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Severe Thunderstorm (Tornado, Hail, Straight-line Wind)

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, annual aggregate losses from severe thunderstorms have, on average, accounted for more than half of all insured catastrophe losses since 1990. Billion dollar occurrence losses are no longer uncommon. In both 2008 and 2009, three severe thunderstorm events carried billion dollar price tags and 2011—a record-breaking severe thunderstorm season—cost the insurance industry $25 billion. Indeed, the accumulation of multiple severe thunderstorm events has had a significant impact on insurers’ bottom lines.

Yet despite their frequency and the magnitude of potential losses, many insurers treat severe thunderstorms simply as a cost of doing business. Indeed many insurers heavily exposed to severe thunderstorms, and actively modeling hurricanes and earthquakes, make little or no investment in modeling this peril, which arguably contributes significantly to volatility in financial results.

The AIR severe thunderstorm models provide the tools companies need to manage severe thunderstorm risk easily and proactively. And modeling severe thunderstorms in conjunction with other perils (i.e., hurricanes, earthquakes and winter storms) improves understanding of the annual and multi-year aggregate financial impact of all hazards. It also drives better design of risk-sharing and hedging strategies to protect against volatility in earnings and the capital base, ultimately supporting the market valuation 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.