Commercial insureds now factor climate issues into business plans
Policyholders react to more restrictive wording and higher premiums in response to depressed carrier profits.
Severe convective storms in the U.S generated most of the global insured losses in the first half of 2024, according to Aon.
Insured losses from the storms totaled $39 billion, the data showed, with four severe events over the period generating nearly $15 billion in insured losses.
In light of the rising costs, PropertyCasualty360.com spoke to Craig Russell, executive vice president at Amwins Brokerage, about convective storms and their impact on the insurance industry.
PropertyCasualty360.com: How does the frequency of convective storms compare with hurricanes?
Russell: It’s rare that a single convective storm would cause more losses than a hurricane. However, both frequency and severity are often examined in our space.
While hurricanes are often more severe, convective events are substantially more frequent. Last year, the industry saw 28 different billion-dollar claim events. Convective storms accounted for 19 of the 28 while hurricanes and tropical storms accounted for just two.
The losses from convective storms accounted for over 50% of the disaster related losses in the U.S. However, in 2022, we had 18 separate billion-dollar events. Eleven were convective storm events, and only three were caused by hurricanes and tropical storms.
Despite the disparity in volume, Hurricane Ian accounted for around 68% of the disaster related losses paid in the U.S. in 2022.
PropertyCasualty360.com: Are Insureds reconsidering geographical locations for better insurance coverage?
Russell: Businesses predominantly driven by real estate are considering the effect a particular geography has on their balance sheet more now than ever before. Many carriers were unable to remain profitable due to year-over-year attritional losses from wind and hail events.
This caused a wave through the industry of more restrictive wording, higher retentions and larger premiums in certain areas. When presented with different options for a new acquisition, there are multiple variables affecting the decision. The balance of risk transfer available in the marketplace and the cost of that transfer are certainly a couple of them.
PropertyCasualty360.com: Where in the U.S. is the risk for convective storms greatest?
Russell: Convective losses are common throughout a large swath of the country. Areas like North and West Texas, the state of Oklahoma and the Colorado Springs area are likely leading the charge in terms of high hazard zones. Convective events common to tornado alley states like Kansas, Missouri, Arkansas and Nebraska are prevalent to the east also, from Louisiana up to Ohio and all the way to the Carolinas.
PropertyCasualty360.com: What are the most common claims following convective storms?
Russell: The vast majority of damage from convective storm loss is roof damage from wind and hail. Asphalt and comp shingle roofs seem to be the most commonly damaged but almost all roof types are susceptible in the right conditions.
Don’t forget that tornadoes fall under the category of convective storm as well. We’re all familiar with the devastation they can leave in their wake.
PropertyCasualty360.com: How can agents advise retailers on coverage in high convective storm areas?
Russell: The best thing agents can do is educate themselves on the topic and understand how the market is reacting to the increased focus on convective storms. Know the common retention levels for the combination of construction type and geography you see most.
Ensure your clients understand how coverage is being limited when roof limitation wording is present. Know the different types of percentage WH deductibles and be able to explain how specific forms calculate the deductible in the event of a covered loss. Be familiar with additional products like deductible buybacks and parametric programs that can sister with property programs to further protect clients. Each of these has an important role in helping insured’s make the right decision for their business.
Craig Russell leads a property brokerage team in Springfield, Missouri with a focus on real estate and industrial placements in convective zones. He’s spent over 15 years in the insurance industry with the last 11 all at Amwins.
See also: