The escalating impact of Severe Convective Storms on property insurance

Transcript:

Allie Barefoot: I'm Allie Barefoot with Cotality, and we're back with another conversation about Data in Context. In this series, we break down major natural disasters and their consequences to find the risk and opportunity in today's property market. While the industry often braces for big-name hurricanes, a more persistent, high-frequency threat is reshaping the landscape of insured losses: the severe convective storm. Historically, these were labeled secondary perils. But Cotality's 2026 Severe Convective Storm Report reveals a stunning paradox. From three-inch hail to trillion-dollar exposures, these are no longer secondary perils. They are primary risks testing every link in the recovery chain, from underwriting to restoration. So, today we're joined by Cotality's Director of Research and Content, Jonathan Schneyer, to go behind the numbers. We'll explore how to move past reactive, historical snapshots and use granular data to guide the industry away from luck and toward true structural security. So let's go ahead and jump into today's questions with Jon. Jon, welcome back to Data in Context.

Jon Schneyer: Thanks, Allie. Great to be here.

Allie Barefoot: Always a pleasure to have you on the show, and I'm really interested in this topic, obviously talking about Cotality's 2026 Severe Convective Storm Report. And I want to jump into a main topic here that's really on my mind is the fact that we used to call severe convective storms a secondary peril. But now that we're looking at the data from the 2026 report, is that label even accurate anymore, or are we officially in the era where SCS are primarily viewed as a primary threat?

Jon Schneyer: Yeah, that term is absolutely outdated. It was called a secondary peril because it wasn't necessarily modeled or scrutinized the same way we did for, say, the traditional primary ones—the hurricanes, the earthquakes. The ones that we had been modeling with a bit more scrutiny because when they occurred, the losses were substantial. And it makes sense. You get a big Cat 4, Cat 5 make landfall somewhere populated, or an earthquake somewhere with a lot of buildings and lot of exposure, you're looking at a $30, $40, $50 billion loss. Problem is, with now severe convective storm, when you take the entire season into account and the higher losses we're seeing from severe convective storm, well, that's on par with a major hurricane. Granted, it happens over the course of the year, but the financial impacts are still being felt within the insurance and reinsurance industry. So yeah, primary, secondary perils—shouldn't be using those terms anymore. Right now, hail is the biggest concern in the insurance industry.

Allie Barefoot: You know, it's interesting that you mention hail and you're talking about the amount of expenses and losses that hail can now form is just as severe as a Category 4 hurricane. And in that report, you know, when you look at how much hail can cause in losses in terms of damage, it's around $58 billion, whereas a Category 4 hurricane is around $71 billion. So, what has shifted in the environment to make that a reality?

Jon Schneyer: Now, I'll say a $58 billion hail loss would be a really, really, really nasty storm—not one that we've seen anytime recently. That goes out to what we call the 500-year return period, so the probability in any given year of a hail storm or a hail storm loss of that nature is very rare. But it's possible; those are the tail-end events. What's really driving this is the fact that there are a lot of buildings, either in concentrated areas—in cities—that are susceptible, or in areas that are frequently impacted by severe weather, especially hail. And the fact that, right, inflation, stuff costs a bit more. It costs more to rebuild. It costs more to get people to your home to rebuild. There are just these hidden costs that are driving up—what used to be a maybe $5,000 roof job is a $15,000 roof job. And in those densely populated city centers, you have the difficulty of even getting equipment and people to a building. You know, I'm thinking about downtown Chicago, for example, and I don't mean the big commercial or multi-family commercial condominium high-rises—there's a lot of, you know, single-family, two, three-story buildings but in a very dense neighborhood, fairly narrow streets, right? Really hard to get crews in there as opposed to, say, Dallas-Fort Worth where you have a bit more space to work. But to come back to your question, it's the exposure. It's the buildings on the ground, the unique characteristics that comprise those, how much it costs to rebuild, that is driving severe convective storm losses, hail losses, and that's why it's such a threat these days.

Allie Barefoot: And you mentioned Chicago there, and normally when I think of a natural hazard, if I think of hail I'm thinking of Texas, if I'm thinking of hurricanes I'm thinking more Florida. But one of the more surprising stats in the report is what you call the "Chicago Anomaly." Texas usually steals the headline for hail, and Florida for hurricanes obviously, but Illinois is sitting on $1.5 trillion in exposed value. Why is Chicago such a hidden gem in this data?

Jon Schneyer: Yeah, that's what's really crazy when you look at the results of that report is that you see Illinois up there with Texas, right? Yeah, you said Texas is the one that always gets the attention. But Illinois is up there, and that's because of Chicago. And really what's driving that is, again, the buildings. There is a lot of stuff there—a lot of expensive stuff there. Big, beautiful glass high-rise buildings, really nice homes, these nice materials that are gorgeous to look at from the street—there is a high concentration of expensive homes and buildings, and if they're damaged by hail or strong winds or tornadoes, it's going to cost a lot more. So that concentration of RCV is just has to do with the density of the buildings in that area and the fact that, yeah, severe convective storm is not only possible, likely to occur in the Chicago area. Just a little analogy—my sister used to live in Chicago, and when she was living there, I get the, you know, I do the event response, so I get the weather alerts of the tornado coming toward Chicago and, you know, whatever summer that was, 2023 maybe, felt like it was almost a daily occurrence that I was getting warnings. It can be a problem. And I'll go back to the commercial infrastructure. Something to consider with Chicago is that, you know, you have a lot of electrical or HVAC equipment on the roofs of these buildings. So, that'ssomething you don't have to worry about so much with residential, and the problem when you have HVAC and electrical equipment on the roof, well, the roof is hit first when it comes to hail. So if you have expensive infrastructure that, right, if it gets damaged, it's not just like damage to the inside of the condo—yeah, maybe $20,000 or $30,000 to fix—you're talking about the entire building being offline while the electrical system is damaged or the HVAC system is damaged. Especially if it's in the middle of summer, people can't air condition their home, wouldn't want to be there.

Allie Barefoot: No, especially not in Chicago. And you know, you mentioned that it starts from the roof there. There's different areas it can affect, it's not just a broken window, right? And it obviously affects an entire link and chain of the recovery process, and the report mentions that. There's four groups of recovery: underwriters, modelers, claim reps, and contractors. You know, how does that data act as the connective tissue that helps these four groups work in harmony rather than in silos? Because obviously this affects multiple assets of the recovery chain.

Jon Schneyer: It's a good question. And the reason we like to think about those four verticals and why we work in all those four is because if you think about the life of an insurance policy, it doesn't stop at underwriting. For the underwriter, it stops at underwriting—though that's not necessarily true, they do evaluate the policy over the course of the year and whatnot—but, right, underwriters are going to write the policies. When it gets to cat risk, you see how adding that policy to a portfolio might affect the overall probability or distribution of losses and what you need to do as an insurance company to manage that risk. To claims, right, you need people to go out and evaluate the damage, to assess it, to determine whether or not it falls under the policy's coverage limitations. And of course, restoration—the professionals who are actually there on-site doing the work. So, we like to think of insurance data insights, modeling capabilities for the entire life cycle of a policy, it's really important. Now, the problem is when one of those breaks down—let's say a delay in being able to get someone out there to evaluate the claim, or a delay in being able to find a contractor to come in and redo the roof, maybe there's a really high demand for roofers at the moment or something like that that's driving up cost—it ends up being a bit of a delay. Well, that's when a simple roof repair, or maybe even a slightly more complex roof replacement job, actually becomes something way, way worse. If you think about your roof, right, it's not just protecting you from the sun or from hail falling on you—it's protecting you from water. It's protecting your house from water getting into it. And your roof could just be slightly damaged from hail, you might not even notice it if you went out and looked at it. You might not even notice it if you went up on top of your roof and looked at your roof—don't recommend you do that, leave it to the professionals. But you might not see the damage, but it could be there. The water-tightness of your roof could be compromised, and when that happens—say it rains the next day, or it rains for a couple days after that—water gets into your house, you start getting mildew, potentially mold. Right? What might have been a couple thousand dollars for a roof repair, maybe $20,000 for a new roof, becomes $120,000 for a entire gut renovation. Talk about getting rid of all the mold, all the mildew, drying everything out, replacing contents—really important to be able to assess the damage from hail quickly, efficiently, to make sure that there's no downstream impacts that are going to make the recovery process more expensive and more time-consuming.

Allie Barefoot: And you mentioned a little bit ago, obviously, you know, having a sister that lives in Chicago, you get those alerts that there is a tornado that's nearby. And that's really key in this as well is preparation, just preparing for those storms to hit near you, around you. And something that I found personally very interesting in the report is how you guys talked about the June 2023 Texas storm cluster. And that found that if that storm had shifted a mere 15 to 20 miles north, the losses would have tripled by $30 billion. How should risk modelers account for that kind of razor-thin volatility, knowing that storms have a mind of their own?

Jon Schneyer: Yeah. Oh, absolutely. I'm going to go back to the buildings' exposure concentrations or policy concentrations. If you, for example, have historically been running a profitable business despite having policy concentrations in, say, the Dallas-Fort Worth area—yeah, if that storm shifted just a little bit farther north to an area that's more exposed, that would have been a huge loss on your books. And that's not very far. It's not very far at all. And it's not just Dallas-Fort Worth, that could have happened in San Antonio, could have happened in Austin, could have happened in Chicago, could have happened in Omaha. These kind of things are entirely possible. You know, severe convective storms, sure, they're frequent, and because it can happen almost anywhere, a lot of the time hail's falling on nothing but pastures, tornadoes are ripping up nothing but open space. But it's just a roll of the dice. Any one of these days you could get a storm really nasty—two, three-inch hail—that rolls right through a highly developed, densely populated city center, and we're going to see $30 billion losses on par with what we saw in the hurricane season back in 2014.

Allie Barefoot: And we've talked about mitigation here on Data in Context, you and I, and historically we've priced risk based on where a house is. But the report suggests that it also matters about what the house is made of and your roof age, material, condition. It's just as critical as where your house is placed. So, how does structural data change the game for risk selection?

Jon Schneyer: 100%. That's—it's 50% of the battle, you know. Obviously, if you live somewhere where it hails or there's a lot of storms, it's going to drive up your risk. But if you can mitigate the future damage from that peril by doing things like replacing your roof with an impact-resistant shingle—yes, I know mitigation is an expensive upfront cost, I get it. I have to do it here on my own home, right? When we think about replacing the roof and we're thinking about roof materials that are going to be resistant to severe weather. But, right, every dollar you spend in mitigation now, you're saving $7, $10, $12 in the future. It really does help. So, you're going to save yourself future losses, future headaches when those storms do hit, and you know they're going to hit. Severe weather's going to keep going, it's not going to stop anytime soon. Investment upfront, impact-resistant materials, make sure everything's tied down. If you live in an area with a lot of strong winds or tornado risk especially, and you have outdoor furniture, when you get that alert on your phone that severe weather is heading your way, bring that stuff in the garage or tie it down, anchor it, make sure—because if that hits your house, if that breaks your window, well, then you've just made the situation infinitely worse because you have opened up the building envelope of your home. Once wind can penetrate into your home, either through a broken window, maybe you left a window open, maybe a door was open or your garage door was open, the amount of pressure that is now pushing up on the top of your house is huge, it's going to rip the top of your house right off. So, mitigation, preparation—they're not just buzzwords. They go a long way in saving future headaches.

Allie Barefoot: And the last question that I have for you, Jon, I really liked what you said there about that building envelope. And if there's a property owner or a commercial manager listening to this, what is kind of the low-hanging fruit here for a building's physical resilience? Is it as simple as Class 4 shingles on your roof, or is there more to that building envelope?

Jon Schneyer: You know, like I said, shingles, the roof is number one. Like I said, it's the first thing to get hit when it—hail falls from the sky, your roof's going to get hit first, there's no way around that. If you have skylights, make sure those are impact-resistant. If you have an old—if you live in an older building, maybe those windows are not quite compromised but on their way out, maybe it's worth investing in some newer windows that are a bit more resistant to impact from hail or from stuff being blown into it. High winds pick up what we call missiles, basically picks up something and throws it into your house. Make sure that the siding and windows are all impact-resistant. On the commercial side, I mentioned HVAC equipment—go up and inspect, make sure that they're protected, whatever means necessary you have to be able to protect those from anything falling from the sky or wind coming in. You don't want the entire building's electrical system to go offline or the HVAC system to go offline. It could be a potential health hazard, definitely going to be—it's definitely going to impact the lifestyle of the people who live in the building. There's a lot you can do. It is really important to mitigate now. It is worth the upfront cost to make those changes to your property. You are protecting the largest financial asset you have in your portfolio: your home. And it's not only a financial asset, it is where you and your family live. Protecting that at all costs is worth it.

Allie Barefoot: No, 100% agree, and thank you again so much, Jon. This has been super insightful, especially since the 2026 Cotality Severe Storm Report, you know, really touched on a lot of this, but to be able to dive deeper into that, it just means the world. Thank you so much.

Jon Schneyer: Of course, my pleasure.

Allie Barefoot: Thank you again to Jon Schneyer for joining me on Data in Context, and thank you so much for listening to this episode. If you guys haven't already, subscribe to Cotality's YouTube page, and if you want to find out more information, as always, head over to cotality.com.