US tornadoes bill 2021 insurance over $ 105 billion as climate change grows

By Noor Zainab Hussain and Carolyn Cohn

(Reuters) – The devastating tornadoes that hit parts of the United States this month will push the insurance industry’s 2021 bills far above the $ 105 billion forecast for weather-related claims, according to industry experts, and premiums should rise due to concerns about climate change. harsher weather.

The tornadoes broke the 200-mile route through six Central and Southern states, tearing down homes and leveling businesses, resulting in insured losses of $ 5 billion, according to preliminary estimates.

Climate change has led to more so-called “secondary risk” meteorological events, such as hurricanes that are smaller but less predictable than hurricanes. Other secondary hazards include small and medium-sized local events, such as forest fires, winter storms, and hail.

These events pose challenges for insurance risk management and ultimately inflate premiums, some insurance experts have said.

“We’ve had more than $ 100,000 billion in catastrophic events in a year without a major event, be it an earthquake or a hurricane,” Barnaby Rugge-Price Howden Broking Group President Reuters said.

“Underneath that, clearly, something else is happening, the most notable of which is climate change,” he said.

There are an average of 1,500 tornadoes a year in the United States, and only 25 occurred in December, according to reinsurance broker Guy Carpenter. This month’s set of tornadoes has been very rare in terms of season, intensity and the length of storm roads, the company said.

Research suggests that warming surface temperatures in the Gulf of Mexico are linked to rising thunderstorms that could cause tornadoes in the southeastern U.S. Dixie Alley, said Karen Clark & ​​Company (KCC), a disaster modeling firm.

Warmer air conditions in late fall and early winter create the right conditions for tornadoes, which could extend the season of harsh weather in North America, Reinsurance Guy Carpenter & Co. LLC said.

Unlike primary hazards such as hurricanes, which have the greatest potential for losses and are therefore closely monitored and modeled, secondary hazards are unpredictable.

Rugge-Price said it is more difficult to model because they do not have enough data and at the same time make it more difficult for the industry to assess risks.

“Hurricanes have been recorded, and we know the way and we know the damage, while tornadoes … are occurring,” he added.

Some experts say it is not easy to draw a clear upward link between climate change and the severity of tornadoes. The KCC said tornadoes occur under specific atmospheric conditions and that “it can be challenging to attribute specific weather trends to severe climate change.”

However, the severity of these secondary risks has increased this year.

Before the tornado hit, the global insurance industry had a $ 105 billion loss this year, the fourth-highest on record without a single major weather catastrophe, according to the Swiss Re (OTC 🙂 reinsurance giant.

Although Hurricane Ida was the worst natural disaster of 2021, more than half of the losses were brought to Texas by freezing temperatures, including the Uri winter storm.

The new “rule” is at least a serious secondary risk for the year, each of which has resulted in losses of more than $ 10 billion, Swiss Re said.

“Losses from natural disasters are likely to continue to grow as a result of wealth, urbanization and the effects of climate change,” the company said.

PRIMARY PROPERTY

Sources in the insurance industry said that more serious events have led to a rise in US property insurance prices over the past four years. Customers with high exposure to secondary risks in the second quarter saw an increase in the average rate in the third quarter, Swiss Re said.

Insurance premiums are likely to continue to rise, brokers say, and homeowners looking for insurance should also face higher withholdings that they will have to bear the initial costs themselves before starting insurance.

“We don’t expect to see a reduction in tornado coverage capacity,” said Dave Reasons, Marsh’s U.S. Central Head of Property. However, he said some customers were willing to pay withholdings ten times higher than in the past to keep their premiums low.

“We will certainly see discussions about the right retentions, the right prices for that.”