The rising cost of homeowners insurance is now one of the most prominent symptoms of climate change in the United States. Major carriers like State Farm and Allstate have withdrew to offer fire insurance in Californiathousands of homeowners off the books, and dozens of small insurance companies collapsed or fled Florida and Louisiana after recent major hurricanes.
The problem is quickly becoming a crisis that extends far beyond the nation’s coastal states. That’s thanks to another, less-discussed type of disaster that has wreaked havoc on states in the Midwest and the Great Plains, causing billions of dollars in damage. In response, insurers have raised premiums higher than ever and dropped customers even in inland states like Iowa.
These so-called “severe convective storms” are large and powerful thunderstorms that form and dissipate within hours or days, often spinning off hailstorms and tornadoes as they sweep across the flat expanse of the central United States. The insurance industry refers to these storms as “secondary perils” – the other term of art is “kitty cats,” a reference to them being smaller than major natural catastrophes or “wet cats.”
But the damage from these secondary hazards began to mount. Losses from severe convective storms increased by about 9 percent every year between 1989 and 2022, according to insurance firm Aon. Last year these storms caused more than $50 billion in insured losses combined— about as much as 2022’s massive Hurricane Ian. No single storm event caused more than a few billion dollars in damage, but combined they were more costly than most major disasters. The scale of loss has left the insurance industry reeling.
“As insurers, our job is to predict risk,” said Matt Junge, who oversees property coverage in the United States for global insurance giant Swiss Re. “What we missed is that it wasn’t a big event that had a big impact, it was a bunch of little surprise events that just added up. There’s this kind of this reset where we say, ‘Okay, we really need to get a handle on this.’
Part of the reason for this steady accumulation is that more people are moving into areas vulnerable to convective storms, increasing the damage profile of each new tornado or hailstorm. The cost of rebuilding a home has increased due to inflation and supply chain shortages, driving up prices. But climate change can also play a role: Convective storms tend to form in warm, humid and unstable weather conditions.
“We have such a lack of observations on hailstorms and tornadoes, so trend analysis is difficult,” said Kelly Mahoney, a research scientist at the National Oceanic and Atmospheric Administration who studies severe convective storms. “But you take storms that are fueled by heat and moisture, and you watch them develop in a world that’s hotter and wetter than ever before. It’s a tired analogy these days, but it’s still true here, of loaded dice or a stacked deck.”
Climate attribution is much more difficult for these short-lived storms than for hurricanes and heat waves, Mahoney said, but it stands to reason that climate change will have some influence on how and where they develop. Warming has already caused the geographic extent of “Tornado Alley.” extends further south and east than it once diddelivers more twisters to states like Alabama and Mississippi.
Whatever the cause, this loss trend makes business much more difficult for many insurance companies. The most vulnerable are the small regional insurers with large groups of customers in one state or metropolitan area. When a significant storm hits, these companies must pay claims on large portions of their risk pool, which can drain their reserves and push them toward insolvency.
“The local underwriters, you have a couple of storms, you have a bad year, and they’re in trouble because all their business is here and that risk isn’t spread out,” said Glen Mulready, Oklahoma’s insurance commissioner. The state has some of the highest insurance premiums in the nation, and Mulready said many insurers are now refusing to write new policies for homes with old roofs that are vulnerable to collapse during tornadoes and hailstorms.
Even large “reinsurers,” who sell insurance to insurance companies around the world, are feeling the sting of these storms. Global reinsurance companies like Swiss Re take in premium income from around the world, insuring earthquakes in Japan as well as hurricanes in Florida, so they are not vulnerable to collapse during local disasters, even large ones. But the increasing trend of “exhaustive” losses due to repeated convective storms does threaten to cut into their profit margins.
“We are less concerned about the tail end of these types of events,” says Swiss Re’s Junge, which uses the industry term for the costliest catastrophes. “The only concern for us is the impact on earnings.”
Ed Bolt, the mayor of Shawnee, Oklahoma, has seen this impact up close. A tornado raged in his town’s main boulevard last year and destroyed more than 2,000 buildings and knocked the roof off Bolt’s own house. His insurance company paid to replace the roof, but he sent him a letter a few months ago notifying him that his annual premium would increase by 50 percent, to about $3,600 a year.
“The costs used to pick up a little bit and increase a little bit, but last year we knew we were going to take a big hit because of the tornado,” Bolt told Grist. “I’m sure it will be a pretty consistent experience across the city.”
Most states require insurers to get permission from regulators before raising rates, which presents governments with a difficult dilemma. If they raise rates, they make it harder for homeowners to keep up with their insurance payments, and they also risk dampening property values. If they keep rates low, insurers may respond by stopping writing new policies or pulling out of the state. Mulready, the Oklahoma commissioner, says that one national insurer left its market earlier this year.
Still, the Midwest has yet to experience a large-scale exodus, and industry representatives say they are unlikely to pull out of the region the way they have from California. But it’s a safe bet that insurers will continue to raise premiums as high as states allow them to. Insurers can also increase excesses and set a higher minimum amount of damage before insurance kicks in. The result is a greater financial burden for homeowners in fast-growing metro areas like Denver, where insurers’ storm exposure has skyrocketed in recent years.
Perhaps the worst part of the problem is that most states have made little progress in preparing for these storm events. Florida imposed a strict building code after Hurricane Andrew in 1992, and most newer homes in the state can withstand high winds. The housing stock in the central United States is much less resistant to tornado winds and hail, and only a few cities have forced builders to fortify homes against those hazards.
Erin Collins, the chief policy counsel at the National Association of Mutual Insurance Companies, the nation’s largest consumer trade group, said carriers may have to keep raising rates until the nation’s housing stock becomes more resilient to severe storms.
“It’s going to take community-scale hardening to bend that loss curve,” she told Grist.
It won’t be easy. Insurers must convince large homebuilders to build with more expensive, storm-resistant materials, and they must also push millions of people in existing homes to upgrade their roofs and windows, which can cost tens of thousands of dollars. Because severe convective storms can hit such a wide geography, it will take a long time for this mitigation work to “bend the loss curve.”
The good news is that we know how to build storm-proof homes, and there’s evidence that building better makes a big difference, said Ian Giacomelli, a senior meteorologist at the Insurance Institute for Business and Home Safety, a nonprofit that advocates for stronger buildings. standards.
Giacomelli points to the city of Moore, Oklahoma, which rolled out some of the strictest storm resilience standards in the country after experiencing three devastating tornadoes in two decades. Now, almost the entire city’s housing stock has roofs that can deflect large hailstorms and strong joints that prevent roofs from flying off during tornado events. Giacomelli says the nation’s current insurance crisis will likely ease if more cities follow Moore’s example.
“I think the solutions are coming into focus,” he told Grist. “It’s more about whether we get the will to do it.”
