Hail Insurance: Discover the Next Generation of Corporate Coverage
Hailstorms can cause severe damage to buildings, vehicles, agricultural crops, and even people. Of weather perils, hail is one of the most unpredictable and there are broad variations in damage claims made each year across the United States, and around the world. These variations in annual losses, and a lack of historical data in areas undergoing rapid development, challenge the traditional approach to underwriting hail risk. Meanwhile climate change is driving volatility and impacting natural catastrophes, resulting in increasing hail severity.
The impact of climate change on hailstone
Scientific studies have determined two probabilities regarding climate change and hail – first, more storms will form, resulting in more severe hail. Secondly, the ‘melting point’ – the height at which hailstones start to melt before hitting the ground – will increase as temperatures rise. However, this won’t prevent the formation of large hailstones. While smaller stones will melt into rain as they descend, larger stones will fall faster, making them less likely to melt before reaching the ground. As a result, there will be an increase in the average intensity of a given storm as each storm will have the potential to cause more damage in a matter of minutes due to hailstone size and frequency.
Hail events regularly occur in multiple regions around the world, including Europe, Asia and Australia. Yet, North America leads with the most significant number of hail events annually and the intensity of a given storm is increasing due to climate change. This has caused many states to see a rise in damages and insurance costs to soar. Across the region, hailstorms are responsible for over $10 billion dollars in property damage annually. The formation of giant hailstones – with a diameter greater than 10cm/4 inches – is becoming increasingly common and is a strong indicator of worsening climate change.
Where are these storms occurring in the United States?
The most serious hail events frequently occur in ‘Hail Alley’, the region spanning from Wyoming to Texas. This area is more vulnerable to severe hailstorms and takes on more pelting ice due to a combination of the natural landscape, changing environment, atmosphere and temperature.
Colorado ranks the highest in the nation for hail losses per capita, with almost $151.5 million in industry damages and over 234 hail events annually. In 2017, the state experienced the worst hailstorm on record, leaving Denver with over $2 billion in damage. In terms of volume, Texas racks up the most hail storms than any other state, with approximately 661 storms per year resulting in $338 million in damages. In 2018, a violent hailstorm left a disastrous trail, leaving an estimated $639 million in losses. Oklahoma, the third-highest hail prone state in the region, experiences $80.5 million in damages annually. In 2021, a hailstorm passed through Oklahoma, causing over one billion in damage, while also hitting Texas and other nearby states.
(Hail storm track in Texas, USA, April 2021)
Industries affected by hail
Development and industry growth across Hail Alley continues to rise, inevitably resulting in more hail damage and more insured and uninsured losses.
Airports in particular have taken a hit; Colorado’s violent hailstorm in 2017 delayed over 150 flights at Denver International airport as the storm intensified. Schools and universities were also affected as some had to close due to dangerous damage and flooding. In Texas and other states, car dealerships have been highly susceptible; the 2018 hailstorm that hit Caldwell damaged over 400 vehicles at one dealership. Peak peril season also has added pressure on the US solar industry, particularly across Texas. In 2019, a solar plant in West Texas had so much damage that their claims racked up to $70 million.
(Hail storm track in Texas, USA, in May 2022)
Parametric Hail Insurance
For decades, corporations have relied on traditional commercial insurance to cover natural catastrophe driven losses. However, due to loss accumulation and the increasing severity of hailstorms, traditional insurers have tightened their policies’ terms and conditions, raised premiums and deductibles, or completely retreated from the market altogether. This leaves those who need to protect assets uncovered or facing unaffordable rates. Parametric insurance offers an index based solution with predefined triggers and payouts, designed to meet client’s needs and provide liquidity when they need it most after a weather event.
Unlike traditional insurance, which relies on lengthy loss-adjustment procedures, parametric insurance pays out when a predefined event, like a hail storm, occurs as measured by a specified parameter or index, such as stone sizes or storm intensity. Driven by objective data and real-time monitoring from ground-based sensor technologies, radar, and satellite imagery, parametric insurance provides a means to guarantee liquidity via swift and direct pay-out following a qualifying event.
Descartes’ parametric hail product offers an alternative to traditional insurance. A customized cover is structured to pay-out based on predefined stone sizes and the number of hailstone impacts per m². The hail product leverages the latest AI techniques to assess hail risk at any location on the globe. For hail-exposed assets across North America – and worldwide – our parametric product unlocks fresh capacity, filling gaps left by the traditional market.