Gallagher Re’s Chief Science Officer, Steve Bowen, has noted that while weather and climate factors are certainly part of the story behind the increase in US severe convective storm (SCS) loss costs, most of the rise can be explicitly tied to macroeconomic and socioeconomic drivers.
Speaking in an interview with Reinsurance News following the release of Gallagher Re’s Q1 2026 Natural Catastrophe and Climate Report, Bowen said the firm conducted a deep dive to better understand the drivers behind US SCS loss costs.
“We started at the benchmark year of 2008 because that was the first time on a nominal basis that insured losses from this peril in the US topped $10 billion,” Bowen explained.
He continued, “At the time, that was a big deal. This was when a $100 billion annual natural catastrophe insured loss year was not yet a regular occurrence, and a so-called “secondary” peril exceeding the $10 billion threshold was eye-opening.
“While, yes, severe thunderstorms were contributing a relatively chunky share of losses, they were not yet dominating annual loss costs. What we’ve seen since 2008 has been a stark upward trajectory in the last 18 years.
“This change has proven continually intriguing, so we decided to look deeper into plausible signals on a hazard or non-hazard basis that have driven the change.”
Bowen said the research found that while weather and climate factors are certainly part of the story, most of the increase can be explicitly tied to macroeconomic and socioeconomic drivers.
“Roughly 80–90% of the growth can be linked to non-hazard factors, with the other 10–20% attributable to weather, climate variability, and other hazard-related influences,” Bowen explained.
He added, “To be clear: This does not dismiss emerging changes that we’re increasingly seeing with storm behaviour. But it is not the primary driver of the loss cost increase.”
According to the Chief Science Officer, what initially kick-started much of this trend was the major energy crisis in 2008, which caused oil prices to spike significantly.
Bowen went on, “In the US, the dominant roofing material is asphalt shingles (whose kryptonite will always be hail), and their production is heavily oil-dependent, so costs rose sharply.
“We then saw another spike in asphalt and other construction materials, plus labour costs, in 2020 and 2021 during COVID, when supply chain disruption, inflation, and other factors tied to higher interest rates helped keep up price pressure.
“This ultimately has led to a notable increase in replacement costs. While the cost of energy has proven more volatile with upward and downward spikes and peaks, this has not been the case for producer price indices.
“Those have stayed high, and we basically saw consumers become accustomed to higher cost levels, which forced the insurance industry to adjust to these higher loss realities.
“Yet another factor since 2008 has been the rise in social inflation. Among the biggest issues is due to rising claims litigation, mostly due to third-party ‘assignment of benefits (AOB)’ behaviour.
“This is not necessarily just an SCS peril issue, and we’ve seen a hurricane-prone state like Florida take major steps forward to eliminate AOB to stabilise its market, but claims litigation is something that is disrupting state insurance markets that have yet to enact their own regulatory reforms.
“Recent years have also brought emerging exterior technologies that are more frequently being installed on homes and businesses, such as solar panels, battery storage systems, and other higher-value components. These installations only add more potential high-dollar loss costs when SCS-related impacts occur.
“There are even more factors here to consider, such as an ongoing population boom in some of the highest-risk SCS states in the US, but it should be clear that these factors are greatly influencing loss trends. As the severity of the peril increases within individual outbreaks, this is only going to add further complexity to how primary insurers, reinsurers, and vendor modellers assess the totality of risk.
“It should no longer be assumed to be an exercise of tracking an outbreak, overlaying the thunderstorm swaths on top of a portfolio exposure, and quantifying the physical risk loss. This now requires a much deeper dive into broader cost dynamics, including non-physical elements like loss adjustment expenses, which are also rising.
“We fully expect this trend to continue in the years to come.”
Elsewhere in the interview, the discussion shifted to whether windstorm should still be considered a “peak” peril in Europe, a key point in Gallagher Re’s new report.
“We are not trying to be provocative for the sake of being provocative here. This is something where we have looked deep into the data, studied how the peril has performed over time, and drawn on extensive discussions with our clients and the broader European market,” Bowen said.
He continued, “What we see is that we are now approaching 20 years since the last truly major windstorm event in Europe that drove a nominal $10 billion-plus loss. The last one of that scale was Kyrill in 2007. Since then, we have certainly seen several smaller, notable events that have caused meaningful damage, but there hasn’t been anything that has been considered market-changing that has altered how the industry thinks about the peril at a systemic level.”
Bowen clarified that this is not to suggest the risk is going away, adding that Gallagher Re still actively encourages the purchase of reinsurance to protect against the ongoing nature of the risk.
“It’s simply that we haven’t seen a major event of that scale in quite some time. And if you compare that with every single other major global peril since 2007, we’ve seen one or more such events that have crossed that $10 billion insured loss threshold,” Bowen observed.
He added, “The other reality is that most conversations with our European clients tend to focus more on SCS and flood. Those perils have driven most losses on the continent in the past 10–20 years, and EU windstorm is not necessarily top of mind as a peak risk to their portfolios. So, again, while we are actively aware of the potential risk of EU windstorms to several major European cities, the frequency of more impactful events has taken a step back from what we saw in the 1980s and 1990s.
“This point plays into a bigger discussion that Gallagher Re has been deploying in our client conversations and thought leadership releases. Our view is that it’s not particularly helpful to rigidly classify perils as “primary,” “secondary,” or “peak” versus “non-peak.”
“Ultimately, the overall risk landscape is evolving, and in some cases risk is increasing while in others it may be stabilising or decreasing depending on region and peril.”
Bowen concluded, “What matters more is how companies are viewing their own portfolios and understanding that the most material exposures are on a client-by-client basis. When we have those conversations, they tend to be much more constructive because they reflect the actual risk profile a client has, rather than forcing it into a generic label.
“For example, calling SCS a “secondary / non-peak” peril does not help a US Midwest carrier – with no coastal exposure – to say that, despite facing significant thunderstorm loss risk, there is inherently more importance given to hurricane as a “primary / peak” risk. Such labelling in that instance would effectively obscure or minimise the client’s true risk picture.
“A lot of this boils down to semantics, but more importantly, it’s also about reflecting the reality of where a peril genuinely sits in terms of observed experience and client exposure today.
“To again reiterate: We certainly recognise and communicate the potential risk that a significant EU windstorm event or impactful clustering sequence of small or moderate storms can bring to many countries across Europe. Companies need to remain firmly protected with ample reinsurance protection. It just may not deserve the top-tier focus when other perils in recent decades have driven more insurance industry response.”
Read more in our coverage of Gallagher’s Q1 2026 Natural Catastrophe and Climate Report here, in which the firm estimated that total economic losses from all natural perils reached at least $58 billion, around 12% below the 10-year Q1 average.
Of this, losses covered by private insurers and public insurance entities totalled at least $20 billion, representing a 26% decline from the decadal average.
