Last weekend (April 13-14) marked the first major U.S. severe convective storm (SCS) outbreak of 2019. Drawing energy from warm, humid air brought over land from the Gulf of Mexico by a dip in the jet stream, hail, strong winds and/or tornadoes were reported in 19 states stretching from Texas to New York. There have been at least nine fatalities reported. The worst damage occurred in Texas, Louisiana, Mississippi, and Alabama, where over 150,000 homes and business lost power.
Damage surveys are ongoing, but as of April 16, there had been 22 tornadoes confirmed by the National Weather Service, including two EF-3 rated tornadoes in Texas, with estimated wind speeds of 140 miles per hour (225 kilometers per hour). Early assessments indicate that several hundred buildings have been damaged or destroyed, but the total number will unlikely be known for a few more days at least – and could be significantly higher. In the meantime, insurers will be sending out loss adjusters to try to establish the scale of the claims they are likely to incur. The final cost may not be known for several months.
But why is spring and not summer the peak season for SCS, what is the current state of SCS risk – and what has its impact been on the insurance industry over the past few years?
There’s a truth behind the hashtag. Modern societies are increasingly capable of determining their resilience to natural hazards. We nowadays know enough to prevent extreme weather events from escalating into full-blown disasters. In developed nations, sophisticated forecasting systems, social media networks and engineering capabilities can make any weather-related death seem like pure bad luck.
So, if it’s all down to chance, no particular group in society should be at higher risk. The truth, however, is rather different.
Still ranked within the top three largest insured loss events in Australia’s history, it has now been twenty years since a hailstorm shattered roofs across the eastern suburbs of Sydney on April 14, 1999. And recent events continue to show the significant risk posed by severe hailstorms – on December 20, 2018, Sydney was hit by “…the worst hailstorm in twenty years” according to the Australia Bureau of Meteorology. On the anniversary of the 1999 storm, we look at both these events and discuss the return period of significant hail losses in Sydney.
For the 1999 event, the large hail associated with the storm damaged 24,000 homes and 70,000 automobiles along its path. There has been much written about the 1999 event, and in 2009 RMS published a detailed 10-year retrospective, but in short, this storm was unusual for several reasons:
April 14 was outside of the normal storm season which tends to focus around September through to March
The storm had hit late in the day, at 8 p.m. local time; most hit during the mid to late afternoon
The size of the hailstones was very large, described at the time as “… cricket-ball, melon, or grapefruit sized…” and up to 12 centimeters (4.7 inches) wide.
When I was still a teenager – summer brave, full of sport, hot and bold – I hitchhiked from Lithuania to Armenia and back again. Outbound via the former Soviet Union and the Caucasus; home via Turkey and the Balkans.
Time rich and cash poor, I took risks I wouldn’t today. All the same, my gambles paid off and I look back on that adventure fondly.
The journey was filled with comparisons and contrasts. Some things, like being invited in basic Russian to squeeze into a crammed Lada Riva, remained almost constant from country to country. Others, like the landscapes and local delicacies, evolved with every new ride.
When I found myself back in Istanbul last month for the first time since my hitchhiking days, I was again struck by these contrasts. Here I was, a guest of the United Nations, discussing disaster risk reduction financing with the finance ministers of those countries through which I’d once hitchhiked. And here I was, marveling afresh at the cultural, political, economic and geographical diversity of a vast region which yet shares so much.
Join our upcoming webinar and learn about risk modeling best practices from RMS Analytical Services
Standard and Poors (S&P) has been providing ratings for insurance carriers since 2005 by examining their risk management practices. They view effective Enterprise Risk Management (ERM) as a supporting pillar of their rating analysis, as ERM reaches across all the core attributes of a business.
This includes a carrier’s treatment of catastrophic events, and their preparation for the “unexpected”, with S&P laying out a method for carriers to establish best practices in this area. And, according to their recent findings, they concluded that carriers with stronger ERM programs weathered the 2017 natural catastrophes better than those with weaker programs.
During the development of the current RMS U.S. Severe Convective Storm (SCS) model, we found that claims for U.S. Personal lines were growing much faster than general economic inflation. To update SCS claims trends and to try and understand what could be driving this hyper-inflation, we analyzed the new five-year dataset from 2013 onwards, and also a longer duration 17-year period from 2001 to 2017 when observation datasets are of best quality.
Trends in SCS Event Costs
We gathered SCS losses due to hail, tornado and straight-line wind sub-perils from all the information we have on U.S. client claims, which amounts to over one million claims and several billions of U.S. Dollars in total loss. Figure One below shows the time-series of annual SCS loss totals and the decomposition into claim frequency and severity for the period 2001 to 2017. The 7.5 percent per annum trend in claim severity and 3.3 percent per annum rise in frequency combine to produce a growth of total loss, or SCS claims inflation of 11 percent per annum over the 2001-2017 period.
July 2013, and Central Europe was just recovering from severe floods during May and June when a series of severe convective storms surprised the (re)insurance industry. On July 28, hailstorm Andreas hit the Stuttgart region in southern Germany, causing widespread damage to property and automobiles. Andreas is also especially remembered as hailstorm Bernd hit the north of Germany the day before on July 27.
Overall, those two events caused approximately US$4 billion in insured losses to the (re)insurance industry. This was the highest insured loss during 2013, and the largest severe convective storm insured loss ever recorded in Europe; above Munich in 1984 (equivalent to US$5.4 billion overall and US$2.7 billion insured loss in today’s value) and Hilal in 2008 (US$1.5 billion insured).
This was a classical supercellular tornado. This type of tornado forms in a specific type of supercellular thunderstorm, which has the peculiarity of having a vortex of rising air inside — called a mesocyclone, and this is where tornadogenesis starts. Rainfall in the thunderstorm produces a downdraft, called rear-flank downdraft (RFD) in this case, which enters the mesocyclone from the back. The combined updraft (from the mesocyclone) and downdraft (from the RFD) create a tornado.
When a hail event lasting just minutes hit southern Germany on July 28, 2013, it generated a US$3.9 billion insured loss. Some 80,000 buildings and tens of thousands of automobiles were damaged — many severely. Such a high hail loss was unprecedented in Europe. It was this event that represented the wake-up call for the insurance and reinsurance industry to think harder about the risk due to severe convective storms.
I had the privilege to lead my team of seven modelers from RMS as we attended the ninth European Conference on Severe Storms (ECSS) which took place between September 18-22 this year in Pula, Croatia. This biannual conference sees hundreds of scientists predominantly from Europe and the U.S. but also from other parts of the world. Hail was prominent on the event agenda among the scientific community, and with rising interest in hail damage there is now also a considerable participation from the reinsurance industry. Munich Re is the main sponsor of the conference.
After a blistering start to the 2017 U.S. severe weather season in which tornado, hail, and wind reports were at near or record levels of activity through to March, recent months have been closer to normal. As of early July, overall observations are still above the 10-year running average (2005-2015), but they’re slowly falling back into the expected bounds.