Storm clustering, a recurring feature of the European windstorm season, poses significant challenges for the insurance and reinsurance sectors. Under certain climatic conditions, storms can form in rapid succession, bringing damaging winds, heavy rainfall, and storm surges to multiple countries with minimal respite.
This clustering effect has historically resulted in considerable claims, with aggregated insurance losses from the 1990 and 1999 seasons exceeding €20 billion each, adjusted to current values, according to the Gallagher Re market loss database.
The phenomenon remains a critical area of focus for the re/insurance industry. Although recent years have seen less severe clustering compared to the late 20th century, events such as the storms Ciara, Dennis, and Jorge in 2020 and Dudley, Eunice, and Franklin in 2022 serve as reminders of the high loss potential.
In its report, Gallagher Re emphasized the need for a deeper understanding of clustering behavior to better manage exposures across Europe.
Gallagher Re also noted that existing models often fail to account for how clustering varies within a season or across regions. This has led to calls for innovative approaches to improve risk assessments. To address these challenges, Gallagher Re has partnered with the University of Birmingham to conduct research into storm clustering’s spatial and temporal patterns.
The collaboration with the University of Birmingham aims to identify large-scale drivers of European windstorms, such as storm corridors and clustering-prone regions. Early findings suggest that storm clustering intensifies later in the season, with more activity between January and February.
This has implications for reinsurance contracts, which in Europe typically renew on Jan. 1. The clustering pattern means many events occur early in the contract term, a consideration for reinsurers and reinsurance buyers alike.
The research also indicates that clustering behavior varies by region, with some areas experiencing distinct storm activity at different times of the season. Gallagher Re said that this regional variance can significantly affect (re)insurers based on the geographic distribution of their portfolios.
David Egan (pictured above), executive director for EMEA and head of the international property practice group at Gallagher Re, said that the research partnership is designed to provide clients with the latest insights on European windstorm risk.
Egan said that understanding clustering behavior will help insurers address earnings volatility and capital modeling needs while enabling reinsurers to more accurately assess risk.
Gallagher Re’s research highlighted the role of the North Atlantic jet stream and Rossby wave troughs in driving storm clustering. These atmospheric features create a transition zone between cold and warm air masses, leading to the formation and eventual breaking of Rossby waves.
The energy released by these waves influences the trajectory and intensity of storms, with the angle and position of the jet stream affecting clustering patterns.
The process, known as Rossby wave breaking, transfers energy to upper-level jets, which then propel storms along their path. Variations in this mechanism contribute to differences in storm clustering behavior across regions and seasons.
Storm clustering has significant impacts on claims processing and loss amplification. Successive storms in a short period can weaken structures, leaving properties more vulnerable to subsequent damage. This cumulative effect complicates claims assessment, especially when hours clauses make it difficult to attribute losses to specific events.
For insurers, the challenge lies in managing the rapid influx of claims while addressing the amplified losses caused by back-to-back events. Reinsurers face the added complexity of accurately modeling these risks to structure effective coverage.
Gallagher Re’s partnership with the University of Birmingham aims to address these challenges by improving catastrophe models. Enhanced modeling capabilities will provide insurers and reinsurers with better tools to assess and manage exposure to clustered storms.
The research will enable Gallagher Re to refine its approach to storm clustering within existing catastrophe models, improving both geographic and temporal risk assessments. These insights are expected to inform more effective coverage strategies and claims processes for re/insurers.
Egan said that the partnership balances the needs of both insurers and reinsurers. Insurers will benefit from improved structures that address earnings volatility, while reinsurers will gain a clearer understanding of the risks, avoiding underestimation or overstatement.
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