Aon Launches Innovative Framework to Tackle Weather Volatility in Insurance Portfolios
Global insurance and reinsurance broker Aon has introduced its Severe Convective Storm (SCS) Five-Step Framework, a meticulously structured approach aimed at assisting insurers in mitigating the impact of weather volatility across their portfolios. Since 2015, annual insured losses from SCS in the United States have averaged a staggering $33 billion, as per Aon’s analysis, reflecting a 90% surge compared to the previous decade. In 2024 alone, the peril resulted in a record $54 billion in losses.
Aon emphasizes that over 80% of this increase is attributable to growth in exposure, rather than alterations in weather patterns, underscoring the urgent need for robust insurance fundamentals to efficiently manage this volatility. Gallagher Re has highlighted that the SCS peril has shifted to a ‘new normal,’ where annual insured losses are consistently exceeding $40 billion.
Gallagher Re’s report noted, “In 2024, the US faced a record-tying 10 multi-billion-dollar insured loss SCS events, paralleling the record set in 2023.” The first half of 2024 witnessed particularly high SCS activity in the U.S. According to Swiss Re, SCS, mainly in the U.S., accounted for global insured losses of $42 billion in H1’24, about 87% higher than the 10-year average.
The high frequency and relatively low severity of SCS events have historically necessitated separate management processes, leading to potential exposure gaps for re/insurers. Aon’s new framework addresses this by enabling clients to manage SCS exposures more comprehensively, encompassing portfolio management, underwriting, modeling, and capital allocation.
Adam Dawson, Director of U.S. Reinsurance Catastrophe Analytics at Aon, commented, “Catastrophe model vendors have historically faced challenges in capturing SCS loss experiences due to very localized footprints, expanding urban developments in high-risk areas, and the complexities of social inflation dynamics. Insurers should utilize claims experience to benchmark model outputs and identify opportunities for portfolio adjustments.”
Through this framework, Aon will assist clients with aggregate-level claims analysis and loss benchmarking, as well as location-specific claims analysis to uncover trends. The use of Impact Forecasting’s historical event footprints further enhances the historical perspective.
Aon employs this data to aid insurers in developing customized adjustments, offering a comprehensive SCS toolkit with model-agnostic tools for hazard scoring and risk accumulation management. Patrick Abbe, U.S. Regional and Mutual Strategic Growth Leader at Aon, stated, “Over the past decade, SCS has evolved from being considered a secondary peril to becoming one of the costliest challenges in many U.S. (re)insurers’ portfolios. Acknowledging the volatility this situation continues to impose on the industry, Aon has crafted this holistic framework to empower clients to build resilience, make informed business decisions, and manage rising SCS exposures effectively.”
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