Deadly tornadoes create huge insured loss risk

BOSTON Sat Mar 3, 2012 12:32pm EST

BOSTON (Reuters) - Less than a year after a series of tornadoes caused some of the worse insured losses in U.S. history, the insurance industry is likely facing substantial costs again after storms killed at least 33 people on Friday.

Friday's system has already been compared to the "Super Outbreak" of April 1974, one of the largest and most violent ever recorded in the United States, as well as to a devastating outbreak last April. In total more than 46 people have died this week from violent storms.

Actual loss projections were not yet available early Saturday, and it could be days before anyone hazards a guess. But catastrophe modeling company Eqecat said late Friday that this year's storm season is already running nearly 30 percent higher than the average of recent years.

"After a relatively benign February, the 2012 Severe Convective Storm season in the United States has brought damage and possible significant losses" already, Eqecat said in a report.

Until last year, tornados were not usually considered one of the larger risks for the insurance industry from a loss perspective. It was rare, in fact, for a series of tornados to cause $1 billion in losses.

But 2011 broke the mold, with outbreaks in April and May that shattered records. The Insurance Information Institute has said that, if it were taken as a whole, the spring 2011 tornado season would rank as the fourth-costliest disaster for insured losses in U.S. history.

Allstate, the largest publicly traded home and auto insurer in the United States, lost about $2 billion in April and May of last year, roughly what it lost in all of 2010 from natural disasters. Travelers also lost more than $1 billion on the storms.

In total, tornados caused $26 billion in economic losses in the country last year, more than $10 billion greater than the previous record. (Economic losses are always greater than insured losses because they include all costs regardless of whether there was insurance cover).

All of that damage is one reason insurers have reported property insurance rates are rising steadily for the first time in years, as losses soaked up excess capacity.

Some insurers have also started to reconsider what risks they are willing to write and where. Nationwide Mutual, one of the country's largest property insurers, made a major acquisition last September in part to diversify and reduce concentration in storm-racked regions.

The industry was already on edge, as meteorologists at AccuWeather warned in February that tornado activity could be above normal this year as well.

(Reporting by Ben Berkowitz; Editing by Anthony Boadle)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see
Comments (1)
RogerTom wrote:
Stop building crappy stick-built, vinyl houses. The insurance companies, and home buyers/builders, really need to educate themselves on Monolithic Domes as housing. You won’t have nearly the aftermath mess or loss of life.

Mar 04, 2012 7:23am EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.