Tornadoes: modeling for a complex and growing peril

Publication urges stakeholders to tackle the challenge of understanding the financial and social impact of tornadoes on large metropolitan areas.

Tornadoes are difficult to model, but that doesn’t mean we can ignore them. There are 1,200 tornadoes each year in the US and single-event losses of USD 1 billion are becoming more common, driven by population growth, asset growth and value growth.

By its nature, this elusive and deadly phenomenon defies traditional analysis. The volumes of data collected over the years fail to hold up to the task of probabilistic risk modeling. For starters, tornadoes are more discrete and localized than, say, tropical cyclones, so a much larger sample of simulations is required to determine the probability of impact at a given location.

Nevertheless, insurers must step up to the challenge and think the unthinkable: What if a tornado were to strike the downtown of a major metropolitan area?

Growing exposure                                                                               

In recent years, the most notable tornado outbreaks have caused damage in smaller cities and towns such as Joplin, Missouri; Tuscaloosa, Alabama; and El Reno, Oklahoma. Downtown areas of cities like Chicago, St. Louis, Dallas, Indianapolis and Detroit have been largely spared, but it’s only a matter of time. Urban centers have experienced plenty of near misses and anecdotal evidence suggests severe tornadoes tracking through major cities.

Perhaps the most compelling reason to build our store of knowledge is the growth in exposure to tornadoes, a trend that has accompanied population growth and accumulation of physical assets. Total insured values (TIV) in Dallas/Ft Worth, Oklahoma City, St. Louis, and Birmingham are now in the USD 50-100 billion range, with TIVs in some counties exceeding USD 100 billion and approaching USD 1 trillion.

What if?

In the publication US tornadoes: An examination of the past to prepare for the future, Swiss Re catastrophe experts use a simple and logic-based methodology to construct scenarios showing the potential social and financial impact of a tornado in the heart of a major city: for example, the 2011 Tuscaloosa-Birmingham EF4 tornado striking Cook County, Illinois; Dallas County, Texas; Shawnee and Oklahoma counties in Oklahoma or the St. Louis, Missouri metropolitan area, or the 2013 Moore, Oklahoma EF5 tornado ripping through the heart of Chicago.

While the results are sobering, it is imperative that individuals, business, insurers and governments in densely populated areas use findings such as these to inform their risk management decisions.

Published 30 June 2014

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