Insurers Fund Storm-Damage Research to Limit Rising Claims

Insurers are funding research to limit rising extreme-weather claims
Jordon Williams walks through her bedroom a day after a tornado touched down on Feb. 11, 2013 in Hattiesburg, Mississippi. Photograph by Sean Gardner/Getty Images

Tanya Brown is spending hours making hailstones by hand, injecting rubber molds with a seltzer-and-water mixture and freezing them. On Feb. 20 the researcher and her colleagues at the Insurance Institute for Business & Home Safety will fire more than 8,000 of the ice balls at up to 76 miles per hour onto a test house inside the institute’s facility in Richburg, S.C. “We really want to try to mimic Mother Nature,” says Brown, whose team chased real storms to measure typical hailstone mass, size, and hardness for the test, which the institute says is the first of its kind. They plan to study what happens to different kinds of shingles, siding, and other building materials under the kind of barrage for which insurance companies don’t yet have good models.

How to Make A Hailstorm: 1. Use rubber molds to freeze water into hailstones measuring 1, 1.5, and 2 inches
Photograph by Taj Forer

Insurers generally have enough experience with hurricanes to predict damage and avoid taking on too much risk. Not so with hailstorms and tornadoes, where costs are increasing. That’s why the institute’s insurance-company members are funding the research. Average industry losses for severe thunderstorms in the U.S. have ballooned sevenfold since 1980 and totaled almost $15 billion last year, according to Munich Re, the world’s largest reinsurer. The tab for 2011 was a record $25.9 billion.

2. Calibrate hail cannons to fire the frozen stones at the same speed as a storm
Photograph by Taj Forer for Bloomberg Businessweek

As storms have occurred earlier in the year, they’ve tended to strike farther east, where there’s greater population density, says Matthew Nielsen, director of product management at Risk Management Solutions, a disaster modeling firm. The spring outbreak of severe storms in 2011 cost property insurer Travelers more than the deadly Hurricane Katrina in 2005, Chief Executive Officer Jay Fishman said in a statement that year.

3. Construct shingled test roofs to study the effects of age on the materials
Photograph by Taj Forer for Bloomberg Businessweek

With storm damage on the rise, insurance companies are taking steps to limit losses. Allstate, the second-largest U.S. home insurer, began two years ago to “age-rate” customers’ roofs. In states like Oklahoma, where severe storms blow through with troubling frequency, the company is rolling out new policies that take a roof’s age and construction material into account when calculating the payout to replace it after storm damage. “A lot of people would wait until these things happened” and file a claim to get a new roof, says Thomas Wilson, CEO of the Northbrook (Ill.)-based insurer. “That’s not a fair deal for anybody, because that cost goes through us back into the system.” Policyholders can still pay a premium for full-replacement coverage.

4. Pit a test house against the premade hailstones in 40-mph winds
Photograph by Taj Forer

Predicting where hailstorms and tornadoes will strike is tougher than for hurricanes because the historical record is less complete and because they’re much smaller and more variable, says Nielsen. That’s especially true for tornadoes, whose paths of destruction often appear random, decimating some buildings while sparing others nearby. Fraudulent hail claims have also been a problem for insurers, Nielsen says.

Insurance Institute CEO Julie Rochman says this month’s simulation is just the start of research she hopes to conduct that could lead to better building standards and lower insurance losses within a few years. High on the agenda for Brown, the researcher: Automate the creation of the hailstones. “I’ll be glad when it’s complete,” she says of the hailstorm demonstration. “Making ice every day for two hours a day is not my most favorite thing.”

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