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Severe Convective Storm risk assessment for (re)insurance decision-makers

Climate Quantified|Reinsurance
Climate Risk and Resilience

By Matt Day , Crescenzo Petrone and Sam Phibbs | June 11, 2021

Severe Convective Storms in Italy are increasingly being recognised as a key peril for the (re)insurance industry. A new Willis Re index aims to improve industry understanding of such events.

Severe Convective Storms (SCS) are extreme weather phenomena that may cause hail, strong winds, heavy rain and tornadoes. In Italy, there were significant increases in the number of SCS events in both 2017 and 2019 compared to historical experience.

These severe years have sparked concerns amongst the (re)insurance market, with clients and carriers seeking to better understand the risk posed by atmospheric perils including how to quantify the frequency and severity of such events.

In response to these concerns Willis Re has conducted a quantitative investigation combining state-of-the-art data and innovative methodologies to quantify the risk of SCS events.

Leveraging state-of-the-art atmospheric data to quantify risk

By assessing various atmospheric conditions that favour the development of SCS events, Willis Re has developed a risk index, dubbed the Severe Convective Storm index (SCSi). This index uses ERA 5 data from the European Centre for Medium-Range Weather Forecasts (ECMWF) that simulates the atmosphere since 1979 to present day, providing high-resolution atmospheric data across Europe. It focuses primarily on the summer months when SCS events tend to occur and is validated against (a) ground observations from the European Severe Weather Database and (b) the Willis Re market insured claims database.

Heatmap showing an example of the Willis Re Severe Convective Storm index over Italy which is validated by overlaying ground observations from the European Severe Weather Database.
Figure 1: Leveraging ERA5 reanalysis datasets in the development of a risk index to quantify the spatial distribution of 2020 SCS events in Italy. This index is well correlated with the ground observations from the European Severe Weather Database.

The dataset from ECMWF enables an assessment of the impact of climate change on Severe Convective Storms in Italy. By taking an average value of the Willis Re SCSi over the Italian insurance market we can identify that 2017 and 2019 were two extreme years (Figure 2), and that occurrences of Severe Convective Storms vary considerably year-on-year.

Line plot showing the mean yearly SCSi from 1979-2020 where 2017 and 2019 have significantly higher SCSi than most other years on record.
Figure 2: Comparison of 2020 to the historical record shows that the season was in line with the trend observed over the past 40 years whilst 2017 and 2019 were anomalously severe, being the first and third worst years on record.

Informing (re)insurance decision-making through risk quantification

The development of the Willis Re SCSi and its investigation over the last 40 years complements the Willis Re European Hail Model, a fully probabilistic model that is widely used by the European market for probabilistic loss estimation and capital management. By using quantifiable, risk-based assessments within business decision-making we can aid clients and markets to strategically manage the risk from atmospheric events. Building upon the index we can provide support varying from underwriting (Figure 3) to reinsurance which can help our clients to protect earnings volatility.

Willis Re can help manage the risk of atmospheric events to protect earnings volatility and include climate change in strategic decisions.”

Marina Cognetti | Head of Italy, Willis Re
Illustrative example of a risk index comparing the hazard in different regions to a baseline on a 0-2 relative risk scale.
Figure 3: Comparing relative SCS risk to better inform underwriting decisions.

Going forward Willis Re plans to produce and distribute regular reports to its clients during the SCS season and at year’s end that will include a review of the Severe Convective Storms that have occurred, with a comparison with the historical record. The first of these annual reports on atmospheric events within Italy was released in May 2021. For more information regarding this study or to access the full report of 2020, please contact us.


Catastrophe Risk Analyst

With a background in geophysics and remote earth observations, Matt quantifies the risk of client portfolios and develops new risk solutions.

Head of Southern Europe Catastrophe Analytics

An earthquake specialist at Willis Re, Crescenzo develops risk solutions to help clients accurately understand and mitigate their own risk.

Lead Atmospheric Scientist, Model Research and Evaluation

Sam has extensive experience in developing the Willis Re View of Risk with a particular focus on atmospheric perils and climate change.

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