Tornadoes are a devastating force of nature that can leave a trail of destruction in their wake. As these weather events become more frequent and severe, the insurance industry has been forced to adapt to the changing landscape.
WaterStreet Company’s P&C Insurance Solutions allow carriers to access all the data they need to form predictions on where these costs are headed.
Tornado Costs
The cost of tornado damage can vary greatly depending on the severity of the storm and the location of the affected areas. According to the National Weather Service, the number of tornadoes per year in the United States has steadily increased over the past few decades. Activity has shifted away from the traditional “Tornado Alley” of the Midwest and towards Southeast’s “Dixie Alley.”
Between 2010 and 2020, tornadoes have cost an average of $2.5 million per storm. The most expensive tornado of all time occurred on May 22, 2011 in Joplin, Missouri, costing $2.8 billion dollars in insurance claims and a total cost of damages around $3.18 billion.
So far in 2023, close to 550 reports of tornadoes have occurred, according to Disaster Philanthropy. March was the fifth most active on record.
According to the National Centers for Environmental Information, two billion-dollar tornado outbreaks occurred in 2023. The first on March 30th, 2022, in Southern United States near Central Alabama and produced up to 12 tornadoes. The second between April 4th – 6th in the Southeast United States near Alabama, Georgia and South Carolina produced a total of 89 tornadoes through a mesoscale convective system with a swathe of very severe storms.
Tornadoes & Insurance
The impact of tornadoes on insurance companies can be significant. When a large-scale disaster strikes, insurance companies may be forced to pay out hundreds or even thousands of claims at once, putting a strain on financial reserves. In some cases, insurance companies may be unable to cover the full cost of claims, leading to financial losses.
Tornadoes are one of the most devastating natural disasters that can strike the United States. The costs associated with tornadoes can be staggering, with damages often totaling in the billions of dollars. As the location of severe tornadoes and weather events shift, insurance companies must be prepared for these hazards in new locations.
Tornado Locations
In addition to Tornado Alley and the Southeastern United States, other areas have experienced rare but severe tornadoes.
The EF-5 tornado in Joplin, Missouri, caused over $2 billion in claims costs. This tornado was one of the deadliest in U.S. history and caused significant impacts on the insurance industry in the region while outside of the most active regions.
Tornado Coverages
Homeowner’s insurance policies typically cover damage caused by tornadoes, but insurers may set limits and exclusions. For example, some policies may not cover damage caused by flooding that often accompanies severe storms.
Severe, rare disasters may lead to increased insurance premiums for policyholders in the affected areas. Much like flood insurance for coastal homes, the policy coverage costs may become too much to bear on policyholders in high-risk locations.
Following these disasters, insurers may be hesitant to offer coverage in areas that are at high risk for tornadoes or have experienced severe tornado damage in the past, leading to niche policy offerings for these locations.
Preparing for Tornado Season
As tornadoes become more frequent and severe, it is more important than ever for insurance companies to be prepared.
1. Invest in technology that can help accurately assess risk and predict the likelihood of tornado damage. This can include advanced weather tracking systems, satellite imagery and predictive modeling software.
2. Educate homeowners and businesses about the risks of tornado damage and how to prepare for a storm. This can include providing resources such as emergency kits, evacuation plans, and guidelines for securing homes and businesses.
3. Improve customer satisfaction and loyalty by working with third-party providers to offer additional services to customers affected by tornado damage. This can include access to temporary housing, debris removal services, and financial assistance to cover the cost of repairs.
WaterStreet & Tornadoes
WaterStreet Company supports insurers with next-generation P&C Policy Administration Software. Access all policy, claims, and billing data with 60+ standard reports and data integrations throughout for informing the policy lifecycle. Customers gain access to their own white-label Insured Portal for easy communication and document sharing.
We aim to provide insurers a cloud-based solution with an advanced API for your solution to grow with the company. We understand the importance for carriers and MGAs to adapt to market changes. Ask us about our additional services for accounting, policy, distribution and customer service support.
Reach out to WaterStreet Company today to request a consultation and demo.
