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May's Extreme Weather is Projected to Cost $2.5 Billion in Insurance Claims — Here's What Agents Should Know

by Precise Leads

June 11, 2018

A severe weather system dubbed the Ring of Fire left a trail of destruction from the Midwest to the East Coast, costing insurers billions.

For a large swath of the country, April’s showers didn’t bring May flowers. Instead, 12 states east of the Rockies withstood a severe convective storm (SCS) system that stirred up strong winds and hail. Catastrophe modeling firm Karen Clark & Co. (KCC) recently estimated that this extreme weather event, which lasted from May 11 to May 16, could result in $2.5 billion in insured losses when all is said and done.

The weather pattern affected residents in Colorado, Connecticut, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, New York, Ohio, Pennsylvania, and Virginia, with each state expected to suffer more than $100 million in insured losses. Although property destruction caused by the SCS was less severe than that which typically results from other natural disasters, insured losses were high because the damage was spread over a larger geographic area.

May’s Ring of Fire

Because May’s SCS caused damage from the Midwest across the Northeast and into the Mid-Atlantic, meteorologists have dubbed the storm system a Ring of Fire. The severe weather pattern whipped up winds nearing 60 miles per hour, with several reports of microbursts generating wind speeds over 100. According to the KCC report, the SCS caused 28 tornadoes and hail as large as baseballs. More than 600 electrical outages occurred in the Mid-Atlantic and Northeast because of downed trees and power lines.

An upper-level weather pattern off the West Coast blocked low-pressure systems from moving across the country, thus causing the SCS. This opened a pathway for warm, moist air from the Gulf of Mexico to travel up the Ohio River Valley while stronger winds formed from Texas to Kansas. The lack of strong upper-level winds meant most of the damage resulted from hail and straight-line winds, not severe tornadoes.

Storms of this nature were once rare, but their increasing frequency is challenging insurers and compelling them to formulate new risk models for insured losses, the KCC report emphasizes. In light of the potential $2.5 billion price tag from May’s SCS, insurers will most likely have to tap into their reinsurance accounts to help pay claims.

A Precursor to Hurricane Season

May’s extreme weather serves as a reminder that June 1 was the official beginning of the 2018 hurricane season, one which forecasters predict will produce up to four major storms. In light of the record $202.6 billion in insured losses caused by last year’s Atlantic hurricanes, insurance agents should prepare their clients who live in high-risk areas for what could be another year of destructive weather.

Indeed, as the country braces for another hurricane season, insurance agents should sit down with their clients to review their current insurance policies and ensure that they have the comprehensive coverage they need. If, as the KCC report predicts, less-severe but more frequent storms become the norm, your clients will need to prepare their properties and bolster their insurance coverage.

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