Severe Convective Storms (SCS) are now one of the largest drivers of insured losses in the United States. In 2025 alone, SCS generated approximately $82 billion in economic losses, 85% of which occurred in the U.S.
During our recent webinar, “Severe Convective Storms: Strengthening Resilience with Parametric Insurance,” Descartes experts Will McMillan (Vice President – Business Development), Matteo Karl Donati (Senior Underwriter), Conor Heffernan (Underwriting Data Scientist), and Marshall Crane (Assistant Vice President – Business Development) examined how parametric insurance and reinsurance structures can help address the growing SCS protection gap.
This recap is structured around the questions we are hearing most frequently from insurers, reinsurers, brokers, lenders, and corporate buyers.
Watch the full webinar here:
What Is a Severe Convective Storm?
Severe Convective Storms are atmospheric events driven by rapidly rising moist, unstable air. They manifest in three primary perils:
Unlike hurricanes, SCS events are:
- High-frequency
- Geographically dispersed
- Difficult to diversify
- Cumulative across a season
This “attritional aggregation” dynamic has reshaped reinsurance portfolios. Rather than one major event, insurers face repeated mid-sized losses that erode aggregate protections.
Why Has SCS Become So Expensive?
SCS has now surpassed tropical cyclones as the costliest insured peril of the 21st century.
Key drivers include:
- Increased asset concentration in high-risk regions
- Growth in industrial, solar, and data center construction in Tornado Alley and surrounding states
- Higher insured values
- Tightening aggregate reinsurance capacity
Attachment points have risen. Aggregate covers are harder to secure. Volatility is increasingly retained on balance sheets.
This structural shift is why parametric solutions are gaining traction.
How Is SCS Risk Modeled for Parametric Insurance?
Accurate parametric protection starts with precise hazard detection.
How Is Hail Detected?
Descartes uses NOAA’s Multi-Radar Multi-Sensor (MRMS) system to model hail across the United States.
The process includes:
- Acquiring raw radar data
- Removing ground clutter and artifacts
- Merging reflectivity into a common grid
- Calculating the Severe Hail Index (SHI)
- Estimating Maximum Estimated Size of Hail (MESH)
The result is a daily, high-resolution hail footprint that is transparent and publicly verifiable. This allows for precise event-based triggers and objective settlement.
How Are Tornadoes Measured?
Tornado intensity is determined using the Enhanced Fujita (EF) Scale.
Official footprints are built using:
- Ground damage surveys
- Satellite imagery
- National Weather Service assessments
These polygons precisely map EF intensity along a tornado’s path. That clarity allows for clean, objective parametric triggers.
Importantly, tornado exposure extends far beyond “Tornado Alley.” Recent outbreaks have affected large portions of the Midwest and Southeast, reinforcing that this is a nationwide concern.
How Are Straight-Line Winds Modeled?
For non-tornadic wind, Descartes uses a physics-based index built from atmospheric variables. This allows detection of damaging straight-line wind events, including derechos.
How Does Parametric Reinsurance for SCS Work?
With traditional aggregate capacity constrained, parametric reinsurance is stepping in as a complementary solution.
The approach relies on a Modelled Loss Index, structured in three layers:
Hazard Layer
Hail, tornado, and wind intensity data are overlaid on the portfolio.
Vulnerability Layer
Peril-specific damage functions are customized to the cedant’s assets.
Financial Layer
Deductibles, limits, and policy conditions are applied to replicate Ultimate Net Loss behavior.
Losses are calculated event by event and aggregated seasonally. The result is a structure designed to respond to the same drivers impacting traditional portfolios, but with faster settlement and additional flexibility.
Real-World Use Cases Across Industries
Manufacturing & Industrial Facilities
When tornadoes strike industrial clusters, the impact goes far beyond structural damage.
Recent events have:
- Disrupted power to tens of thousands of customers
- Destroyed production facilities
- Triggered layoffs
- Caused multimillion-dollar debris and removal costs
Companies are increasingly seeking solutions that address:
- Large deductibles
- Income interruption
- Supply chain disruption
- Environmental and cleanup costs
Parametric structures provide rapid liquidity and flexible use of funds when it matters most.
Data Centers: High Values, High Concentration
Data centers represent one of the fastest-growing exposures in SCS-prone regions.
Challenges include:
- High-value equipment exceeding building value
- Limited traditional market capacity
- Construction-phase exposure
- Lender scrutiny
Parametric solutions can protect:
- Construction phases, including the “grey phase”
- Project finance structures
- Business interruption and non-damage BI
- Equipment and grid-related downtime
The transparency and speed of payout are particularly compelling in this space.
Solar & Renewable Energy
Solar farms are highly vulnerable to hail and wind.
Parametric hail triggers can be calibrated based on:
- Hailstone size
- Percentage of impacted area
- Panel vulnerability and engineering data
In one Central Texas hail scenario discussed during the session, a tailored structure with a $40 million limit would have generated a $26 million payout. That type of response can be transformational in a difficult insurance market.
Webinar Q&A: What Participants Asked
Below are selected questions raised during the live session.
How can you ensure the parametric payout matches the actual loss?
Accurate trigger calibration is critical. Advanced radar, satellite, and modeling technology allow for increasingly precise event detection. Buyers must clearly define the intended use of funds and align the trigger structure with the gap in their traditional program.
How long does it take to produce a certified tornado footprint?
Typically a few weeks after the event. Timing depends on local National Weather Service assessments and the scale of the outbreak.
Can parametric coverage address non-damage business interruption?
Yes. Because payout is triggered by event intensity rather than physical damage, parametric insurance can address non-damage BI and contingent exposures, depending on structure.
If the policy limit is $1 million but the actual loss is $500,000, how much is paid?
The insured must attest that their economic loss is no less than the amount claimed. If actual losses are $500,000, the payout would be $500,000, even if the full parametric limit is higher. Supplemental proofs of loss can be submitted later if additional losses are identified.
What is the minimum photovoltaic park size for hail parametric coverage?
There is no strict minimum size. Coverage can be structured for a broad range of asset footprints, depending on exposure and modeling requirements.
How flexible is hail coverage for solar farms?
Highly flexible. Structures can account for panel engineering characteristics, glass thickness, stow angle configurations, and customized payout curves.
Can Descartes join broker calls to explain coverage to insureds?
Yes. Collaboration with brokers and insureds is common and encouraged to ensure clarity in structure design.
Is parametric insurance common in Europe?
Solutions in Europe tend to be more bespoke due to differences in data infrastructure and hazard reporting. Structures vary by country.
The Bottom Line
Severe Convective Storms are not a secondary peril. They are a structural challenge for insurers, reinsurers, and corporates.
Parametric insurance is not a replacement for traditional coverage. It is a complementary tool designed to:
- Provide additional capacity
- Fill aggregate and deductible gaps
- Address non-damage BI
- Deliver rapid liquidity
- Stabilize volatility
As SCS frequency and financial impact continue to rise, risk transfer innovation will remain essential.
