Carolyn Cohn, Noor Zainab and Carolyn Hussain

(Reuters). – The damage caused by tornadoes in parts of the United States will increase the 2021 insurance bill for weather-related claims to $105 billion. Industry experts predicted that premiums will rise due to concerns about climate change, which will lead more severe weather.

Preliminary estimates show that tornadoes caused damage to homes and businesses across a route of about 200 miles in six states, including the Midwest, South and South.

The climate change is causing more “secondary peril,” weather events smaller than hurricanes but that are less predictable. Another secondary danger is the possibility of small or mid-sized localized events, such as hailstorms, winter storms, and wildfires.

Some insurance professionals say these events pose risk management problems for insurers and eventually lead to higher premiums.

Barnaby Rugge Price, chairman of Howden Broking Group said that there have been more than $100 billion in catastrophes over the past year.

He said, “Clearly, underlying that…something else is happening, of which climate change is the most obvious.”

Guy Carpenter, the reinsurance broker said there are an average of 1,500 tornadoes each year in the United States. However, only 25 happen in December. The company stated that this month’s tornado cluster was extremely rare, in terms of its intensity, length, and season.

Studies suggest warming Gulf of Mexico surface temperatures are linked to intense thunderstorm updrafts that can generate tornadoes in the U.S. Southeast’s Dixie Alley, said catastrophe modeling firm Karen Clark & Company (KCC).

Warmer air in late autumn and early winter create favorable conditions for producing tornadoes, which could elongate the severe weather season over North America, said the reinsurer Guy Carpenter & Co LLC.

Secondary perils, unlike primary perils such as hurricanes which are most likely to cause major losses, are more unpredictable.

Rugge Price stated they can be difficult to model as there is not enough data. Therefore, it’s more difficult for the sector to evaluate the risks.

His words were: “Hurricanes are recorded and we know where they go and what the damage is, but tornadoes…pop up.”

Experts disagree on whether there is a direct link between climate change, increasing severity and tornadoes. KCC stated that tornadoes are formed in certain atmospheric conditions, and it may be difficult to link specific trends in severe weather with climate change.

However, there has been an increase in secondary perils this year.

The global insurance industry suffered losses of $105 billion this year before the storms. This is the fourth highest loss, and without any major weather disaster.

Although Hurricane Ida was most costly natural disaster of 2021, over half of the losses resulted from secondary peril events like winter storm Uri which brought freezing temperatures to Texas.

At least one severe annual secondary peril event is the new “norm,” each resulting in more than $10 billion in losses, Swiss Re said.

The company stated that natural catastrophes are expected to grow due to increased wealth and urbanization, as well as the impacts of climate change.

PROPERTY PREMIUMS

Sources in insurance said that more severe events over the past four year have led to an increase in U.S. home and auto insurance costs. Swiss Re stated that rates rose above average for clients who were exposed to secondary perils in the third quarter.

Brokers said that the insurance premiums would continue increasing and that property owners looking to insure their homes will have higher retentions. These are initial expenses they need to pay before insurance can kick in.

Dave Reasons from Marsh, the U.S. Central Zone Property leader said that “we don’t expect any reduction in tornado coverage.” To keep premiums down, however, Reasons said some clients are willing to take retentions that were tenfold greater than they used to be in the past.

We may have discussions regarding the appropriate retentions and the pricing.