With climate change and severe weather continuing to escalate, hail is increasingly posing challenges for risk assessment and risk management in the insurance industry. CoreLogic’s 2023 Severe Convective Storm Risk Report identifies an average annual loss from convective storms among the insured in the United States at $17 billion, with $11 billion of that due to hail damage. As hail risk evolves, insurers need industry innovation to minimize the surprises caused by volatility, reduce their costs, and drive resilience as soon as possible.

Demystifying Hail

Hail is a complicated peril for a few reasons:

1. Insurers need to understand where hailstorms occurred and when they have occurred.

When underwriting a property, understanding the likelihood of pre-existing hailstorm damage at a specific property is crucial to maintain profitability. This is because existing hail damage, unknown to the insurer when underwriting a new policy, may result in a claim.

When insurers have access to hail data that is updated on a daily basis, they can be aware of any given property’s specific pre-existing hail score and the most recent hailstorm date. With this information in hand, it becomes possible to reduce pre-inspection costs and validate new claims based on previous hailstorms.

2. Insurers need to understand the severity of a storm that occurred.

Damage that results from hailstorms is largely correlated with the size of the hail. Hail size varies greatly within a singular hailstorm event, even from block to block. For example, one inch hail may cause only minor damage. However, two and a half inches or over hail can cause extreme damage, such as window breakage.

Roof damage usually begins to occur with one and half inch hail. This means that if an underwriter needs to identify higher risk properties, the hail size is a number that deserves attention. The ability to identify the severity and date of a hailstorm is crucial here.

3. Insurers need to understand the likelihood of hail damage occurring in the future.

With the ability to predict the probability of a storm occurring in the future and the ability to identify areas high risk of a hailstorm potentially occurring at a location, underwriters have the ability to understand the risk for a specific policyholder before it occurs. This includes understanding the probability of different hail sizes occurring.

The Key to the Hail Peril: Frequency and Severity

Unlike other parallels such as water and fire, the complexity of the hail peril comes down to understanding claim frequency and severity. Within a specific hailstorm event, the likelihood of a claim being filed for a specific policyholder differs from block to block. Even within small areas, there is a wide variety of a specific property’s propensity to file a claim.

With the ability to identify the probability of a claim being filed at the census block level, carriers are not only able to identify where the claims are likely to happen but also the frequency of the claim and the projected hail loss of that claim compared to state and national averages.

How Understanding Hail Science Can Optimize the Insurance Business

Understanding the latest science around hail gives us access to a breadth of useful data, such as retroactive data points:

• • The location where hail fell
  • The size that the hail was when it fell

and predictive data points:

• • The location where hail is likely to fall
  • The size that the hail is likely to be when it falls
  • The likelihood that there will be a claim after the hail does fall

These data points help insurers do the following:

• Avoid high risk policies and potential associated losses
• Identify and attract low risk, profitable policies
• Identify non-rate actions
• Improve loss ratios
• Maximize profits

Access to hail data is a business differentiator

More severe hail is continuing to pose challenges for the insurance industry and having access to the latest solutions in this space is critical as a business differentiator. Retroactive and predictive data points are helping underwriters improve their risk estimates, minimize the surprises of volatility, and lower costs.

Download CoreLogic’s 2023 Severe Convective Storm Risk Report to learn more about this and other perils impacting this storm season.

Saumi Shokraee, Professional, Research and Content Strategy at CoreLogic. Saumi joined CoreLogic at the start of 2020 and is primarily focused on researching, analyzing, and communicating trends in natural catastrophe and construction as they relate to the real estate and insurance industries. Saumi holds a B.A. in Physics from the University of California, Berkeley.