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Insurance industry needs better modeling for U.S. tornadoes: Lloyd's

Insurance industry needs better modeling for U.S. tornadoes: Lloyd's

The insurance industry needs to better model for the risks presented by tornadoes to insured properties in the United States, Lloyd's of London said in a report Wednesday.

“Tornadoes: A rising risk?” notes that a quirk of geography has made the middle of the continental U.S. uniquely susceptible to tornadoes.

“Although tornadoes occur across the world, the U.S. experiences more tornadoes than any other country,” the report states. “Cool dry air descending from Canada gets funneled eastward by the Rocky Mountains. Over the Great Plains, the air meets low-level moisture traveling northward from its source over the warm tropical waters of the Caribbean and the Gulf of Mexico.”

Accordingly, the U.S. averages 1,200 tornadoes per year, which kill at least 60 people and injure 1,500 more, the report notes.

Moreover, the costs from tornadoes seem to be increasing, with annual aggregate losses from severe thunderstorms accounting for more than half of all insured catastrophe losses in the U.S. since 1990.

“Billion-dollar losses are becoming more frequent,” the report states. “For example, both 2008 and 2009 saw three severe thunderstorm events which cost over $1 billion, whilst the record-breaking 2011 cost the insurance industry over $25 billion.”

The report urges the industry to boost its investment in modeling for the storms to protect insurers' bottom lines.

“Although general trends can be identified in terms of frequency and severity of tornadoes for different states, it is extremely difficult to predict the exact locations where tornadoes will make landfall,” the report states. “Whilst vast areas are vulnerable to tornadoes, only a small area and number of people will be severely affected each year. Due to these factors, insurers often invest little in tornado modeling in comparison to hurricanes and earthquakes.”

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