What’s in a name? If you live in “Tornado Alley,” there might be a lot – or less than you might imagine.
The designation refers to a stretch of geography running from Texas and Oklahoma through Nebraska and Kansas (think Dorothy and Toto, their house wrenched from the parched, flat earth and spinning toward Oz). It first came into use almost 70 years ago, when two atmospheric scientists used it as the title for a research project on tornadoes.
But, as the Washington Postrecently reported, some experts believe the name is misleading and should be retired.
“To be honest, I hate the term,” said Stephen Strader, an atmospheric scientist at Villanova University specializing in severe weather risk mitigation. “What people need to understand is that if you live east of the continental divide, tornadoes can affect you.”
Research has shown tornadoes are just as common in the Deep South as they are on the Plains, and there is no real drop in tornadoes as one exits Tornado Alley to the east.
“Tornadoes on the Plains are often elegant and foreboding,” the Post says, “some reliably appearing as high-contrast funnels that pose over vacant farmland for hordes of storm chasers and photographers. The Plains are like a giant meteorological classroom, an open laboratory; its students flock to it every year.”
Which explains why tornadoes we see on TV have that “classic” funnel look – and what we are shown most often comes to be thought of as most “typical.”
In the Deep South, most tornadoes are, as the Post puts it, “rain-wrapped and shrouded in low clouds, impossible to see.” More than a third of all tornadoes in Alabama and Mississippi occur at night, making them twice as likely to be deadly.
But, because they don’t match the popular perception of what a tornado is like and are hard to capture, they seldom appear on TV.
Why does it matter?
Because how we name things influences how we think about them, and how we think about them influences policymaking and individual behavior.
As we reported last year, tornado reports are on the rise – but is that because of changes in weather and climate? Or improved reporting related to technology and the growing popularity of “storm chasing”? Damage from tornadoes and other types of natural disasters is becoming more costly – is that because storms are becoming more frequent and severe? Or because more people are moving into disaster-prone areas?
If you’re not located in Tornado Alley, does it make sense to invest in mitigating tornado-related risks? Probably as much as it does to have flood insurance, even if you’re not in a FEMA-designated flood zone, or anticipate and prepare for winter storms in Texas.
Perhaps the most emotionally compelling data point invoked by those who would compel insurers – through litigation and legislation – to pay business-interruption claims explicitly excluded from the policies they wrote is the property/casualty insurance industry’s nearly $800 billion policyholder surplus.
Many Americans hear “surplus” and think of a bit of cash they have stashed away for emergencies. And when you consider that nearly 40 percent of Americans surveyed by the Federal Reserve said they would either have to borrow or sell something to cover an unexpected $400 expense – or couldn’t pay it at all – that number may sound like overkill.
Not as much as you think
But policyholder surplus isn’t a “rainy day fund.” It’s an essential part of the industry’s ability to keep the promises it makes to policyholders. And although a number like $800 billion may raise eyebrows, when we look more closely at its components, the amount available to cover claims turns out to be considerably less.
Insurers are regulated on a state-by-state basis. Regulators require them to hold a certain amount in reserve to pay claims based on each insurer’s own risk profile. The aggregation of these reserves – required by every state for every insurer doing business in those states – accounts for about half the oft-cited industry surplus.
Call it $400 billion, for simplicity’s sake.
Each company’s regulator-required surplus can be thought of as that company’s “running on empty” mark – the point at which alarms go off and regulators start talking about requiring it to set even more aside to make sure no policyholders are left in a lurch.
By extension, $400 billion is where alarms begin going off for the entire industry.
It gets worse – or better, depending on your perspective.
In addition to state regulators’ requirements, the private rating agencies that gauge insurers’ financial strength and claims-paying ability don’t want to see reserves get anywhere near “Empty.” To get a strong rating from A.M. Best, Fitch, S&P, or Moody’s, insurers have to keep even more in reserve.
Why do private agency ratings matter? Consumers and businesses use them to determine what insurer they’ll buy coverage from. Also, stronger ratings can contribute to lower borrowing expenses, which can help keep insurers’ operating costs – and, in turn, policyholders’ premiums – at reasonable levels.
So, let’s say these additional reserves amount to about $200 billion for the industry. The nearly $800 billion surplus we started with now falls to about $200 billion.
To cover claims by all personal and commercial policyholders in a given year without prompting regulatory and rating agency actions that could drive up insurers’ costs and policyholders’ premiums.
Which brings us to today.
Losses ordinary and extraordinary
In the first quarter of 2020, the industry experienced its largest-ever quarterly decline in surplus, to $771.9 billion. This decline was due, in large part, to declines in stock value related to the economic recession sparked by the coronavirus pandemic.
Nevertheless, the industry remains financially strong, in large part because the bulk of insurers’ investments are in investment-grade corporate and governmental bonds. And it’s a good thing, too, because the conditions underlying that surplus decline preceded an extremely active hurricane season, atypical wildfire activity, and damages related to civil unrest approaching levels not seen since 1992 – involving losses that are not yet reflected in the surplus.
Insured losses from this year’s Hurricane Isaias are estimated in the vicinity of $5 billion. Hurricane Laura’s losses could, by some estimates, be as “small” as $4 billion or as large as $13 billion.
And the Atlantic hurricane season has not yet peaked.
The 2020 wildfire season is off to a horrific start. From January 1 to September 8, 2020, there were 41,051 wildfires, compared with 35,386 in the same period in 2019, according to the National Interagency Fire Center. About 4.7 million acres were burned in the 2020 period, compared with 4.2 million acres in 2019.
In California alone, wildfires have already burned 2.2 million acres in 2020 — more than any year on record. For context, insured losses for California’s November 2018 fires were estimated at more than $11 billion.
And the 2020 wildfire season still has a way to go.
All this is on top of routine claims for property and casualty losses.
Four billion here, 11 billion there – pretty soon we’re talking about “real money,” against available reserves that are far smaller than they at first appear.
No end in sight
Oh, yeah – and the pandemic-fueled recession isn’t expected to reverse any time soon. Economic growth worldwide remains depressed, with nearly every country experiencing declines in gross domestic product (GDP) – the total value of goods and services produced. GDP growth for the world’s 10 largest insurance markets is expected to decrease by 6.99 percent in 2020, compared to Triple-I’s previous estimate of a 4.9 percent decrease.
If insurers were required to pay business-interruption claims they never agreed to cover – and, therefore, didn’t reserve for – the cost to the industry related to small businesses alone could be as high as $383 billion per month.
This would bankrupt the industry, leaving many policyholders uninsured and insurance itself an untenable business proposition.
Fortunately, Americans seem to be beginning to get this. A recent poll by Future of American Insurance and Reinsurance (FAIR) found the majority of Americans believe the federal government should bear the financial responsibility for helping businesses stay afloat during the coronavirus pandemic. Only 16 percent of respondents said insurers should bear the responsibility, and only 8 percent said they believe lawsuits against insurers are the best path for businesses to secure financial relief.
Severe convective storms—tornadoes, hail, drenching thunderstorms with lightning, and damaging straight-line winds—are among the biggest threats to life and property in the United States. They were the costliest natural catastrophes for insurers in 2019, and this year’s tornado season is already shaping up to be the worst in nearly a decade.
A new
Triple-I paper describes how population
growth, economic development, and possible changes in the geography, frequency,
and intensity of these storms contribute to significant insurance payouts. It
also examines how insurers, risk managers, individuals, and communities are
responding to mitigate the risks and improve resilience through:
Improved
forecasting,
Better
building standards,
Early
damage detection and remediation, and
Increased
risk sharing through wind and hail deductibles and parametric insurance
offerings.
The 2020 tornado season coincided with most of the U.S. economy shutting down over the coronavirus pandemic. This could affect emergency response and resilience now and going into the 2020 hurricane season, which already is being forecast as “above normal” in terms of the number of anticipated named storms.
Tornadoes in
2020 claimed 73 lives as of April 24, according to this article citing NOAA’s Storm Prediction Center.
The tornadoes have all occurred in eight southern states, with Tennessee and
Mississippi having the most. This is the deadliest year for tornadoes in the
U.S. since 2011.
Forecasters had
predicted that above-average temperatures in the
Gulf of Mexico would lead to severe storms across the Deep South and Southeast,
with the risk expanding into the Southern Plains and increasing dramatically
before swallowing traditional “Tornado Alley” across the central United States
by May.
According to Aon Benfield, the United States has recorded five
billion-dollar economic loss events resulting from severe convective storms (which
include tornadoes) so far in 2020. Insured losses from a March 27-30 outbreak are
estimated at $1 billion.
While COVID-19
is causing changes in some business practices, the nation’s insurers are open
and helping customers who sustained tornado-related damage. Property damage
caused by tornadoes is covered under standard homeowners, renters, and business
insurance policies, and under the optional comprehensive portion of an auto
insurance policy.
The Triple-I
has these recommendations when property damage occurs for renters, home and
auto owners:
Contact
your insurance professional and start the claims filing process.
Take
photos of any damage. A photographic record is useful when making an insurance
claim.
Make
temporary repairs to prevent further loss from rain, wind or looting; these
costs are reimbursable under most policies, so save the receipts.
Compile
a detailed list of all damaged or destroyed personal property. Do not throw out damaged property until you
meet with an insurance adjuster. If you have a home inventory, it will make the
claims-filing process easier.
Hold
off on signing repair contracts. Do your due diligence, deal with reputable
contractors, and get references. Be sure of payment terms and consult your
insurance adjuster before signing any contracts.
Check
to see if you’re eligible for additional living expenses (ALE). Standard
homeowners and renters insurance policies pay for the extra charges (e.g.,
temporary housing, restaurant meals) you incur over and above your customary
living expenses if your home is uninhabitable because of an insured loss. Save
all related receipts and, if you have vacated your home, make sure your insurer
knows how to contact you.
Small
Business Owners should
follow the same advice as above when it comes to filing a property damage
claim.
If your
business is forced to close temporarily or relocate because of direct physical
damage to its premises, file either a business income (also known as business
interruption) or extra expense claim, if you carry these coverages.
Tornado
forecasting and reporting
An upcoming Triple-I paper – Severe convective storms: Evolving risks call for innovation to reduce costs, drive resilience, scheduled to be published May 7 – discusses how improved reporting and forecasting and an apparent shifts in “Tornado Alley” affect the ability of businesses, communities, and insurers to mitigate tornado risks and prepare for resilience.
The devastating storms that ripped through central Tennessee on March
3 remind us that tornadoes continue to be one of the most destructive and
costly natural disasters.
Tornadoes are more common in the central United States, though they can occur almost anywhere in North America, including in large cities. They can happen at any time of year or at any time of the day or night, though they occur most frequently between early spring and July.
Below are some of the basic precautions to take before, during and after a tornado.
Before
The Red Cross recommends
the following precautions:
Identify a safe place in your home
where household members and pets will gather during a tornado: a basement,
storm cellar or an interior room on the lowest floor with no windows.
In a high-rise building, pick a
hallway in the center of the building. You may not have enough time to go to
the lowest floor.
In a mobile home, choose a safe
place in a nearby sturdy building. If your mobile home park has a designated
shelter, make it your safe place. No mobile home, however configured, is
safe in a tornado.
During
When
a tornado warning sounds or a tornado has been sighted, do not try to outrun
it. Stay calm but quickly seek shelter in the safest place possible.
If you are at
home, the safest
place to be is underground. Basements are usually the most protected area, but
if this is not an option take cover in central part of the house away from
windows—for example in a bathroom, closet, interior hallway or under a heavy
piece of furniture.
If you are in an
office building or skyscraper, go
directly to an enclosed, windowless area in the center of the building—away from
glass and on the lowest floor possible—and crouch down and cover your head.
Interior stairwells are usually good places to take shelter and, if they are
not crowded, allow you to get to a lower level quickly. Stay off elevators, you
could get trapped if the power is lost. If you are in a tall building, you may
not have enough time to evacuate to the lowest floor.
If you are at
school, follow the
staff instructions and go to an interior hall or room in an orderly way as
directed. Crouch low, head down, and protect the back of your head with your
arms. Stay away from windows and large open rooms like gyms and auditoriums.
If you are in a
car or truck, abandon the
vehicle and seek shelter in sturdy structure. If you are in open country, seek
shelter in the nearest ditch. Lie flat, face down on low ground, protecting the
back of your head with your arms. Get as far away from trees and cars as you
can.
If you are in
a mobile home, get
out! Even if the home is tied down, you are probably safer outside.
After
Damage caused by tornadoes is covered under standard
homeowners and business insurance policies, as well as the optional
comprehensive portion of an auto insurance policy.
If you sustain tornado damage:
Contact your insurer as soon as
possible and start the claims filing process. After tornadoes and other
disasters, insurance companies will reach out to those with the worst losses
first.
Take photos of any damage. A
photographic record is useful when making insurance claims.
Make temporary repairs to prevent
further loss from rain, wind or looting; these costs are reimbursable under
most policies, so save the receipts.
Make a detailed list of all
damaged or destroyed personal property. If you have a home inventory, it will
be extremely useful here. Don’t throw out damaged property until you have met
with an adjuster.
Don’t rush to sign repair
contracts. Do your homework, deal with reputable contractors and get
references. Be sure of payment terms and consult your insurance adjuster before
you sign any contracts.
If your home is uninhabitable
because of tornado damage, your homeowners or renters insurance provides
coverage for additional living expenses (ALE), such as hotel bills or meals
out. Save all related receipts and, if you have vacated your home premises,
make sure your insurance representative knows where and how to contact you.
Talk to your insurance
professional if you have any questions about any part of your insurance
coverage.
More on how to file a claim following a disaster here
Facts & statistics on tornadoes and thunderstorms here
