older houses are over 3.5 times more likely to generate new hail claims than recently built houses.

According to Gallagher Re, aggregate industry SCS losses see an annual growth rate of more than 11.5% and have grown seven-fold since 2003. However, there has been no notable increase in the frequency or severity of SCS events during the past two decades. Credit: Sabphoto/Adobe Stock

The first half of this year is on pace to set a record for severe convective storms (SCS) losses in the U.S., according to Gallagher Re, which projected total insured losses of at least $29 billion.

The dynamic power of SCS systems was on display in June, which saw reports of hail and damaging winds come from 25 states across the central and southern U.S. Karen Clark & Co. estimates insured losses from the June storms will be near $5.5  billion.

According to Gallagher Re, aggregate industry SCS losses see an annual growth rate of more than 11.5% and have grown seven-fold since 2003. However, there has been no notable increase in the frequency or severity of SCS events during the past two decades.

There are two major factors driving up loss amounts: Population shifts and an aging housing stock.

Older homes

Gallagher Re reported the volume of new homes as a percentage of the overall U.S. housing stock has been slowly declining. Homes that are less than five years old accounted for 4% of the overall stock in 2020, compared with 9% 20 years earlier.

A higher percentage of older homes drives up claims costs because they are more susceptible to damage. For example, older houses are over three times more likely to generate new hail claims than recently built houses, according to the reinsurance broker.

From 2010-2020, the severity of U.S. hail claims increased an average of 5.3% annually, outpacing inflation during the period. However, hail size didn’t increase during that time span, according to Gallagher Re, which reported rising material costs, the use of independent adjusters and social inflation drove up claims severity during the period.

Shifting population

In addition to a stock of older homes, Gallagher Re noted that the U.S. population has shifted into metropolitan and suburban areas that have seen more SCS activity during the past 20 years.

For example, Dallas-Fort Worth, Austin and Denver saw housing units grow more than 12% from 2010-2020. Each of those metro areas is rated as a moderate to severe SCS risk zone, according to Gallagher Re.

People moving into more densely populated metro and suburban areas is further increasing claims severity from SCS events, the reinsurance broker reported. From 2010-2020, nearly 70% of new housing units were built in urban or suburban areas near major metro areas.

This means that what would have been a remote SCS event 10-20 years ago now has more potential to impact a large mass of people, which in turn increases the chance of insured losses, Gallagher Re reported.

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