The increasing density of mobile homes and greater urbanization in parts of the United States vulnerable to tornadoes is leading to greater losses, both in terms of economic damages and lives lost, notes a new report from Lloyd’s.
The U.S. sees an average of 1,200 tornadoes that kill up to 60 people, injure 1,500 and cause at least $400 million in economic damage, according to the report, Tornadoes: a Rising Risk?
Frequency of tornadoes isn’t necessarily increasing, though, says Lloyd’s, but rather they may be reported more now than decades ago. However, increased urbanization means the potential for higher damages and lives lost is now greater.
“Nearly a third of all average annual reported tornadoes occur in the states of Texas, Oklahoma, Kansas and Nebraska, these states are found in the area termed ‘Tornado Alley’ ideally situated for the formation of supercell thunderstorms which may spawn tornadoes,” the report suggests.
“A major factor which has influenced tornado losses is increasing exposure of property,” says the report. “In a major outbreak, violent tornadoes can be anomalously long lived and have wide damage paths, affecting large areas. As populations have grown and spread into previously uninhabited areas, the chances of this occurring have increased.”
The increasing number and density of mobile homes is also having an impact on losses, the report suggests. “For us, mobile home insurance is a mix of art and science, combining risk management and working only with specialist coverholders who know the business inside out," Gary Mountford, Senior Class Underwriter at Catlin, explained in an article posted on Lloyd’s website.
“We insist on homes being tied and skirted, which improves the wind speed resistance of each unit. We also pay attention to the age of units insured as mobile homes depreciate in value year on year. It is not surprising that, given the level of devastation, following a major tornado, it is usually a mobile home park that features on the front page of the next day’s newspapers.”
There are also difficulties in analyzing trends for tornadoes, the report notes.
The speed with which tornadoes form means that early forecasting is still challenging, Lloyd’s says in its article. “Mitigation measures, such as mandatory shelters in mobile home parks, have now been adopted in some states,” it notes.
Insurers are often not making investments in modelling efforts for major storms either, the report suggests. “The uptake of CAT Modelling for tornado risk has been slow in the past as insurers have considered tornadoes a cost of doing business in the US; one of the modelling companies commented that their models were not in wide use by its insurance clients before last year,” the report states, referring to major modelling firms such as AIR Worldwide, EQECAT and RMS.”
“However, the increasing capacity for potential losses, as seen in 2011, is beginning to increase the use of modelling for tornado risk,” it adds, suggesting that modelling of tornado risk will become increasingly important among reinsurers.
A full copy of the Lloyd’s report on tornado risk is available on its website.