VCA Software

Will Midwest Storms Drench Insurers?

While coastal states contend with hurricane and wildfire risks, severe storms are drenching the Midwest. Compared to a hurricane, a thunderstorm may not seem like a big deal. However, severe convective storms still pack a punch. As they are becoming more frequent, the insurance losses are adding up.

Move Over, Big CAT

Insurance professionals often focus on catastrophic (CAT) losses. However, these aren’t the only threat.

According to Live Insurance News, severe convective storms are sometimes called kitty cat storms. Even though the name is cute, the losses aren’t. Severe convective storms are considered secondary perils, but they’re capable of significant damage, especially when they involve hail or tornadoes.

These secondary perils are leading to major insurance losses. NOAA says there were 17 severe weather and hail events each with losses of at least $1 billion in 2023.

Not all of severe storm losses are insured, but many are. According to Swiss Re, severe convective storms led to a record-breaking $64 billion in insured losses in 2023. The U.S. has been hardest hit (with 85% of all insured severe convective storm losses occurring there), but losses have been increasing in Europe as well.

This May Be the New Normal

Severe storms that involve tornadoes are often especially damaging. Research published in the Journal of Applied Meteorology and Climatology has found that tornado activity has shifted. According to AccuWeather, which reported on the shift back in 2022, parts of the South and Midwest have started seeing tornados during the past 50 years. However, tornado activity is still variable from year to year. The Southern Plains, Southeast, and Midwest all have significant tornado risks.

Some Midwest areas are also experiencing an increase in flooding events. According to Crain’s Detroit Business, Cleveland, Detroit, and Chicago have had multiple “500-year” rains over the past decade – a sign that recurring and disruptive urban flooding has become the new normal in the Great Lakes region.

What This Means for Insurers

The increase in severe storm losses comes at a bad time for insurers, who are already dealing with increased wildfires and predictions of an above-average hurricane season.

  • Losses may hurt underwriting profits. Property and casualty insurers have already been dealing with underwriting losses due to natural disasters, the impact of inflation on claims severity, the effect of social inflation and nuclear verdicts on litigation costs, and other factors. An AM Best report shows that things are finally looking up. In the first quarter of 2024, the U.S. property and casualty sector posted a combined ratio of 94.2 – a noticeable improvement over the combined ratio of 102.5 posted in the first quarter of 2023. However, rising losses could undermine this progress.
  • Fraudulent claims may increase. Widespread natural disasters tend to bring out dishonest contractors looking to take advantage of property owners who need repairs and insurance companies overwhelmed with claims. Dishonest policyholders may also take advantage of the situation to submit fraudulent claims. In a ValuePenguin survey, one in three auto and home policyholders admitted to having submitted claims for pre-existing damage. As insurers deal with increasingly severe Midwest storms, fraud may become more common.
  • Policyholder experiences may suffer. When claims volume surges, file handlers may struggle to keep up. However, policyholders still expect clear communication and a quick resolution. If insurers can’t provide that, they risk losing customers. In fact, Accenture calculated that insurers may lose up to $170 billion between 2022 and 2027 due to poor claims experiences.

The Right Claims Platform Is Essential

If higher losses from Midwest storms are the new normal, insurers need to adapt. The right claims platform will help them do that. Does your claims platform:

  • Automate routine tasks to free up handler time and reduce claim cycle length?
  • Send automated updates to support open communication and positive policyholder experiences?
  • Support digital payments to speed up close times and promote policyholder satisfaction?
  • Scale and adapt to fit your precise needs?

If your claims platform doesn’t do all this, it may be time to switch to one that does. The VCA claims platform delivers everything you need to manage claims and improve policyholder experience – plus, it’s user friendly. Request a demo.