Shortly before 9 p.m. on June 23, a tornado with wind speeds up to 125 miles per hour cut a two-mile path of destruction through South Bend, Indiana. A potentially treacherous stovepipe tornado was reported in northern Indiana’s St. Joseph County a few minutes later, at 9:15 p.m. A day earlier, tornadoes touched down in Texas, Colorado, Nebraska and Kansas. The storms left thousands of Indiana, Louisiana, Texas, Mississippi, Kentucky and Arkansas businesses and residences without power.
These tornadoes were part of a rapidly-advancing series of severe windstorms—known as a “derecho”—that battered much of the U.S. last weekend, beginning in Nebraska and stretching to the coast of South Carolina.
On average, 1,253 tornadoes hit the U.S. annually, causing an average of 80 deaths and 1,500 injuries. As of press time, 1,171 tornadoes have been reported nationally in 2019. April saw more than 250 tornadoes—the highest number since 2011—touch down in the U.S., causing several billion dollars in damage, both from the tornadoes and the accompanying thunderstorms. This trend continued throughout May, a month that averages 270 tornadoes annually, with 556 tornadoes reported nationwide.
Tornadoes are hitting some states with exceptional frequency this year: thus far, Pennsylvania has had double its average number of tornadoes and Mississippi was hit with a record 83 tornadoes through April—four times its average for that period.
“Tornadic weather patterns are changing dramatically, impacting areas east of the typical ‘Tornado Alley’ states, and increasing in numbers and intensity.”— Laura Bates, Atain Insurance Companies
“While every state across the U.S. has been hit by a tornado during its history, there has been a significant increase in events this year,” affirmed Brendan Cook, Vice President and Managing Director, Global Excess Partners, New York City, New York.
“Tornadic weather patterns are changing dramatically, impacting areas east of the typical ‘Tornado Alley’ states, and increasing in numbers and intensity,” said Laura Bates, Corporate Vice President, Atain Insurance Companies, Detroit/Farmington Hills, Michigan. “Tornado ‘swarms’ of 25 or more tornadoes in an outbreak are becoming more common, resulting in increasingly shattering losses to the affected region.” A sudden swarm of a dozen tornadoes devastated parts of Alabama on March 3; wind speeds up to 170 mph were estimated in one of the tornadoes preliminarily rated EF-4 on the Enhanced Fujita Scale, which is used to rank tornadoes from EF-0 (least severe) to EF-5 (most powerful). So far this year 76 tornadoes have been reported in Alabama—the state’s annual average is 44.
While it runs a distant second to the U.S. with an average of 60 tornadoes annually, Canada is the second most common location for tornado activity globally. Canada has also seen exceptional tornado occurrence recently. Ontario has averaged 12 to 13 tornadoes annually for 30 years, most of which are EF-1 or EF-2 tornadoes that occur in Southern Ontario. On September 21 last year, however, an EF-4 tornado took residents of the Eastern Ontario city of Ottawa by surprise, knocking out power for 261,000 residents of Ontario and Quebec. In the past nine months, three tornados have struck Ottawa, including one that touched down on June 2 and stayed on the ground for an estimated 15 miles. Perhaps most remarkable, though, was the probable tornado that struck Fort Smith, Northwest Territories, on June 2; if confirmed, this would mark only the third tornado in history confirmed in Canada north of 60 degrees latitude.
The financial burden of extreme weather
In terms of the economic cost of severe weather events, the last three years were among the four most expensive since 1980, totaling more than $450 billion from 2016 to 2018. One economic scholar recently predicted the U.S. gross domestic product (GDP) could be lowered as much as 3.6 percent by 2029—a difference of $1 trillion—due to recovery costs and slowed business growth caused by weather-related damage. The World Meteorological Organization reported in its Statement on the State of the Global Climate in 2018, released in March 2019, that climate change and the impacts of related extreme weather are accelerating and affected 62 million individuals worldwide last year.
Some of the damage-related costs attributed to hurricanes may actually be from tornadoes, Bates explained, as hurricanes can spawn tornadoes. “Tornadoes and hailstorms differ from what we as an industry have considered traditional catastrophic exposure,” Cook noted.
Putting safeguards and protections in place
Although extreme weather events have become more commonplace, many homeowners and business leaders have not invested in greater safeguards or protective measures. Globally, victims shoulder more than half the burden of all economic losses from extreme weather, including windstorms, floods, and earthquakes.
In addition to investing in insurance, experts recommend individuals and companies dedicate significant resources to creating an emergency plan for severe weather events. “Every family exposed to tornadoes and major hail events should have a safety plan in place,” Cook said, noting that the plan should include how to contact one another and where to store valuables, including important documents like insurance policies. Additionally, Cook advised, homeowners should maintain buildings on their property by clearing and maintaining drains and gutters, and removing overhanging tree branches. Complying with municipal evacuation orders and identifying a safe place to shelter in tornado-prone areas are of utmost importance, according to Cook. While violent tornadoes with wind speeds in excess of 205 miles per hour make up only 2 percent of all tornadoes, they account for 70 percent of all tornado-related deaths.
“With increasing windstorm activity in Southern Ontario, homeowners and business owners can seek the advice of their insurance brokers on preventative measures that can help reduce the severity of a claim. For instance, making sure your building and fencing are well maintained, surrounding trees are well kept and outside housekeeping is tidy and free of debris are a few ways to help minimize a loss,” said Patricia Sheridan, Manager, Toronto Property and Casualty, Toronto, Ontario, Burns & Wilcox Canada.
Insurance brokers and agents offer many strategies to help businesses maximize their Commercial Property Insurance coverage, according to Michael Forde, Underwriter, Commercial Insurance, Burns & Wilcox, Grand Rapids, Michigan. “It comes down to how to structure your coverage. Placing higher priority on deductible and limit structures helps to facilitate a smoother policy process and reduce cost,” Forde said. Strategies include having one deductible for the majority of coverages and a higher deductible targeted toward tornado coverage, or having an aggregated deductible. Both options could prove beneficial in a year like 2019, in which there have been multiple severe weather events. Splitting insurance into layers or splitting exposures could also prove helpful, said Forde.
Businesses should consider investing in broader protections in addition to strategically structuring their essential policies, according to Cook. “It is important that companies include coverage for Business Interruption or loss of profits,” Cook said, noting that this could include a plan to house staff and their families in temporary accommodations. Forde recommends investing in High Ordinance or Law coverage, which helps mitigate costs policyholders incur through making sure repairs meet municipal building codes.
Commercial Property Insurance policies can include coverage for outdoor property, such as a patio at a restaurant or bar or sites with extensive landscaping, such as theme parks, hotels or wineries. Forde noted that Claim Prep coverage can also be included in Commercial Property Insurance policies, to assist policyholders with filing claims. “Policyholders do not really foresee what the claims process can mean: the time involved in gathering information, accounting for losses, or hiring actuary accountants to determine the cost of a bodily injury claim.”
Helping insurance work for your clients
There are several steps that policyholders can take to make the claims process easier in the event they experience a loss due to a tornado, hailstorm, or other extreme weather event. “The very first thing insureds should do is report their losses quickly,” Cook said. This should help reduce costs and disputes over claims and charges, he said. Recording the state of your property prior to and following the weather event to demonstrate the extent of the damage before any repairs are initiated can prove beneficial as well, he noted.
“The very first thing insureds should do is report their losses quickly.”— Brendan Cook, Global Excess Partners
“It is also important,” Cook said, “to insure your premises for their full and true value.” While it may be tempting to try to save money, he said, a building insured for only half its value may yield only half payment on a claim. He suggested homeowners account for rebuilding costs in order to determine an appropriately-valued Homeowners Insurance policy. This is particularly important in the event a home or building is completely destroyed, which is a distinct possibility with tornadoes, even those rated E-1 or E-2.
Bates noted that property owners can limit the potential damage of an extreme weather event by engaging a contractor that specializes in retrofitting, which can include adding roof bracing and strapping, fasteners, ties, reinforcements, anchors or wind-resistant doors. “Safe rooms can protect against loss of life and damage to valuables,” Bates said, though she conceded “it is virtually impossible for businesses and homeowners to take preventative measures to limit damage from the most powerful tornadoes.”
A tornado or other extreme weather event can be devastating and claims settlements can be complex and challenging, Cook noted. Nevertheless, reporting losses early, working together with your insurer, and understanding the coverage that you purchase will prove invaluable in the event you need to file a claim. “Communicate with your Insurance provider, broker or agent and advisor,” Cook said. “Do not view insurance as a bill. View it as an asset.”
As with any coverage need, an insurance broker or agent must be consulted.
This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager.