Aon launches new US severe convective storm catastrophe model

Global insurance and reinsurance broker Aon has launched a new catastrophe model to analyse the impact of increasingly costly Severe Convective Storms (SCS) in the US, which the firm says reflects re/insurers “true exposures” to the peril.

SCS have accounted for over 60% of global natural catastrophe losses in H124, and last year, US SCS insured losses in alone were more than $58 billion, while the global impact reached an unprecedented level of $70 billion of insured loss.

Developed by Aon’s Impact Forecasting team, the new model captures the full spectrum of event severities, spanning higher frequency $1-5 billion industry loss events, smaller events that do not appear in the historical record, and realistic tail losses from derechos and other significant SCS hazards.

It also comprises a complete 20-year historical event set that blends updated observational data sets with the latest natural hazard science to comprehensively view SCS risk, aligning it with recent historical loss experience.

Some other notable features include an average annual loss and low return period aggregate loss estimates that accurately represent trended client experience, as well as full capture of all SCS sub-perils and appropriate geographic distribution in modelling to allow for a more accurate view of tail risk.

There is also a ‘ground-up’ component-based vulnerability framework that explicitly accounts for the cost, resistance and potential damage to different parts of the structure. It is an open, transparent, and customizable loss modeling platform with vulnerability curves that can be refined to reflect clients’ claims experience and loss histories for a custom view of risk.

Aon research has identified that more than 80% of SCS loss increases are explained by exposure growth. The data from 1990 to 2022 reveal US SCS exposures increased at a combined rate of 8.6% per year, while SCS insured losses increased at an annual rate of 8.9%.

Adam Podlaha, Chief Executive Officer of Impact Forecasting, said: “The industry has faced many challenges when attempting to model severe convective storms, especially in terms of producing accurate average annual loss estimates. By using our SCS model, re/insurers will be presented with a more in-depth view of the risks associated with hail, thunderstorm-produced winds and tornadoes, which in turn will help to shape better strategic decisions around portfolio management for this very costly peril.”

Eric Robinson, Global SCS Model Development Lead for Impact Forecasting, added: “Another historic year for SCS-related losses again highlights the need for an improved understanding of SCS loss drivers. Improved portfolio management is crucial to helping insurers mitigate growing SCS-related losses, and this can be achieved through modeling solutions that are driven by the latest and ongoing research in atmospheric sciences that helps insurers to obtain additional, valuable insight into evolving SCS risk.”

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