The intensity of extreme cold events such as the recent US winter storms and Arctic deep freeze may become more volatile as the climate changes, Aon has warned, saying that the February loss event will be a record.
Currently, insurance and reinsurance industry loss estimates for the recent US winter storms stand at anywhere from $12 billion to as much as $20 billion it seems.
However, we’re told there remains a significant delta of opinion in the market, with some early data points also pointing to something a little lower than perhaps expected, while there appears a difference of opinion over where the losses will come from.
Some sources suggest that personal lines claims are going to be the bulk of the industry loss, which are generally lower value and for burst pipes and similar smaller household insurance claims.
While on the commercial side, some suggest a significant burden from business interruption to come, which is where the difference of opinion generally seems to lie, as not everyone believes claims will prove to be valid.
All of which suggests a drawn out loss development process and a challenging few months for deriving the ultimate insurance and reinsurance market loss, while the personal property side of things is anticipated to be quicker to count, but may face a significant amount of loss amplification through demand surge and materials costs.
Insurance and reinsurance broker Aon acknowledged some of these challenges in its latest report, saying that overall, “Aon expects the total direct economic cost in damages and net-loss business interruption to well exceed $10 billion.”
The broker also warns, “There will be a prolonged period of loss development, with this stretch becoming the costliest for the winter weather peril on record for the U.S. insurance industry.”
This will be a record level of economic costs, which will in turn drive a record winter storm insurance industry loss, that seems assured.
The winter storm and deep freeze event is unprecedented in many ways, not least by its temperatures and the duration of freezing weather, but also by the impacts caused by rolling power blackouts and damage related to the failure of energy utility infrastructure in the state of Texas.
Climate is cited as another factor to consider in winter extreme cold events such as this, by Steve Bowen, director and meteorologist on the Impact Forecasting team at Aon.
He explained, “The unprecedented volume of winter weather impacts tied to the Polar Vortex across the United States in mid-February will result in a prolonged period of loss development, but will certainly end as the costliest insurance industry event for the peril on record.
“Despite being the coldest February for the contiguous U.S. in a generation, it marked only the 19th coldest February dating to the late 1800s.”
Bowen went on to comment that, “As the climate changes, such prolonged bouts of cold temperatures are likely to be less frequent, but the intensity of extreme cold events will grow more volatile.”
Further adding that, “The impacts in Texas highlight the importance of infrastructure modernization and improved building code practices to better prepare for more unusual weather behavior in the future.”