This year, U.S. insurers, already burdened with losses amounting to tens of trillions of won from large wildfires that occurred earlier this year in Los Angeles (LA), have encountered another "troublemaker." This is due to the increasing occurrence of convective storms that sweep through the southern and central United States, often accompanied by hail, which destroys countless dwellings.
On the 16th (local time), The Wall Street Journal (WSJ) reported, citing data from the insurance broker Gallagher Re, that damages incurred by insurers from powerful convective storms with hail last year amounted to $58 billion (approximately 84 trillion won). This exceeds the damage estimates for all hurricanes, excluding Hurricane Katrina and Ian, according to statistics from the Insurance Information Institute, and is greater than the damage from the fires in Los Angeles (LA) earlier this year.
Convective storms occur due to the vertical movement of air caused by temperature differences, and they are characterized by concentrated heavy rainfall in specific areas that causes secondary damage such as flooding, power outages, and fires. The strong winds and accompanying thunder, lightning, and hail are also key characteristics of convective storms. Most of the insurers' losses are known to originate from hail damage brought by convective storms.
As a result, insurers are increasingly withdrawing from areas frequently affected by hail damage. This situation resembles that of insurers withdrawing from the Los Angeles (LA) area due to frequent wildfires. According to data from the U.S. Senate Budget Committee, last year insurers canceled contracts for 3,400 customers in the Oklahoma City area alone. One insurer has notified the state insurance regulatory authority that it will terminate insurance contracts for dwellings that have had roofs installed for more than 11 years starting this year.
Insurers are concerned that hail damage is increasing due to climate change and suburban expansion. WP noted, "Hail that used to fall in fields around Denver or Dallas is now pouring down on schools and residential areas due to decades of suburban expansion," and suggested that "climate change is likely increasing the size of hail and expanding storms into areas where they have not previously occurred."
As concerns about losses grow, insurers are increasingly likely to withdraw from areas prone to hail damage. Particularly, damages from hurricanes are often due to flooding, which is generally not covered by standard dwelling insurance, whereas hail damage is mostly included in coverage. The state insurance regulatory authority reported that ten insurers in the Oklahoma area exhausted more than 20% of their company surplus due to record storm damages in 2023.
To prevent insurer withdrawals, some state governments in the central United States are allowing insurance premium increases. According to WP, in many states including Oklahoma, insurers can adjust premiums without prior state government approval. Oklahoma Insurance Commissioner Glen Mulready said, "We are allowing the market to operate on its own."
The damages are directly impacting residents. According to the insurance comparison site Insurify, last year Oklahoma was ranked as the state with the second-highest insurance burden after Florida. Richard Chu, who moved to Oklahoma a few years ago in search of lower living costs after retirement, is currently paying $3,500 annually for dwelling insurance. This is double the previous premium. He said, "While prices for gas and groceries are relatively low, insurance premiums have skyrocketed."