Two tornadoes touched down in Bentonville, Arkansas, early on Sunday, May 26, 2024. The larger tornado quickly widened as it ripped through three counties in the state’s northwest corner. At one point, the tornado was more than 1.5 miles wide.¹

The storm damaged more than 200 homes and affected nearly 500 properties. The city of Rogers estimated it suffered more than $33 million in damage to city property. Surrounding counties estimated another $6.4 million in damage.¹

These Arkansas tornadoes aren’t isolated events. Damage and insurance claims related to severe wind and related weather are rising. While several factors may be driving the increase, the result for property owners is the same - higher insurance premiums and, in some cases, significantly higher deductibles.

HAIL AND TORNADO DAMAGE ON THE RISE

The spring of 2024 was one of the heaviest tornado seasons, with nearly 850 confirmed tornadoes throughout the U.S. through May. The number of tornadoes in the first five months was enough to make 2024 the sixth highest year for tornado activity in the past 30 years.² Through September 8, 2024, more than 1,600 tornadoes, 15,000 severe wind storms, and 5,100 hail storms struck across the country.³

Even storms that don’t reach the intensity of a tornado can be destructive. Hail damage can be costly for property owners and insurers. In 2023, one property and casualty insurer paid 27,300 claims for hail damage, an increase from 23,200 claims in 2022. The carrier paid more than $6.1 billion in hail-related damages in 2023 alone, more than the previous two years combined.⁴

The National Oceanic and Atmospheric Administration’s (NOAA) Storm Prediction Center reported that storms with hailstones reaching one inch or larger in size increased 17% from 2021 to 2022, and preliminary data showed an 18% increase from 2022 to 2023.⁴

U.S. severe convective storm insured losses totaled just under $40 billion in the first half of 2024 with four convective storm events generating insured losses totaling nearly $15 billion in that period alone.⁹ This comes on the heels of a reported $60 billion in losses for convective storms in 2023, which was nearly double the losses from 2022.⁴ However, this issue isn’t new. Between 2001 and 2021, insurers covered almost $450 billion in losses related to convective storms.⁶

WHY ARE CONVECTIVE STORM LOSSES INCREASING?

Multiple factors play a role in the increase in losses related to convective storms, including climate change and inflation.

Climate change may contribute, although it is difficult to pinpoint to what extent. However, the frequency and severity of storms have changed. In the 1970s, there were approximately 150 days per year with one confirmed tornado. Today, that number has dropped to between 90 and 100 days annually.⁶ The decrease could be attributed to tornado monitoring and reporting improvements since the 1970s.

While the total number of days per year with tornado activity has dropped, the number of days with severe tornado activity has increased. In the 1970s, days with 30 or more confirmed tornadoes occurred only once every other year. Today, those severe tornado days occur 2.5 times per year.⁶

Inflation, especially in the real estate and construction industries, has also driven up the average cost of convective storm claims. The Case-Shiller Index, which measures the average price of U.S. homes, reached an all-time high in August 2024 - the fourth consecutive month that the index set a new record.

As property values increase, so do claim amounts. For example, the average residential hail claim increased from $16,000 in 2022 to $17,000 in 2023.⁴ Predictably, the rise in losses has led to an increase in premiums. Homeowners insurance premiums have steadily been on the rise for the past several years. Many homeowners saw double-digit rate hikes in 2024 alone. The average policy in Arkansas has jumped 32.5% between 2018 and 2023, and the average policy rate in Texas increased by 60% over that same period.⁸

NEW PRODUCT MAKES WIND DAMAGE COSTS MORE MANAGEABLE

As insurance costs for convective storms rise, many insurers ask policyholders to take on more of the expense. Deductibles for convective storm coverage have traditionally been relatively low, but that has begun to change. Some policies set deductibles at $10,000 or more, making a wind damage event a significant out-of-pocket expense for the average policyholder.

CRC’s Wind Deductible Buy Back program enables policyholders to minimize out-of-pocket expenses by buying down their deductible. The product covers the out-of-pocket gap between a new lower deductible amount and the higher deductible on the property owner’s policy for a modest monthly payment.

For example, assume a homeowner’s policy requires a $12,500 deductible, but they purchase a supplemental policy with a $2,500 deductible. If the home suffers hail damage, the supplemental policy would cover out-of-pocket expenses above $2,500 and up to $12,500 before triggering traditional coverage.

This supplemental coverage has been a popular addition to commercial coverage but has only recently become available in residential markets. Agents can use this supplemental tool to provide clients with more robust and budget-friendly protection against the rising convective storm risk.

BOTTOM LINE

The damage wrought by convective storms like tornadoes, extreme wind, and hail are becoming costlier to insure against. Some evidence suggests that storms are increasing in severity, but more data is needed to draw a definite conclusion. What is clearly apparent is that the increased value of homes, cars, and other structures is leading to increased damages when severe weather strikes.

As the risk of wind and hail damage becomes more expensive to insure, many carriers increase premiums and deductibles, significantly raising potential out-of-pocket costs for policyholders. Reach out to your CRC producer today to learn how we can help limit your clients’ exposure to convective storm risk.

CONTRIBUTOR

• Ben Tschepikow is a Broker with Argenia, a CRC Group Company located in Little Rock, AR, and is a member of the Personal Lines Practice Advisory Committee.

END NOTES

1. Rogers Police Department estimates tornadoes created $33M in damages to city property, 5 News Online, May 30, 2024. 
2. You’re not imagining it: There have been a lot of tornadoes this spring. Here’s why., USA Today, May 30, 2024. 
3. 2024 Annual Preliminary Report Summar, NOAA/National Weather Service, September 8, 2024. 
4. Insurers Report Rising Hail Damage Claims, The New York Times, March 22, 2024. 
5. States with the most hail damage in 2024 — so far, Insurify, August 6, 2024. 
6. Convective Storms: State of the Risk, Insurance Information Institute, April 2022.
7. S&P CORELOGIC CASE-SHILLER INDEX HITS NEW ALL-TIME HIGH FOR JUNE 2024, S&P Dow Jones, August 27, 2024. 
8. Home insurance costs - already soaring - are likely to keep climbing. Here’s why., CBS News, July 11, 2024. 
9. Severe Convective Storms in 2024 Pose Existential Threat to Insurers and Policyholders, PR Newswire, August 13, 2024.