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Severe storms: the cost drivers making them so expensive
Population growth in areas prone to severe storms has increased asset exposure and the physical assets in harm's way are not designed to withstand high winds or hail. Meanwhile, building premiums to rebuild after severe storms are increasing.
PART 1: This is Part I in a two-part briefing on severe storms. Here we deconstruct the drivers making severe storms so costly. In Part II, we outline the levers that present opportunities to reduce the impacts and costs of severe storms.
Severe storms are the most frequent billion dollar disaster type in the U.S. Since 1980, one in every two disasters that exceeded $1 billion in damage has been a severe convective storm, defined as a storm with high wind gusts exceeding 58 miles per hour, a tornado, or hail. In 2024 alone, of the 24 disasters that caused more than $1 billion in damage, 17 of them (70%) were severe storms, making 2024 one of the costliest years ever in terms of severe storm damage.
But, severe storms weren’t always so common. According to NOAA, the frequency of billion-dollar severe storms began climbing around 2006. Since then, it’s shot up.
What’s going on? Are bigger storms hitting in ways they didn’t used to? Or are the same storms just more expensive now? In this briefing, we’ll outline the drivers contributing to a rise in expensive severe storms and the possible levers to reduce their cost in the future.
The growing costs of severe storms
Severe storms are classified by the insurance industry as secondary perils, natural disasters that are more frequent but less destructive and costly. In contrast, primary perils like hurricanes and earthquakes are less frequent and more destructive. As an example of a primary peril, Hurricane Helene’s total costs could exceed $250 billion. It’s rare for a severe storm to cause damage that costs so much, but recent trends around their frequency and costs are staggering:
In a 2022 report, Swiss Re estimated that average severe convective storm losses will "likely exceed $25 billion annually in the coming years, reaching $30 billion before the end of the decade, equivalent to around 7% of projected U.S. property sector premiums.”
In the first half of 2024, of the $60 billion total insured losses from all natural catastrophes globally, severe storms comprised $42 billion (or 70% of that total), and most of those severe storms were in the U.S. That $42 billion spent on severe weather damages in the first half of 2024 is 87% higher than the 10-year average.
What is a severe storm?
The term “severe storm” is a bit of a catch-all spanning storms that 1) have high-speed winds and/or tornadoes, or 2) have hail. Often flooding accompanies such storms, but NOAA considers flooding a separate disaster type. In this briefing, we explore two types of damage from severe storms:
Damage from tornadoes, derechos, and other high-wind storms
Damage from hail storms
Of note: severe storms typically occur in warmer climates and during warmer seasons. They’re different from winter storms—also increasingly billion-dollar disasters—which occur in colder climates, during colder seasons, and include costs associated with snowfall, freezing rain, strong winds, icy roads, and freezes.
Damage from tornadoes, derechos, and other high-wind storms
The number of tornadoes in the U.S. has grown only slightly over the last three decades, so variability in damage from year to year has more to do with where a tornado happens to touch down. Since 1980, the annual number of hurricanes remained steady at an average of around 1,200 tornadoes per year. In 2022, over half of all the tornadoes recorded caused no property damage, and 95% of them caused no injuries or fatalities. The 1,341 tornadoes in 2022 cost a combined total of $700 million, and nearly all of that cost came from just one tornado in Nebraska in June of 2022. The costs from tornadoes vary wildly from year to year, based on where they touch down and what’s in their way. According to an analysis of NOAA data, tornadoes caused $43.6 billion in damage in 2023 alone—a major jump from 2022 and the highest in the last decade.
Tornadoes are not the only high-wind event that can cause damage. Derechos, or widespread wind storms (compared to more centrifugal tornadoes), have also been major sources of damage.
Damage from hail storms
Damage from hail is clobbering the insurance industry. Hail is a major driver of the costs incurred from severe storms. In 2022, the insurance company State Farm alone paid out over $3.5 billion in hail claims, an increase of more than $1 billion from 2021.
While the average frequency of hail storms isn’t increasing, the costs from hail-related damages are. Since 2022, the number of insurance claims resulting from hail events have increased by more than 40%.
This map from the National Weather Service Storm Prediction Center outlines the geographic location of hail storms for 2023, a year that saw over 10,000 storms, compared to 5,000 in 2022 and 5,000 in 2024.
Damage from flooding and lightning strikes
In addition to high winds, tornadoes, and hail, severe convective storms often produce heavy rainfall, flooding, and lightning strikes. In the U.S. each year, insurance companies pay approximately $1 billion in lightning-related claims.
Damage caused by the heavy rain and flash-flooding from severe storms leads to costly damages, but NOAA considers flooding to be a separate (though related) disaster type. For the purposes of this briefing, we won’t focus on damages caused by flash-flooding from heavy rain (stay tuned for a future briefing on non-hurricane related flooding).
The cost drivers of severe storms
Three main drivers are contributing to the rapidly growing costs associated with severe storms:
Population growth in areas prone to severe storms has increased asset exposure.
The physical assets in harm's way are not designed to withstand high winds or hail.
Building premiums to rebuild after severe storms are increasing.
Driver #1: Population growth in areas prone to severe storms has increased asset exposure.
Population growth in areas prone to severe storms has positioned more assets in harm’s way. Today, more people in the U.S. live in areas prone to severe storms as population growth transforms former farmland into suburbs.
For example, between 2022 and 2023, Texas—a state prone to severe storms—was the fastest-growing state in the nation and has grown by 40% in the last 20 years. In the first half of 2023, Texas accounted for the majority of nationwide hail-related losses, from roof damage on residential homes to hail-damaged cars on dealership parking lots. Meanwhile, the South—a region also prone to hail and storms—accounted for 87% of the U.S.’s 2023 growth.
The reinsurance broker Gallagher Re found that between 2010 and 2020, Dallas-Fort Worth, Austin, and Denver—population centers in areas prone to severe storms—grew their housing stock by 12%. The concentration of new housing stock in metropolitan and suburban areas increased the impact and damages resulting from severe storms. “What may have been a remote severe convective storm event located just outside a suburb 10 or 20 years ago, now would have a greater likelihood of impacting a larger swath of exposures leading to significant insured loss,” the report said.
Driver #2: The physical assets in harm's way are not designed to withstand high winds or hail.
Many physical assets are vulnerable to damage from severe storms. Roofs are old and not built with impact-resistant materials. Garage doors aren’t wind-rated. HVAC units are missing protective screens. Windows aren’t storm-proof.
Around 80% of hail claims come from homeowners, and the vast majority of homeowner related claims are for repairing and replacing roofs. Roofs in hail-prone areas last, on average, half as long as roofs in areas that don’t experience hail (10 years vs. 20 years) because they need to be replaced more frequently. This also doubles the cost to insurance companies over the same period of time. With the average roof costing approximately $10,000, insurance companies are paying an average of 2x that cost over 20 years.
But there is a new physical asset that is costly and exposed: solar panels. A brief hailstorm in 2019 destroyed more than half of Texas’s Midway Solar power plant’s 685,000 photovoltaic panels, causing $70 million in damages.
Driver #3: Building premiums to rebuild after severe storms are increasing.
The cost to rebuild is also making storms more expensive. According to Swiss Re, building costs are rising faster than the overall rate of inflation, which leads to higher reconstruction costs and higher claims. Meanwhile, the average claim amount is increasing as the value of assets increases. Many roofs have solar panels on them, and such panels are insured, but still vulnerable to severe storms. When hit by hail or high winds, the claims are now higher. Today, 7% of all homes in America have solar panels, but that number is projected to double by 2030.
Conclusion
Similar to the findings in our hurricanes analysis and briefing, there is no panacea that can dramatically reduce the costs of severe storms. More people and more assets in more places that are likely to experience severe storms means more costs. But there are steps that the private sector can take to fortify the assets across America’s heartland where such storms are most common. We are far from sitting ducks; resilient approaches and materials can be the difference between total destruction and light damage. In that delta, millions of dollars can be saved.
In just a few hours, a severe storm can cause billions worth of damage. Three levers offer opportunities to enhance resiliency and reduce the costs of severe storms: 1) Invest in more resilient roofing; 2) Adopt more resilient construction practices; 3) Invest in new innovations and technologies.
Investors can reduce the costs and dangers of extreme heat by: Fortifying the electrical grid and built environment; Advancing alternative cooling innovations; Developing public-private partnerships in cooling infrastructure; Investing in blended finance tools; Scaling insurance innovations.
Of all the natural disasters that hit the U.S. each year, extreme heat waves are by far the deadliest. Extreme heat also slows workers down and reduces agricultural productivity.
Three key levers present opportunity for private capital to improve the resiliency of infrastructure and assets during hurricanes: reduce exposure by pricing in disaster risk, fortify assets with hurricane-resilient materials, create partnerships between public and private actors.