For Insurers, Smaller Weather Events Add Up to Big Losses as Climate Change Accelerates

Sunday marked the official start of the Atlantic hurricane season, a six-month stretch in which warm ocean waters and moist atmospheric conditions create the ideal foundation for tropical cyclones to form. The National Oceanic and Atmospheric Administration forecasts “above-average” activity, including six to 10 hurricanes. 

Each year, these climate-supercharged cyclones make headlines for causing mass levels of destruction, taking countless lives and costing billions of dollars. But it’s not just “the big ones” that are worsening as global temperatures warm. Research shows that more day-to-day weather events like thunderstorms, wildfires, droughts and hail are becoming more severe and, in some cases, more frequent.

In the insurance industry, these small- to mid-sized weather events are known as “secondary perils,” which are typically more localized and harder to predict than larger events. In recent years, these secondary perils have become a primary concern, a paradigm shift that could have broad implications for insurers and consumers alike. 

A Cumulative Problem: The threat of large natural disasters such as hurricanes and earthquakes—primary perils—have long kept insurers awake at night. The market was fundamentally built around ensuring that insurance companies have enough capital to pay claims following a catastrophic event. That capital largely comes from the premiums that consumers pay and reinsurance plans (because even insurance companies need insurance). 

With primary perils in mind, insurance companies have developed complex risk models and cost analyses to help forecast losses they may face in one of these major events. Smaller weather events such as rainfall and hail storms also factor into companies’ equations, but have received less attention from governments, researchers and the insurance industry, according to reinsurance firm Swiss Re. 

That’s changing. Insurance and reinsurance firms have documented increasing losses coming from secondary peril events such as wildfires, thunderstorms, hail, tornadoes and moderate flooding. A recent report from financial analytics company S&P Global found that secondary perils now account for a larger share of global insured catastrophe losses than traditional peak events such as tropical cyclones and earthquakes. These findings echo reports from the world’s largest reinsurers, which have sounded the alarm about secondary perils in the face of climate change. 

“It’s the more common kind of weather patterns that we’ve had, the things we know—heavy rainstorms and things like that, but they’re becoming more severe and they’re changing,” Andrew Hoffman, a professor of sustainable enterprise at the University of Michigan, told me. He explained that insurance and reinsurance companies are now trying to figure out how to adjust premium rates or change coverage to account for this shift. 

That can mean higher prices even in areas that may not seem as risky, which I wrote about in April. For example, the U.S. Midwest is highly vulnerable to hailstorms, and research shows that hail may be getting larger and more damaging with climate change. According to reinsurance broker Gallagher Re, convective storms, including hail, cost insurers $58 billion last year—more than Hurricanes Helene and Milton combined, estimates suggest. 

“The insurance landscape is changing as the weather landscape changes,” Hoffman said. 

Lots of Unknowns: A number of roadblocks stand in the way of accurately pricing the risks of secondary perils in the face of climate change, according to a 2022 report by accounting firm Deloitte and researchers at the University of Cambridge. The organizations interviewed a range of insurance professionals and found confusion around what secondary perils actually are—along with a lack of data to forecast them. 

“The issues are industry-wide: the definition of secondary perils is unclear; their modelling limited, and the communication of this risk data even more so,” the report reads. “Despite the narrative and recognition of this issue across the insurance supply chain, there is limited industry resource, capacity and expertise being allocated and mobilised to enhance the accuracy and consistency of secondary peril data.” 

Secondary perils can take place after a storm or as an independent event. They’re difficult to assess with current data collection methods and models. For example, a study published this week found that the main techniques to infer flooding in coastal communities are frequently inaccurate. 

The researchers zeroed in on three coastal communities in North Carolina, which are flooding more commonly as sea levels rise. Typically, NOAA measures high-tide flooding days using a network of tide gauges along the coast. But by installing a series of land-based sensors, the researchers were able to track flooding days in a different fashion, and found that flooding happens far more frequently than initially thought based on tidal gauge data. This inundation can come from something as small as a short rain shower on a sunny day. 

I asked NOAA about this inaccuracy and if they plan to incorporate any new systems for inferring flooding on land, but an agency spokesperson told me they could not arrange an interview on the topic in time for publication. 

“More accurate information on coastal flooding can inform where and how we invest resources in building more resilient communities,” co-author Katherine Anarde, an assistant professor of coastal engineering at North Carolina State University, said in a statement. “It’s hard to design an efficient solution when you don’t know the scope of the problem.”

As I wrote about last week, these risks are rising at the same time investment in disaster resilience and recovery is declining in the U.S. under the Trump administration. My colleague Amy Green recently reported on staffing, research and budget cuts at NOAA and the Federal Emergency Management Agency, which experts say could negatively impact communities going into hurricane season—and beyond. 

Insurance companies are also scrambling to determine how climate-fueled flooding and other weather events should factor into their risk calculations for primary and secondary perils. As houses keep getting built in flood-prone areas, it is up to consumers to become more knowledgeable about rapidly changing risk exposure—so “buyer beware,” Hoffman said. 

“While insurance companies and scientists, for that matter, are trying to understand the same landscape, insurance purchasers, homeowners and businesses need to become much more savvy in understanding the risks they face in their policies and their coverage,” Hoffman said. “In this changing landscape, we can take nothing for granted anymore, and we need to understand what kind of policies we’re buying.” 

More Top Climate News 

The Department of the Interior announced Monday that it plans to rescind a rule that bans drilling in more than half of the 23-million-acre National Petroleum Reserve in Alaska. The initial ban was put in place last year by the Biden administration to help protect the largest tract of undisturbed public wilderness in the U.S., home to species like polar bears, walruses and beluga whales. The reserve also holds an estimated 8.7 billion barrels of recoverable oil, which Interior Secretary Doug Burgum says was “set aside to support America’s energy security through responsible development.” 

Several environmental groups spoke out against the decision. 

“The Trump administration’s move to roll back protections in the most ecologically important areas of the Western Arctic threatens wildlife, local communities, and our climate, all to appease extractive industries,” Kristen Miller, executive director of the Alaska Wilderness League, said in a statement. “This is another outrageous attempt to sell off public lands to oil industry billionaires at the expense of one of the wildest places left in America.” 

Meanwhile, wildfires are burning through western provinces in Canada, and the smoke is traveling into the U.S., Rebecca Falconer reports for Axios. The blazes have killed two people so far, and burned through more than 2.5 million acres, according to early estimates. Smoke is billowing across borders into states throughout the Midwest, particularly Minnesota. I wrote about that smoke-traveling phenomenon last year, and the health risks that smoke can carry when it seeps indoors. 

An analysis by MIT Technology Review found that the Trump administration has cancelled National Science Foundation grants for more than 100 climate research projects so far. Among them: research to measure methane emissions, a project to flesh out the link between heat waves and marginalized communities and efforts to help communities transition to cleaner energy sources. 

“I don’t think it takes a lot of imagination to understand where this is going,” Daniel Schrag, co-director of the science, technology and public policy program at Harvard University, told the publication. His academic institution has seen greater funding cuts than any other university. “I believe the Trump administration intends to zero out funding for climate science altogether.”