Although severe convective storm (SCS) damage can’t be completely avoided, building location and materials play a crucial role in mitigating some of the losses, shared a speaker at the CatIQ Connect conference Wednesday.
Approximately 89% of the justification for why nominal thunderstorm losses have increased by 10% annually since the beginning of the century is due to non-hazard-related risks, according to analysis from Gallagher Re, says the reinsurance broker’s chief science officer, Steve Bowen. And while the analysis is specific to the U.S., it’s applicable in Canada, Bowen says.
“So, that means where we’re building, how we’re building, the cost of materials, the cost of labour, urban expansion,” he says. “We’re seeing our cities — those suburban, exurban areas — continue to expand; this bigger playing field in terms of where storms can be affecting.”
In particular, hail continues to drive a substantial portion of losses in the U.S. In any given year, hail accounts for 50% to 80% of all thunderstorm-related claims on average, he says. “Last year, the U.S. had $54 billion of insured costs from thunderstorms.”
While not at the same level, hailstorm losses in Canada can be significant as well. On Monday, CatIQ reported the August 2024 Calgary hailstorm has cost the industry more than $3.25 billion in insured losses, up from its previous loss figure of $2.9 billion. The fourth industry loss estimate for the hailstorm comes six months after the event and covers personal and commercial property as well as vehicle claims, including additional loss adjustment expenses.
This makes the Calgary hailstorm the costliest NatCat event of 2024, and the second costliest in Canadian history, second only to the Fort McMurray fires of 2016.
“While the storm itself was not unusually severe for the region, the extent of the damage and the scale of the industry loss total reflect how the distance of a few kilometres in the track can result in tremendous loss differences when it comes to severe convective storm,” Laura Twidle, CatIQ president and CEO, says of the latest estimate. “There was nothing apparent about the storm from a meteorological standpoint to suggest it would result in one of the costliest events in Canadian history.”
Return on investment justifies spending
To help mitigate losses, the industry should look to resistant building materials.
“The [investment] and the return on that investment justifies spending. because we know we can mitigate and reduce a lot of the losses that are coming from perils like SCS,” Bowen says.
Bowen also discussed a phenomenon called ‘weather whiplash’ during his presentation, which focussed on catastrophe forecasts for 2025.
“What this means is we are seeing more of these dramatic shifts from one type of weather to another in very quick succession.”
For example, a drought could be followed by an extreme rainfall event. In the case of the California wildfires, the pattern could shift from really dry to really wet, bringing landslide risk.
“Weather whiplash is something we have to consider because we’re seeing more examples of these dramatic shifts from one to the other occurring with more frequency than before,” Bowen says.
Another concept is compound risk, or connected extremes. In essence, more extreme weather events are having “significant downstream implications to many non-physical risks,” such as an impact on health, supply chains, inflation, and even litigation risk, Bowen says.
Repetitive loss claims are also a possibility. “Are we seeing the same property filing a claim for a new roof two times in five years, three times in 10 years?” he asks. “Is that going to change how we underwrite [and] how we think about risk in some of these areas?”
And while “not necessarily a big issue yet in Canada and internationally,” U.S. thunderstorm costs are rising.
“Thunderstorms are causing costs to go up, and that’s causing a lot of smaller mutual insurers to go out of business,” Bowen says. “And if that happens, then we’re going to start running into an availability issue because there’s going to be fewer options for people to buy private insurance.”
Feature image by iStock.com/LAWaterhousePhotography
