Severe Convective Storms in 2024 Pose Existential Threat to Insurers and Policyholders

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Aug 13, 2024, 13:38 ET

Losses from secondary perils surpassing those from hurricanes

WASHINGTON, Aug. 13, 2024 /PRNewswire/ -- Insured losses from severe convective storms in the first half of 2024 represent a majority of worldwide catastrophe losses. Notably, insurance payouts for Severe Convective Storms (SCS) have increased in the United States, which poses a particular threat to insurers and policyholders due to a lack of reinsurance protection for such losses, according to The Demex Group.

Aon's H1 2024 Global Catastrophe Recap shows U.S. SCS insured losses totaled $39 billion in the first half. Four SCS events in that period generated insured losses totaling nearly $15 billion.

"Losses from severe convective storms continue to be significant threats, not only to property owners but also to their insurance companies," said Bill Clark, CEO of Demex, a risk analytics and intelligence company offering reinsurance solutions for Severe Convective Storms. "In 2023, dozens of insurers in the U.S. saw their ratings downgraded, and four companies became insolvent due to financial losses stemming from SCS."

Traditional reinsurance, a form of capital known as insurance that insurance companies buy, is available for catastrophe losses such as hurricanes and earthquakes but rarely for SCS. SCS, hail, extreme heat and cold, and flooding are secondary perils, which have been increasing in frequency and severity, Clark noted.

"An accumulation of losses from secondary perils is an existential threat to insurers – and can reduce consumers' access to insurance – because aggregate reinsurance policies for these events are generally not available," Demex's CEO explained.

Demex has developed a sophisticated parametric reinsurance solution - called Retained Climate Risk Reinsurance (RCR Re) - for secondary perils that enables insurers to protect their balance sheets. In partnership with reinsurance brokers and reinsurance companies, Demex arranges coverage for losses above a specified threshold.

"Demex assesses the likelihood of losses from secondary perils by analyzing the ingredients that create Severe Convective Storms," Clark said. "We do this by using historical claims and verified weather data to estimate the losses an insurer may experience. Munich Re's analysis shows that in the US, severe thunderstorms have already caused more than $34 billion of insured damages in the first six months of the year, and we expect losses from SCS and other secondary perils to continue at a strong pace."

About Demex

The Demex Group is a technology-enabled risk analytics and intelligence company that serves the global insurance industry. Demex focuses on facilitating financial protection for secondary perils, which include severe convective storms, hail, extreme heat or cold, and flooding. These events collectively have surpassed catastrophes such as hurricanes and earthquakes as the leading cause of loss for insurance companies.

Demex is a market-maker for a class of risk that is surpassing catastrophe losses – a cluster of losses from secondary perils that threatens not only insurers' annual earnings but also the sustainability of their businesses.

For more information, please visit Demex.

Media Contact: Nick Hill
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SOURCE The Demex Group