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.
In the event of a triggered event, is the insured responsible for proof of loss/expenses? i.e. if they have an actual loss of $500,000, but the parametric limit is $1,000,000, will they receive the full $1M?
To receive funds, the insured submits a "Loss Attestation" form. This confirms that their total economic loss is at least equal to the amount they are claiming. If the policy limit is $1,000,000 but the actual loss is only $500,000, the insured can only claim $500,000. They cannot "profit" from the insurance payout beyond their total economic impact. If the initial estimate of $500,000 turns out to be too low, the insured can submit supplemental attestations later to claim the remaining balance—up to the original $1,000,000 limit.
Are these types of coverages also common in Europe and what is the average rate on line for this type of product? What is your outlook for the European market?
Yes, but availability depends greatly on the geography and quality of data sources we can leverage. Rates vary greatly depending on the trigger design and geography. As technology continues to improve, the parametric product suite and addressable geographies will continue to expand.
Will environmental / pollution be excluded from policies like tornado?
No, environmental and pollution is not excluded. The parametric loss dollars are available to fund any economic loss traceable to the triggering event.
Would parametric insurance provide coverage for a grain dealer storing product in third‑party silos for losses arising from spoilage or deterioration during extended storage periods?
Yes, parametric policies cover economic business interruption even if a third party owns the damaged assets. If a trigger (e.g., heatwave, flood, tornado) spoils grain at a third-party facility, the dealer can still claim for the financial loss.
How long does a tornado footprint take to produce after an event?
A few weeks, but it would typically depend on each local office and the number of tornadoes during an outbreak.
Are lenders generally comfortable with parametric?
This depends on the specific situation. In some instances, particularly in CAT prone geographies where traditional capacity is insufficient or unavailable, lenders approve parametric insurance. It is typically approved as a supplement to traditional insurance rather than a replacement.
What is the minimum photovoltaic park size you would offer hail parametric?
There is no minimum PV park size requirement given the highly granular nature of radar technology in the US. We can offer this solution to both small and large solar farms.
Can you comment on how the trigger mechanism of a parametric policy, differing from traditional all-risk property insurance that relies on physical damage, affects the application of parametric indemnification for non-damage Business Interruption (BI) losses, and how should the “Other Insurance Clause” be addressed by Descartes to prevent overlaps or conflicts with other coverage.
Since traditional insurance rarely covers non-damage BI, there is technically no overlap. Also, the insured can frame the payout to target the "uninsured" portion of their loss:
- The Deductible: Use parametric funds to cover the high deductible of a traditional policy.
- Excluded Perils: Use parametric funds for perils excluded by the primary carrier (e.g., specific flood zones).
- Sub-limited Costs: Traditional policies often sub-limit items like "extra expense" or "ingress/egress." The parametric payout can be applied to these specific costs.
How flexible is your hail product for solar? For instance, can you write it based on the stow angle of the trackers at the time of the storm? So varying coverage levels for stowed vs. non-stowed modules?
Yes, if we have information on maximum stow angle, we can incorporate this into structuring. We can use different hailsize triggers based on the panels’ stow capabilities in a given area.
If the claim payout is based only on the event parameter, how can you be sure the payout matches the actual loss?
With improvements to technology, the data sources that are leveraged for parametric policies have gotten much more accurate and reliable when it comes to tracking events at a granular level. Models have also gotten more sophisticated, which allow us to better understand the impact of the peril in question to a given asset type. During the trigger design process, it’s very important to understand what scenarios and sources of loss you are trying to cover with parametric. With careful and intentional structure designs, parametric policies are able to minimize basis risk and provide meaningful ‘gap filler’ protection.
Can you join brokers on calls with insureds to explain the coverage?
Yes, Descartes has representatives available globally to assist brokers with implementation of parametric solutions for their clients. This includes joining calls with clients and decision makers to provide education and answer any questions that may come up throughout the process.
What would be some instances where a SCS parametric solution is not appropriate?
A parametric solution may not make sense if the risk is adequately covered by traditional insurance, the client is comfortable with their wind/hail deductibles, or SCS is relatively low risk. Generally speaking, however, parametric solutions have the ability to complement and enhance any asset class that is exposed to SCS.
Can you please elaborate on if the trigger is deemed to have occurred how the product only responds to the damage experienced on site?
To ensure the payout corresponds to the damage experienced on-site, the insured provides a Declaration of Loss. This is a simple statement confirming that the estimated financial impact of the event meets or exceeds the payout amount. Unlike traditional insurance, we do not perform a line item audit of what’s been damaged. The cover is meant to respond quickly for specific, high severity scenarios, where a loss is certain. The point is to get funds in clients’ hands quickly and give them the flexibility to use funds as they see fit. It is not a replacement for traditional property coverage but rather an enhancement to cover losses within the deductible layer, and/or sublimated and excluded losses.
From our experience, parametric insurance in Europe is still not as developed as in the US. Mostly this is because of poor data sources. Is that something you can confirm? Any other useful insights into the European market?
Refer to answer for question 2.
Interested in this type of discussion for hurricane and wind risk in coastal areas.
Join us for our next webinar, which will be focused on understanding and managing hurricane risk in the US!
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.
