Every year billions of dollars are attributed to weather-relatedlosses. The violent phenomena that cause havoc one year might nothave as much of an impact the next, making it difficult toanticipate weather-related fluctuation of claims volume. Over thelast several years we've seen the average costs of comprehensivelosses increase steadily. Erratic weather patterns areusually to blame for the large increases in comprehensive losses.Many of the major storms in the last few years have involvedsignificant flooding, hail and strong winds, where vehicle ownersare given little warning to move their vehicles to a saferlocation. This past spring, severe weather made a significantimpact on claims costs and frequency.

According to Aon Benfield's Global Catastrophe Recap report, through the endof May 2014, tornado activity in the United States remained in thebottom 25th percentile of all years dating to the early 1950s.Though U.S. tornado activity in May this year remained low inrelative terms, severe storms and large hail caused $1 billion indamage in the Midwest, Plains, Rockies, Mid-Atlantic and Northeast.During May 2014, overall economic losses of at least $3.5 billionwere estimated and aggregate insured losses exceeded $2.2 billionin the U.S. While the occurrence of wind-related severe events werefewer through May 2014, insured losses were sizeable with largehail and damaging winds serving as the primary driver of thethunderstorm-related costs. Matthew Nielsen, a director and meteorologist at RMS, attributes60% of average annual storm losses in the U.S. to hail damage,indicating its significant economic impact.

Weather phenomena often strike with unpredictability, leavingthe extent of the damage unknown. Consider Memorial Day weekendthis year when parts of South Carolina sustained heavy hail damage.The isolated but intense hailstorm – which featured large, densehail – did significant damage to cars, roofs, siding and windows.Tens of thousands of homes and businesses were potentially damagedwith insurance adjusters estimating hail damage to about 20,000structures in the Richland area. The South Carolina Departmentof Insurance issued a bulletin immediately after the storm,allowing emergency adjusters into the state to assist with damageclaims. That order originally was set to expire June 13, but hasbeen extended until Aug. 1 because of the extent of the damage.

The month of May usually sees a lot of weather activity acrossthe U.S. and that certainly held true this year. In May 2014,CCC observed that vehicle valuation counts were up 3.8%, whilerepairable appraisal counts were up 5.5% – reflective of thesignificant weather events. Claim counts for all appraisals(including flagged total losses) in Illinois and Colorado – statessignificantly impacted by the 2014 storms, saw an uptick of 19.4%and 14.7% respectively, compared to May 2013. Hail and water lossesaccounted for over 5% of all vehicle appraisals for the month ofMay 2014 – not as bad as the 8.8% seen in May 2012, but an increasefrom the 4% in May 2013.

Certain states such as Colorado, Missouri, Montana, SouthCarolina and Illinois, saw large increases in May 2014 from thesame month in the prior year; while Iowa, Kansas and Nebraska,states that have historically seen large hail losses, had betterluck this year.

More broadly, the severe weather in May 2014 also adverselyimpacted the industry's financial performance as marked by thedecline in ALIRT's P&C Composite Index for both personal- andcommercial-lines insurers. A sharper drop was observed amongpersonal lines reflecting the weather-related losses in thequarter.

Though advances in weather forecasting attempt to warn us ofsevere weather events, the prediction of these storms far inadvance is still impossible. Insurers are finding they must catertheir claims service options to new consumer demands anddemographics, and also develop the ability to implement processesand procedures than can be easily ramped up and downpost-catastrophe to handle the large fluctuations in claims volume.Though we might not be able to predict the intensity and frequencyof weather phenomena, the persistence of severe weather trendscould potentially cause a shift in the way an insurer responds. Tocombat the issues of rising costs, increased consumer demand inaffected areas, and potential decreased customer satisfaction inothers – companies may need to explore significant changes tohandle the volatility that comes with severe weather.