Steve Bowen, chief science officer at Gallagher Re, noted that while weather and climate factors are certainly partly responsible for the increase in severe convective storm (SCS) damage costs in the United States, much of the increase can be clearly linked to macroeconomic and socioeconomic drivers.
Speaking to Reinsurance News following the release of Gallagher Re’s first quarter 2026 natural catastrophes and climate report, Bowen said the company conducted in-depth research to better understand the drivers behind U.S. South China Sea loss costs.
“We started with 2008 as the base year because, in nominal terms, the cost of this hazard in the United States exceeded $10 billion for the first time,” Bowen explained.
He continued, “At the time, this was a big deal. At a time when $100 billion in annual insured losses from natural catastrophes was not a regular occurrence, so-called “minor” catastrophes exceeding the $10 billion threshold were eye-opening.
“Yes, while severe thunderstorms cause relatively large losses, they have not yet dominated annual damage costs. What we have seen has been a clear upward trend over the past 18 years, since 2008.
“This change has been proving interesting, so we decided to dig deeper into the plausible signals driving this change on a hazardous or non-hazardous basis.”
Bowen said the study found that while weather and climate factors were certainly part of the equation, much of the growth could be clearly linked to macroeconomic and socioeconomic drivers.
“About 80-90% of the increase is likely related to non-disaster factors, with another 10-20% attributable to weather, climate change and other disaster-related impacts,” Bowen explained.
He added: “To be clear: this does not preclude new changes in storm behavior that we are increasingly seeing. But it is not the main driver of increased damage costs.”
According to the chief scientific officer, the main factor that initially triggered this trend was the major energy crisis of 2008, which caused a sharp spike in oil prices.
Bowen continued, “In the United States, the predominant roofing material is asphalt shingles (whose kryptonite is always hail), and its production relies heavily on oil, so costs have risen dramatically.
“Then we saw asphalt and other construction materials and labor costs spike again during the COVID-19 pandemic in 2020 and 2021, when price pressures continued to rise due to supply chain disruptions, inflation and other factors related to rising interest rates.
“This ultimately leads to a significant increase in replacement costs. Energy costs have proven to be more volatile, with ups and downs and spikes, but the same cannot be said for the producer price index.
“These costs have remained high, and we’ve essentially seen consumers get used to higher cost levels, which has forced the insurance industry to adapt to these higher loss realities.
“Another factor since 2008 has been the rise in social inflation. The biggest issue is the increase in claims litigation, largely due to third-party ‘Assignment of Benefits (AOB)’ practices.
“This isn’t necessarily just an SCS hazard issue, we’ve seen hurricane-prone states like Florida take significant steps to eliminate AOBs to stabilize their markets, but claims litigation is disrupting insurance markets in states that have yet to implement regulatory reforms.
“Recent years have also seen the emergence of emerging external technologies that are being installed more frequently in homes and businesses, such as solar panels, battery storage systems and other higher value components. These installations will only add to more potentially high damage costs when impacts related to the South China Sea issue occur.
“There are more factors to consider here, such as continued population growth in some of the highest-risk South Sea states in the United States, but it should be clear that these factors significantly impact loss trends. As the severity of hazards in individual outbreaks increases, this will only complicate the way major insurers, reinsurers and provider modelers assess overall risk.
“It should no longer be viewed as an exercise in tracking outbreaks, overlaying thunderstorms on top of portfolio risks, and quantifying losses on physical risks. There is now a need to look more deeply at broader cost dynamics, including non-physical factors such as loss adjustment charges, which are also on the rise.
“We fully expect this trend to continue in the coming years.”
Elsewhere in the interview, there was discussion of whether turning to storms should still be considered a “peak” danger in Europe, a key point in a new report from Gallagher Re.
“We are not provocative for the sake of provocation. We dug into the data, looked at how the hazard behaves over time and held extensive discussions with our clients and the wider European market,” Bowen said.
He continued, “What we’re seeing is that it’s now approaching 20 years since the last truly major storm event in Europe that caused nominal losses of over $10 billion. The last storm of this magnitude was Kyrill in 2007. Since then, we’ve certainly seen a few smaller, noteworthy events that caused significant damage, but nothing that was considered a market-changing event that changed the industry’s perception of the danger at a systemic level.”
Bowen clarified that this does not mean the risk has disappeared, adding that Gallagher Re still actively encourages the purchase of reinsurance to protect against the persistence of risk.
“It’s just that we haven’t seen a major event of this magnitude in a long time. If you compare that to every other major global hazard since 2007, we’ve seen one or more of these events exceed the $10 billion insured loss threshold,” Bowen observed.
He added: “Another reality is that most conversations with our European clients tend to focus more on the South China Sea and flooding. These hazards have caused the majority of losses on the continent over the past 10 to 20 years, and EU storms are not necessarily the top risk in their portfolios. So while we are actively aware of the potential risk from EU storms to several major European cities, the frequency of more impactful events is already higher than in the 1980s and 1990s.
“This point feeds into a larger discussion at Gallagher Re in our client conversations and thought leadership releases. Our view is that rigidly classifying risks as ‘major’, ‘minor’ or ‘peak’ versus ‘non-peak’ is not particularly helpful.
“Ultimately, the overall risk landscape is evolving, and in some cases risk is increasing, while in other cases risk may be stable or decreasing, depending on the region and hazard.”
Bowen concluded: “What’s more important is how the firm looks at its own portfolio and understands that the most material risk exposures are specific to each client. When we have these conversations, they tend to be more constructive because they reflect the client’s actual risk profile, rather than imposing a generic label on the client.
“For example, referring to SCS as a ‘minor/off-peak’ hazard would not help a Midwestern US airline with no coastal exposure to express that, despite facing significant risk of thunderstorm losses, hurricanes are inherently more significant as a ‘primary/peak’ risk. In this case, such a label would effectively obscure or minimize the customer’s true risk profile.”
“A lot of this comes down to semantics, but more importantly, it also reflects the reality of the real dangers in experience and customer engagement being observed today.
“Again: we certainly recognize and communicate the potential risks that a major EU storm event or a clustered sequence of influential small or medium storms could pose to many countries in Europe. Businesses need to remain steadfastly protected through adequate reinsurance protection. It may not deserve to be a primary concern when other dangers in recent decades have prompted the insurance industry to be more reactive.”
Read more of our coverage of Gallagher’s Q1 2026 Natural Hazards and Climate Report, in which the company estimated total economic losses from all natural disasters to be at least $58 billion, about 12% below the 1Q10 average.
Of this total, losses covered by private insurance companies and public insurance entities totaled at least $20 billion, down 26% from the ten-year average.
