Verisk Insurance Solutions – Underwriting, the property casualty underwriting data unit of Verisk Analytics, has released a detailed analysis report looking at the impact and severity of hailstorms events across the U.S. over the past 14 years.
The report, titled ‘Property Hail Claims in the United States: 2000-2013’, utilizes roughly 9 million reported residential property hail claims from 2000-2013, revealing an increase in frequency, severity and cost.
Although the report focuses on the past 13 years it’s in the last six years, so from 2007-2013, that the figures become really interesting. Insured losses from hailstorms throughout the 13-year period totaled roughly $54 billion, but almost 70% of this has occurred since 2007. Hail severity has also been on a steady rise since 2000 but again; average hail severity in the past six-years is 65% higher than it was from 2000-2007.
The bulk of the study provides detailed analysis of the top ten states for hail losses, ranked on average annual claim severity and average annual claim loss. Oregon topped the list for average claim severity, at $9,100, while Texas topped the average claim loss list, totaling $859,184,000, interestingly only two states featured in the top ten of both lists, Minnesota and Ohio.
The majority of states included in the average severity list are not considered vulnerable to hailstorms and, only a single South Central state (more typically associated with severe storms) is included. This highlights the fact that damaging hail impact is unpredictable and occurs far beyond Hail Alley.
The data, which comes from Verisk’s A-PLUS property database, shows a clear increase in hail claims since 2007, with 2011 being the first year to surpass 1 million claims. And even though 2013 saw the lowest losses incurred from hail, this figure was still 50% higher than any year previous 2007.
One of the most challenging aspects of hail risk management is that its impact on states year-on-year can vary immensely, making predictions difficult and leaving underwriters with little to work with. An example of this can be seen in the state of Arizona, which in 2010 saw an increase of 105,910 claims year-on-year, and the study shows that this happened with many states over various years.
So it seems the unpredictable nature of hailstorms attributes to the increase in hail losses, as it’s hard to design coverage options via insurance or reinsurance when it’s unclear where or when the event is likely to take place.
That said there is more hail exposure than ever in the insurance-linked securities (ILS) market and ILS funds than ever, with severe thunderstorm risks including hail also featuring in many catastrophe bonds. In fact, at this time the outstanding cat bond market contains approximately $2.5 billion of risk capital which has some exposure to severe thunderstorms and most of that is likely to include hail risks.
Also, with the increasing prevalence of collateralized reinsurance seeing ILS fund managers participating in reinsurance and retrocession programme renewals, there is an increasing exposure to hail risk in catastrophe reinsurance contained in ILS funds as well.
Other factors that have impacted the cost of hailstorms are with the repairing and reconstructing post-event. According to Xactware’s Industry Trend Reports, roofing materials are up 35% since 2005, and likewise roofing labor costs have risen by 60%, nationally.
This, coupled with an increase in hailstorms, which creates greater demand for roofing materials and so on, shows that the whole sector needs to be better understood and the risks better modeled in order to minimize the potential economic and residential impact.
In an effort to help achieve this Verisk Climate, Verisk Analytics environment solution department, has begun ‘an extensive industry-commissioned scientific study to help insurers navigate this uncertain future.’