The Impact of Severe Convective Storms on Property Insurance

By Donna Matthews, Senior Vice President - National Director of Property

Severe convective storms are among the most frequent and severe natural disasters in the U.S. Warm, wet air rising from the earth causes them to manifest in various ways, depending on atmospheric circumstances, ranging from soaking thunderstorms with lightning to tornadoes, hail, and damaging straight-line winds. As urban areas grow and more people move into regions prone to these storms, insurance carriers are reevaluating their terms, coverage options, and profitability strategies.

According to a recent Swiss Re report, in 2024 natural catastrophes caused $60 billion in insured losses globally, of which $42 billion, mainly in the U.S., were from severe thunderstorms. In the U.S., according to the report, 12 storms each caused losses of $1 billion or more. This marks a significant increase in the share of losses attributed to these storms, signaling that convective storms are no longer just a “secondary peril.” Traditionally overshadowed by hurricanes and earthquakes, convective storms are emerging as a significant contributor to the overall insured loss burden in the property insurance sector.

What is a Convective Storm?

Convective storms are caused by a process called convection, where a parcel of moisture-laden air rises from the earth’s surface due to intense heating to the upper layers of the atmosphere. Convective storms form when the atmosphere becomes unstable, with warm air near the Earth’s surface and cooler air above. The quick upward flow of air causes severe weather events such as lightning, heavy rain, hail, and tornadoes.

Why Are Convective Storms Occurring More Often?

Factors contributing to the increased frequency and severity of convective storms include:

• Urbanization: More people are living in high-risk areas. According to the United Nations, the global population is increasingly moving into urban areas. Today 55% are currently living in urban areas, and that is expected to increase to 68% by 2050. This means more properties are at risk of convective storm damage and insurers are facing higher potential claims.
• A Shift in Climate Patterns: Warmer ocean temperatures and greater atmospheric moisture content have all helped to create an environment for convective storm development. As a result, many locations are experiencing a rise in thunderstorm activity, increasing the potential for severe weather events such as tornado outbreaks and catastrophic hailstorms.

Impact on Property Insurance

In recent years, convective storms have become one of the primary drivers of insured losses. More regions are being affected by these storms, with insurance carriers facing a surge in claims related to structural damage to residential and commercial properties from high winds, hail, and tornadoes; roof damage from hailstorms; and business interruption. The increased frequency and severity of these claims is further exacerbated by rising labor and material costs to replace and rebuild property after a loss. This has pushed up the overall cost of claims when a convective storm hits.

How the Insurance Industry is Responding

Despite the rising number of claims from convective storms, the property insurance market in 2024 is generally softening. After several years of significant rate increases, market competition has intensified, providing some rate relief to insurance buyers. However, while rates are slowly decreasing, the exposure to convective storms is increasing, creating a challenge for insurers to remain profitable.

The uptick in frequency and severity of these storms are causing insurers to reassess their underwriting practices. Insurers are modifying terms and conditions to manage the growing exposure from convective storms, including increasing deductibles and retentions. Carriers are beginning to implement deductibles specific to convective storms like those used for hurricane and earthquake risks. These deductibles are often a percentage of the insured value of the property, and, while 5% deductibles are not as common, they can be as high as that in hail-prone areas.

Innovative Solutions: Parametric Insurance

While traditional deductible buy down options are available in the marketplace, one innovative approach to dealing with convective storm risk is the increasing use of parametric insurance. Parametric policies are designed to pay out based on a predefined trigger—such as the size of hailstones or the strength of a tornado—rather than requiring a traditional loss adjustment process. These policies are gaining attention, as they provide a way for property owners to mitigate the financial impact of high deductibles or excluded perils in traditional insurance policies. For example, if a business is located in a region prone to hailstorms and faces a high percentage deductible, a parametric hail policy could offer additional protection.

Preparing for the Future

One of the challenges the insurance industry faces is predicting these types of storms. Unlike hurricanes, which can be tracked and forecasted days or weeks in advance, convective storms often develop quickly, with little warning. This makes it harder for property owners and insurers to prepare adequately. The National Oceanic and Atmospheric Administration (NOAA) is working on improving prediction capabilities for convective storms. According to consulting engineering firm Risk Logic, NOAA researchers are developing advanced forecasting models and techniques to anticipate severe weather events’ timing, intensity, and location.

Understanding the evolving risks posed by convective storms is critical for policyholders. Ensuring that your insurance policy provides adequate protection while being mindful of potential changes in deductibles and coverage limits is essential. Equally critical is preparedness in helping to mitigate damage from these storms.

About the Author

Donna Matthews is McGriff’s National Property Director and leads the National Property Practice team, which provides design and placement assistance with large and complex property risks within McGriff. Donna oversees strategy and implementation of property risks and catastrophic analytics, markets advocacy for our clients, and manages property carrier relationships across McGriff nationally.

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This article is provided for informational purposes only. McGriff does not provide legal advice and recommends you consult with your own counsel for legal guidance/opinion. ©2024 McGriff Insurance Services, LLC. All rights reserved. McGriff Insurance Services, LLC is a subsidiary of TIH Insurance Holdings, LLC.