In the United States, severe convective storms (SCS)—also known as severe thunderstorms, which can include tornadoes, hail and strong localized wind gusts—cause average annual insured losses of more than $12 billion. Actual annual losses fluctuate from year to year, and in 2011, severe thunderstorm losses in aggregate exceeded $27 billion with two major events costing more than $7 billion each. (Source: 2016 Munich Re, NatCatSERVICE; Property Claim Services; Insurance Information Institute)Executive SummaryCatastrophe models for severe convective storms have existed for decades, but the model loss estimates lack credibility for most insurers. Here, Karen Clark explains why and suggests a new modeling approach.
Wind losses are now responsible for well over a third of all losses for U.S. property insurers, and individual severe thunderstorm events routinely cause more than $1 billion in damages. While this is not a big number for the industry as a whole, severe thunderstorms are typically localized events, which means individual insurers can be impacted disproportionately. Even though these events occur every year and insurers have a wealth of claims data, there’s still a lot of uncertainty surrounding the “tail” of the distribution and the potential for and probability of large losses.