Aon launches five-step framework to manage SCS exposure

Global insurance and reinsurance broker Aon has launched its Severe Convective Storm (SCS) Five-Step Framework, a structured approach designed to help insurers mitigate weather volatility across their portfolios.

Since 2015, annual US SCS insured losses have averaged $33 billion, according to Aon’s data, marking a 90% increase compared to the previous decade. In 2024, the peril caused $54 billion in losses. Aon noted that over 80% of this increase is due to growth in exposure, rather than changes in weather patterns, highlighting the critical need for strong insurance fundamentals to manage this volatility.

Gallagher Re emphasised that the SCS peril has transitioned to a ‘new normal’ in which annual insured losses are now regularly exceeding $40 billion.

“In 2024, the US endured a record-tying 10 multi-billion-dollar insured loss SCS events (tied with 2023),” Gallagher Re said in a report.

U.S. SCS activity was particularly high in the first half of 2024. According to Swiss Re, SCS, primarily in the U.S., led to insured losses of $42 billion globally in H1’24, about 87% higher than the 10-year average.

Due to the high frequency and low severity of SCS events, managing this peril has historically required separate processes, which can lead to potential exposure gaps for re/insurers. Aon’s new framework addresses this by enabling clients to manage SCS exposures more holistically, covering portfolio management, underwriting, mode;ling, and capital.

Adam Dawson, Director of U.S. Reinsurance Catastrophe Analytics, said, “Catastrophe model vendors have historically struggled to capture SCS loss experience due to very localized footprints coupled with expanding urban footprints in high hazard areas and challenging social inflation dynamics. Carriers should leverage claims experience to benchmark model outputs and highlight opportunities for portfolio adjustments.”

As part of the framework, Aon will help clients with aggregate-level claims analysis and loss benchmarking, location-specific claims analysis to identify trends, and use Impact Forecasting’s historical event footprints for a stronger historical perspective.

Aon leverages this data to help insurers develop tailored adjustments, offering a comprehensive SCS toolkit with model-agnostic tools for hazard scoring and managing risk accumulations.

Patrick Abbe, U.S. Regional and Mutual Strategic Growth Leader, said, “Over the past decade, SCS has moved from being considered a secondary peril to becoming one of the costliest perils in many U.S. (re)insurers’ portfolios. Recognizing the volatility this situation continues to present across the industry, Aon has developed this holistic framework to enable clients to build resilience, make better business decisions and manage increasing SCS exposures.”

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