Our analysis of Verisk’s A-PLUSTM property database reveals that as of June 30, 2014, homeowners hail losses paid so far in 2014 are approaching $2.4 billion. That’s good news for insurers for a few reasons. First, losses from hail tend to be heaviest in the second quarter. Second, the average annual industry claims losses between 2008 and 2013 have been about $6.2 billion, significantly higher than the 2014 trend. The data leads us to believe that 2014 is on its way to being a better year for hail losses than recent years.
Hail is a significant driver of thunderstorm losses in the United States. According to data from the A-PLUS property database, U.S. insurers paid almost 9 million hail claims totaling more than $54 billion from 2000 through 2013.
A large share of the hail losses came in recent years. In fact, almost 70 percent of insurer hail losses since 2000 occurred during the past six years. But the increase is not just a function of more claims. The average claim severity during the past six years was 65 percent higher than the average claim severity from 2000 through 2007.
To help insurers better understand industry hail loss experience since 2000, Verisk created Property Hail Claims in the United States: 2000–2013. The report analyzes data from our A-PLUS property database, which includes data on 95 percent of industry claims losses. The analysis identified almost 9 million residential hail claims that insurers reported from 2000 through 2013 for all 50 states and the District of Columbia.
Here’s a brief overview of the results.
Top ten states for hail losses
The ranking of average annual claim severity reflects hail repair costs and provides an interesting view of the risk. Most of the states in that top ten list are not widely considered high-hail-risk states. Only three Midwest states appear, and not one is a South Central state typically known for severe thunderstorms — making it clear that severe, damage-causing hail can occur well beyond Hail Alley.
The top ten list of average annual claims loss is more reflective of states commonly known for large hail losses. Texas ranks at the top, and other typical hail states, including Oklahoma, Illinois, and Kansas, all appear.
Only two states — Minnesota and Ohio — are in the top ten for both average claim severity and annual claims loss.
Hail losses over the years
As noted in the introduction, almost 70 percent of hail losses since 2000 have occurred during the past six years, with record-setting claim volumes and losses.
Annual number of paid claims
Average claim severity
While average claim severity has receded a bit during the past two years, the general trend is pretty clear: Hail losses cost more to repair than they have in years past.
Xactware reconstruction cost data supports the A-PLUS data analysis. According to Xactware’s Industry Trend Reports, both material and labor costs associated with roof repairs have grown significantly in recent years.
Average annual claim severity
Roofing materials are up 35 percent, and roofing labor costs are up more than 60 percent nationally from January 2005 through April 2014. That compares with a 27 percent increase in overall materials costs1 and a 29 percent increase in overall labor costs2 during the same time period. We can attribute part of the increase in roofing materials costs to increases in crude oil prices, which play a large part in the manufacture of petroleum-based asphalt shingles. Another key factor is the increase in hail activity, which creates demand surge.
Demand surge — common after a catastrophe or series of catastrophes — puts a strain on the availability of materials and skilled labor. Demand surge is particularly acute in the case of labor costs, a situation clearly demonstrated by the 100 percent increase in roofing labor costs compared with overall labor costs. According to Verisk research, it can take many years before higher costs caused by demand surge retreat to precatastrophe levels. Average claim severity may not subside until the number of damaging hail events drops significantly.
Losses in 2013 were the lowest of the past six years but still 50 percent higher than the worst year from 2000 through 2007.
Even in the “traditional” hail states, losses can fluctuate dramatically from one year to the next. Outliers such as Arizona in 2010 and Tennessee in 2011 are the scenarios that keep underwriting executives up at night.
How does your hail claims loss experience compare with the industry? Download our report to find out.
- Overall materials costs are from the Xactware Basket of Goods Estimate, comprising a set of highly used material components, such as floor covering, painting, and roofing, in various quantities based on material component pricing.
- Overall labor costs are from the Xactware Retail Labor Report, based on the average wage, labor burden, and labor overhead for all labor trades tracked by Xactware.
All data in this article reflects information for 2000 through 2013 unless otherwise noted. To see the top ten lists and additional statistics, refer to our report.
Steve Lekas, vice president, Property Product Management for Verisk Insurance Solutions – Underwriting, is responsible for product development and management strategies for property lines as well as leading the development and launch of innovative property products. Before joining Verisk, he was director of homeowners Product Management and Actuarial at Esurance (an Allstate company).
To learn more about the hail claims experience of homeowners underwriting since 2000, read Property Hail Claims in the United States: 2000–2013. The report includes these three sections:
- the top states for hail losses
- changes in the hail loss experience over time
- examples of volatility in both the frequency and severity of hail
Download the report at www.verisk.com/hailreport.