Hail activity has become a major driver of change in the property market over the past two years. This article provides further insight into how hail has impacted property underwriters recently and will continue to do so in the future.
While the peril of flood seems to be the most discussed and debated form of catastrophe, hailstorms have become a major topic of conversation across the insurance industry in recent years. It is commonly believed that hail is an event that occurs solely in the Great Plains, Midwest, or what has commonly been referred to as Tornado Alley or Hail Alley. However, significant storms are now occurring in states in the Northeast and West, according to Verisk Insurance Solutions.
Hail models are changing, along with overall weather patterns that have altered the timing and location of traditional hail and convective windstorms across the country. According to a 2014 Verisk report, claim severity was 65% higher on average from 2008-2013 than from 2000-20071. This is causing claims adjusters to further distinguish the differences between cosmetic and structural damage, which leads to decisions on whether damaged property should be repaired or replaced entirely. The situation becomes further complicated when a storm covers a wide area or hits a large number of properties.
According to the Verisk report, more than 10.7 million U.S. properties were affected by one or more damaging hail events in 2017. Below are estimated numbers within the top 10 states2:
source: Hail: The Hidden Risk
Hail activity is extremely difficult for insurance companies to underwrite since the frequency, severity and the location of hail storms vary significantly. They may occur in areas where hail is not typically a major exposure, including the Southeast, West and Northeast. The timing and recognition of hail losses by insureds (both commercial and personal) are a challenge as well. Verisk estimates that roughly 30% of hail claims report an incorrect date of loss. It is estimated that 50% of those claims were reported a year or more after the actual storm damage.
The frequency with which we are seeing property submissions that have open hail claims is increasing. A property account with open hail damage carries much more risk than either an exposure with no prior hail damage or even an account where hail damage has occurred but been repaired (e.g., a roof replacement post loss). That is why understanding past loss history in hail-prone states is important as an underwriter.
Lastly, construction, roof age, valuation per square foot and roof construction have a huge role in how a property performs during a hail storm. Where the roof is a major percentage of overall building value, a building will tend to experience more significant loss or overall damage from hail storms than smaller dwellings or two- and three-story apartment buildings. Single-story commercial buildings that have large roof surface areas can experience significant damage in a major hail event. Noncombustible warehouses and self-storage buildings also fall into this category.
Research shows that hail will become an even bigger storyline in the Property insurance marketplace in years to come. For underwriters, it is important to adequately evaluate hail trends and exposures and then communicate that information to brokers and insureds as hail affects terms, conditions and rates for Property business.
1 Property Hail Claims in the United States: 2000-2013, Verisk Insurance Solutions, Aug 2014.
2. Hail: The Hidden Risk ... An analysis of property exposure to damaging hail in 2017, Verisk Insurance Solutions, March 2018.