U.S. severe storms, hail & Derecho to drive multi-billion dollar losses: Aon

The United States has again been hit by a prolonged period of severe weather this week, with severe storms, convective weather, large hail storm events and a Derecho that struck the Iowa and Illinois region, all adding up to multi-billion dollar economic losses, with most of the wind and hail insured.

Insurance and reinsurance broker Aon’s Impact Forecasting unit details what could be an expensive week for insured catastrophe losses in the U.S., as an active weather pattern drove several days of severe weather across a wide area of the country.

The eastern two-thirds of the U.S. were worst affected between August 8th and 12th, with at least two deaths reported and most of the damage seen in parts of the Plains, Midwest, and the Mid-Atlantic.

Severe storms and large hail events struck the Black Hills of South Dakota on August 8th and the Minneapolis-Saint Paul metro region in Minnesota on August 9th. While the Derecho event swept through Iowa and Illinois on August 10th causing widespread damage.

On August 12th flooding impacted the mid-Atlantic region, causing flash flooding in parts of Maryland, Washington D.C, and Virginia. Being a flood event, the August 12th impacts are likely to largely fall to the NFIP, we’d imagine.

The Derecho is likely to drive the majority of the multi-billion economic losses expected from this weeks severe weather.

“A derecho is as a fast-moving cluster of thunderstorms that travels hundreds of miles and is marked by widespread straight-line wind damage,” broker Aon explained.

With wind damage seemingly the main impact from the event, the majority of it is expected to be covered by insurance and perhaps this could trigger some reinsurance coverage as well.

The Derecho left at least 1 million customers without power, as well as considerable impacts and damage to property, vehicles, and agribusiness, as the line of storms passed through the Iowa and Illinois region.

Aon’s Impact Forecasting team cites NOAA’s Storm Prediction Center, which said that the Derecho traveled around 770 miles in 14 hours with numerous areas experiencing wind gusts topping hurricane intensity – 74 mph (120 kph). The maximum wind gust experienced was 112 mph (180 kph), measured near Midway, Iowa.

Dangerous wind gusts between 70 and 100 mph (112 to 160 kph) were common across central and eastern Iowa, while Chicago saw wind gusts of 70 to 80 mph (112 to 128 kph) and multiple tornado warnings as the Derecho approached.

The Derecho event caused significant damage to crops in Iowa, with scarring to agricultural land visible from NASA satellites after the event.

The crop loss alone is expected to be particularly significant, as a wide swathe of farmland was affected and preliminary estimates indicate that around 10 million crop acres (4 million hectares) were impacted by the storm.

In addition there was significant damage to agricultural buildings and assets as the Derecho passed through.

Across the rest of the track of this line of severe thunderstorms there were pockets of “prolific” damage, Impact Forecasting explain, across a particularly wide region.

This will make the calculation of a loss quantum for this catastrophe event challenging and it may take some time before accurate figures are available to the insurance and reinsurance market.

It’s too early for an industry loss estimate at this stage, but Aon’s Impact Forecasting expects that the total aggregated economic damage to property, infrastructure, and agriculture during the stretch will be a multi-billion-dollar cost.

“Most of the wind and hail-driven damage to residential and commercial property, and automobiles, will be covered by insurance,” Impact Forecasting said.

While, “It is very likely that the crop damage impact from the August 10 derecho will exceed USD1 billion. A sizeable portion of these losses will be covered via RMA crop insurance policies owned by farmers.”

Year-to-date, severe storms and convective weather in the United States is estimated to have driven more than $21 billion of insurance and reinsurance market losses just in the first-half of the year, Swiss Re’s data showed, with July also expected to add at least a billion to that total as well.

The Derecho event of this week and the rest of the severe weather experienced looks as if it could add a few billion dollars more.