Thunderstorms caused record $60B in insured losses in 2023

(Bloomberg) --The US only saw one hurricane landfall this year, but it wasn't spared a battering from extreme weather.

A dramatic rise in severe thunderstorms globally, but particularly along Tornado Alley in the US, cost insurers a record $60 billion and drove total global insured losses over $100 billion for the fourth year running, according to an analysis by the Swiss Re Institute, the research arm of reinsurance giant Swiss Re AG.

Damage from severe thunderstorms — characterized by sudden downpours, fierce winds and hailstones — has been inching up by about 7% annually for 30 years, according to the analysis. Still, the storms that plagued the US this year were particularly ferocious. There were 18 events that caused over $1 billion in damage, adding up to record pain. 

Read More: Powerful Winds Are Battering US Midwest at Increasing Rates

Worldwide, thunderstorm losses were almost 90% higher than the previous five-year average of $32 billion, and more than double the previous 10-year average of $27 billion.

The US, whose geography makes it particularly susceptible to thunderstorms, accounted for the vast majority of those losses. "For the first time ever, we saw $50 billion in insured losses for the US from severe convective storms' activity, and that's a record," said Jerome Haegeli, group chief economist at Swiss Re.

"Just think about what would have happened if you had a major hurricane on top of that," he added.

Swiss Re attributes the sharp rise in damages to inflation, which increases replacement costs, and to the fact that the storms hit highly urbanized areas.

Science is beginning to connect the dots between more thunderstorms and rising temperatures due to climate change. (This year has been the hottest on record.) "Thunderstorms thrive in a warm, moist environment," said Bernadette Woods Placky, chief meteorologist at Climate Central, a nonprofit that acts as a climate research clearinghouse.

One element that helps determine thunderstorm strength, Placky said, is convective available potential energy in the atmosphere, or CAPE. When CAPE values are high, storms tend to be stronger. Research by Climate Central has shown an increase of 10 to 15 high-CAPE-value days annually between 1979 and 2021 across much of the eastern US.

Natural catastrophes linked to a warming climate, led by hurricanes and wildfires, have been pushing insurers on an upward loss trajectory for over a decade. A year that saw over $100 billion in payouts would have been a record-breaker a decade back, but no longer.

In 2023 catastrophes drove $269 billion in losses, some $108 billion, or 40%, of which were insured. Last year, which included the megastorm Hurricane Ian, saw higher losses at $295 billion overall and $141 billion in insured losses.

The stark difference between the insured and total loss figures points to a potentially dangerous gap in coverage for society, Swiss Re noted. Part of the reason, however, is rising premiums. Those have been going up because of inflation (which makes replacement materials and labor more expensive) and, in part, because reinsurers like Swiss Re have been accelerating their rate increases with better risk modeling.

Haegeli said the industry had been burned in past years because it had focused too much of its risk forecast modeling on primary perils, like earthquakes and hurricanes. "The industry has been very conscious about getting better data on secondary perils [like thunderstorms]," he said.

The reinsurance industry fared relatively well in 2023, according to a recent report from Bloomberg Intelligence. It had been underperforming the rest of insurance in recent years. "That changed dramatically in 2023," the report noted, as premiums rose "to a 4.9x multiple from 2.8x in the previous four years."

In addition to thunderstorms, wildfires in Hawaii and floods in New Zealand were responsible for major losses. The fires in Hawaii caused an estimated $3.5 billion in insured losses, likely the most of any event in the state's history. The most damaging catastrophe in 2023 was the earthquake in Turkey and Syria last February at $6 billion in insured losses.

To contact the author of this story:
Leslie Kaufman in New York at lkaufman27@bloomberg.net