Reinsurance News

Severe convective storm events the main driver of losses for re/insurers: Aon

26th January 2021 - Author: Luke Gallin

In 2020, the severe convective storm (SCS) peril maintained its status as a primary loss driver for insurers and reinsurers; as the U.S. witnessed a record 14 individual billion-dollar economic loss SCS events, according to global brokerage Aon.

florida-stormThe 2020 annual Weather, Climate & Catastrophe report from insurance and reinsurance broker Aon, highlights SCS events as the most consistently impactful peril.

Additionally, SCS events have been more costly than tropical cyclone for the re/insurance sector in 22 of the last 31 years, according to Aon.

“It was again the world’s costliest peril for the insurance industry. Of note, while an expensive year for insurers, this did not directly translate into major payouts by reinsurers,” explains the broker.

Throughout last year, the frequency of events played a bigger role than the cost of individual events, meaning that a higher volume of medium-sized events failed to trigger reinsurance protection for carriers.

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“One question moving forward will be whether the increased frequency of these medium-sized events leads to more aggregate excess cover in the future that would allow insurers more protection,” continues Aon.

In the U.S., SCS events were especially costly in 2020 and as shown by Aon’s analysis, broke records set in 2011; a year that featured prolific tornado outbreaks. Furthermore, the country endured a record 14 individual billon-dollar economic loss SCS events in 2020, 12 of which resulted in billon-dollar insured losses, including four which were multi-billion-dollar loss events for the industry.

As a result of the heightened activity, Aon notes that 2020 was the 13th consecutive year to witness public and private insured SCS losses of more than USD 10 billion, and just the second time ever payouts have surpassed USD 30 billion.

Of the SCS events that occurred during the year, the most significant took place on August 10th in the Midwest – an extremely destructive derecho event. According to the NOAA, a derecho is defined as a widespread, long-lived wind event associated with a band of rapidly moving thunderstorms.

The derecho event in 2020 impacted numerous parts of the region, with the hardest hit states being Iowa, Illinois, and Indiana. The event led to economic losses of above USD 11 billion and insured losses of USD 7 billion – to property and agribusiness across the three states.

“This was the second-costliest U.S. disaster of 2020 regardless of peril,” notes Aon.

All in all, the Storm Prediction Center (SPC) preliminary tallied 1,248 tornado touchdowns in 2020, of which at least 24 were rated either EF3 or EF4.

Outside of the U.S., the majority of SCS damage was experienced in Australia in 2020. The re/insurance industry paid out almost USD 3.5 billion in storm-related claims throughout last year, according to data from the Insurance Council of Australia (ICA) and catastrophe risk modeller PERILS AG.

Overall, Aon’s report finds that globally, economic losses were estimated at $268 billion, caused by 416 catastrophe events in 2020. Of this total, losses insured by the private sector or by government-sponsored programs totalled $97 billion, leaving a protection gap (disparity between economic and insured losses post-event) of 64%.

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