Rising convective storm losses mostly reflect exposure growth: Aon   – Insurance News

More than 80% of the increase in US severe convective storm losses is likely due to exposure growth rather than a new normal of elevated storm activity driven by climate impacts, Aon says. 

From 1990 to 2022 severe convective storm insured losses rose at an annual rate of 8.9%, while over the same period exposures have grown at a combined rate of 8.6%. 

The exposure growth reflects gross domestic product, changes in the value of goods and services, property cost inflation and population distribution changes, including in high hazard areas like Texas and other Sun Belt states. 

 “While climate is a driving force behind other perils, there is little evidence that the climatic factors that drive SCS are changing,” Aon Reinsurance Solutions US actuarial team MD John Jacobi says. 

“Re/insurers instead must manage growing exposures in high hazard areas, which can be mitigated by traditional risk management techniques such as accumulation management, enhanced claims handling, and appropriate deductible, limit and premium levels.” 

Aon says that while 80% of storms loss growth is probably due to exposure, the remaining 20% could be due to small changes in climate that are not discernible in the weather ingredients that drive severe convective storms, other exposure factors or random chance. 

“Going forward, the industry’s emphasis for the SCS peril should be less on climate factors, and more on traditional risk management to help shape better decisions,” Mr Jacobi said. 

The Aon paper looked at weather “ingredients” that are most favourable for severe thunderstorm development in the US from 1990 to 2019. Those include Convective Available Potential Energy, which is a measure of atmospheric instability, and wind shear data. 

Aon data shows that to date this year, 70% of global insured losses were driven by severe convective storms. In the US, the storms caused $US35 billion ($54 billion) of insured loss in the first half, following three consecutive years with at least $US20 billion ($31 billion) of losses in the half.  

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