The Southern Plains tornado and storm season is off to an early start with homeowners, businesses, and P&C insurers in the target areas bracing for another bad spell following record disasters, tornado damage and losses in the last several years, and over 400 tornadoes reported so far this year.
The more than 400 tornadoes reported so far this year make it already one of the most active tornado seasons in history, though not the highest.
A massive April Fool’s Day line of severe weather wreaked havoc from the Deep South to the Great Lakes, with about 85 million people in the path of storms and several dozen people killed. Rare tornadoes touched down in New Jersey and Delaware and more are in the forecast for the coming weeks.
Tornado damage, loss assessments still underway
Tornado damage and loss assessments are still under way, but insured losses are likely to be quite significant, perhaps in excess of $3 billion to $5 billion, according to some estimates. Severe thunderstorms compounded the losses but aren’t expected to reach the 2022 record of $120 billion in losses.
Still, along with the catastrophic losses, including those from tornado damage, the P&C industry is dealing with rising costs from inflation and a tough investment environment with which to backstop losses. Carriers are already scaling back capacity, exiting markets in some areas, rising prices to such a degree some property owners are electing to go uncovered, or even going out of business.
In Louisiana alone 12 insurers that write homeowners coverage were declared insolvent between July 2021 and February 2023,” mostly due to the severity of the insured loss payouts in the wake of several hurricanes. Hurricane Laura losses across all insurance lines stood at $9.1 a year after it made landfall and Hurricane Ida caused Louisiana’s insurers either to pay, or to set aside, another $13.9 billion to cover losses.
It’s a script being repeated across the country as the frequency and severity of storms seem to have significantly increased.
Climate change cited
“Weather patterns are changing due to climate change, and insurers must account for how today's insured losses are shifting, with decreases in some areas and significant increases in others,” said Stephen Bennett, Chief Climate Officer at The Demex Group, a risk management company for insurers based in Washington, D.C.
Bennett said there is an “urgent need and significant opportunity” for innovation and investments in protecting losses from weather events.
“The growing – but unprotected – retained risk exposure poses a major threat to insurance company financial performance, ratings and surpluses,” he said. “The market for extreme weather insurance is estimated at $53B in insurable risk but is currently not insured."
Natural disasters are becoming more expensive not only because climate change is intensifying them, but also because of human factors, said Scott Holeman, Director of Media Relations at the Insurance Information Institute.
"...More people have been moving into areas with higher risks of climate impacts.”Scott Holeman, director of media relations, Insurance Information Institute
“One of them is that more and more people have been moving into areas with higher risks of climate impacts,” he said. “Population growth and economic development have contributed to increasing losses. At the same time, research suggests the geography, frequency and intensity of these storms also may be changing.”
Indeed, the National Weather Service confirmed a tornado touched down in Pennsylvania on Saturday as severe weather moved through the Delaware Valley. That brought the regional total to six, with four tornadoes hitting New Jersey and in Delaware, both areas normally not considered tornado zones.
The states with the most tornadoes so far this year are Alabama (49), Georgia (33), Louisiana (20), and Texas (12), according to the National Oceanic and Atmospheric Administration.
Improved reporting may explain some increases
Improved reporting may explain tornado increases in some areas, Holeman said. Bug twisters are reported to be spawning less often in western Texas and Oklahoma, part of the area known as Tornado Alley.
“This could indicate a shift to the east, in which case they could affect more populous regions,” he said.
With new areas becoming targets for hurricanes and tornadoes, commercial property owners want to make certain that are sufficiently insured for liability claims, said Alex Roje, a partner in Lathrop GPM's Insurance Recovery practice based in Los Angeles.
“For example, if you have a considerable property claim that isn’t appropriately covered by insurance there might be rumblings among shareholders that you breached your fiduciary duty by not insuring correctly for these liabilities,” she said. “Property owners should keep this in mind. It takes one plaintiff’s lawyer to find one shareholder who then brings a class action on behalf of all the shareholders against the property owner or directors. This can be significant exposure.”
Relatively simple and inexpensive enhancements to building codes could reduce tornado-related costs by 30 percent or more, according to a report by the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania.
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].