At any given moment, approximately 2,000 thunderstorms are occurring worldwide. Fortunately, only a small proportion of these are classified as severe, which according to the U.S. National Weather Service (NWS) are thunderstorms that produce at least one tornado, winds of at least 50 knots (58 mph), and/or hail at least 0.75 inches in diameter.
The Case for Proactive Risk Management
In the United States, annualaggregate losses from severe thunderstorms have, on average, accounted for morethan half of all insured catastrophe losses since 1990. Billion dollaroccurrence losses are no longer uncommon. In both 2008 and 2009, three severethunderstorm events carried billion dollar price tags and 2011—arecord-breaking severe thunderstorm season—cost the insurance industry $25billion. Indeed, the accumulation of multiple severe thunderstorm events hashad a significant impact on insurers’ bottom lines.
Yet despite their frequency andthe magnitude of potential losses, many insurers treat severe thunderstormssimply as a cost of doing business. Indeed many insurers heavily exposedto severe thunderstorms, and actively modeling hurricanes and earthquakes, makelittle or no investment in modeling this peril, which arguably contributessignificantly to volatility in financial results.
The AIR severe thunderstormmodels provide the tools companies need to manage severe thunderstorm risk easilyand proactively. And modeling severe thunderstorms in conjunction with otherperils (i.e., hurricanes, earthquakes and winter storms) improves understandingof the annual and multi-year aggregate financial impact of all hazards. It alsodrives better design of risk-sharing and hedging strategies to protect againstvolatility in earnings and the capital base, ultimately supporting the marketvaluation of the insurer.
One Event, Three Perils
The AIR severe thunderstorm models capture the effects of all three perils—tornadoes, hail and straight-line winds—that are produced by severe thunderstorms. Straight-line windstorms are an often neglected peril, though they have the highest occurrence rate of the three. The damage they cause— as much as 40% of total losses—is sometimes mistakenly attributed to tornadoes. However, unlike tornadoes, straight-line windstorms have no central vortex, so there is no circular motion to the winds. The AIR models incorporate the latest techniques for determining realistic footprints for each of the three modeled sub-perils and the potential damage they cause.
Peril-Specific Damage Functions
Because tornadoes, hail, and straight-line windstorms inflict damage differently, AIR structural engineers develop damage functions individually for each peril. The hail damage function for automobiles, for example, uses impact energy as a measure of intensity, and reflects the fact that hailstorm occurrence varies by time of day, often peaking in the late afternoon or early evening when the number of vehicles exposed is relatively high.
AIR currently offers severe thunderstorm models for:
• United States
• Canada
Listed below are additional materials of interest to companies exposed to severe thunderstorm risk:
