Winter storm Uri loss could be “well in excess” of $10bn: AIR

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Catastrophe risk modeller AIR Worldwide has warned that recent winter storm Uri and associated severe winter weather could result in an insurance and reinsurance industry loss that is “well in excess” of $10 billion.

winter-stormBeginning on February 12th 2021 and continuing right through the following week, winter storms and freezing weather driven by a polar vortex event saw over 70% of the continental United States impacted with freezing temperatures, snow, and ice, with Texas seen as the state worst affected.

AIR Worldwide notes that there is likely to be a “significant number of expected claims,” while the average insurance claims severity value is likely to be around $15,000 for residential risks and $30,000 for commercial risks.

Add on the level of demand surge and AIR believes that insurance and reinsurance market losses “appear likely to exceed $10 billion.”

However, that figure could be much higher, AIR warns, noting that “there are several factors that could still potentially drive the loss well in excess of that figure.”

Among these are, “a higher than expected rate of claims among those risks affected by prolonged power outage, whether utility service interruption coverages pay out, larger than expected impacts from demand surge, government intervention, and whether claims from mold damage start to emerge as a significant source of loss.”

The industry seems to be converging on something north of $10 billion, but perhaps not as high as $20 billion, although demand surge and loss amplification could be the factor that results in a higher than anticipated industry impact.

As a reminder, catastrophe risk modelling specialist Karen Clark & Company estimated the insurance and reinsurance market losses from the winter storm event in the United States at around $18 billion.

AIR further explained that this winter storm event “presents significant challenges to model.”

“The power outage component and its exacerbating effect on losses are not explicitly captured by the AIR model, limiting the ability to capture the overall impact using the model alone. What further adds to the modeling difficulty is the level of demand surge resulting from labor, services and the COVID-19 pandemic,” the catastrophe risk modelling firm said.

Texas is likely to be ground-zero for claims it seems, with AIR giving more weight to the thinking that this winter storm could drive more claims than hurricane Harvey.

“It appears likely that the number of claims from this event may significantly surpass those from 2017 Hurricane Harvey, ultimately landing in excess of 500,000. While there is also still uncertainty in the proportion of claims which will come from personal versus commercial lines, the current expectation is that a significant majority of the claim count – on the order of 80% – will come from personal lines,” AIR said.

That last sentence, on the commercial to personal lines mix is also important for the insurance-linked securities (ILS) market, with catastrophe bonds and other structures having greater exposure to personal and homeowners property business, than to commercial, generally.

Another considerable factor in the ultimate industry loss is expected to be business interruption.

AIR explains, “Significant uncertainty exists in the magnitude of insured losses to commercial/industrial lines depending on the trigger time frame for business interruption payouts as well as the take-up of the utility service interruption endorsement.”

On top of which demand surge, for services like plumbing, could exacerbate claims totals and drive the insurance and reinsurance market loss higher.

Also read:

Palomar expects reinsurance recoveries for winter storm Uri.

Winter storm Uri insured loss seen up to $20bn: Fitch.

Winter storm Uri an aggregate threat, but commercial loss may protect ILS: Twelve Capital.

Winter storm to drive record losses, reevaluation of cat budgets: AM Best.

KCC raises US winter storm insurance industry loss estimate to $18bn.

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