Study finds lightning strikes cause over $1 billion insured losses in 2010

A study by the Insurance Information Institute has found that it’s not just tornadoes and hail which are capable of causing billion dollar insured losses in the U.S. during severe thunderstorm season. The study found that lightning strikes are responsible for a large amount of losses, with over $1 billion attributed to lightning during 2010.

The number of claims attributed to lightning strikes increased significantly from 2009 to 2010 with a reported 213,000 claims during 2010, up 15% from 2009. The claims range from fires that destroy entire homes to losses from damage to electrical equipment, generally due to electrical surges. The average cost of a lightning strike claim was $4,846 in 2010.

The I.I.I. believe that the proliferation of expensive electrical items in households is the main reason for the increase. In 2009 the average cost per claim was much lower at $4,296 and in total there were 185,000 claims costing $800m. The cost per claim has increased significantly in recent years rising more than 80% from 2004 to 2010, however the total number of claims has decreased by 23% over the same period (although that number fluctuates depending on the severity of the main season).

Hedging the risks of lightning strikes may seem impossible or implausible however if you look back at products that used to be available to insurers it may be more feasible than you’d think. A prime example would be the WinCat Coupon which was sold by Winterthur in the late 1990’s. It was designed to provide cover for motor insurers in case of widespread hail damage using a coupon which paid out to the insurer should over 6,000 cars be damaged by hail on a single day. That product is no longer available (as far as we’re aware), there may have been an element of moral hazard which doomed it to failure, but it shows that there could be ways to hedge these less commonly addressed catastrophe and weather risks if the market saw the need.