US winter storm claims to exceed $10 billion

A series of winter storm events across the US, starting on 12 February, have led to widespread catastrophic freeze impacts, particularly in the State of Texas, causing significant-duration power outages.

The storms impacted more than 70% of the continental United States with freezing temperatures, snow, and ice. Given the significant number of expected claims and average claims severity values, industry insured losses appear likely to exceed $10 billion. 

However, there are several factors that could still potentially drive the loss well in excess of that figure – among these could be a higher than expected rate of claims among those risks affected by prolonged power outage, whether utility service interruption coverages pay out, larger than expected impacts from demand surge, government intervention, and whether claims from mold damage start to emerge as a significant source of loss. 

The freezing temperatures - many of them records - and winter precipitation hit Texas and the southern US on 13 February and lasted there through 18 February. This event marks the longest continuous freeze on record for most locations. 

These freezing temperatures, coupled with the unusually high demand for heat, was enough to cripple the state’s power grid and plunge wide swaths of the State of Texas into cold and darkness. 

Close to 12 million residential properties and more than 800,000 commercial/industrial risks were in the areas of Texas impacted by this event. Based on information from the Insurance Council of Texas, data from other Verisk units, and commentary from the insurance industry, it appears likely that the number of claims from this event may significantly surpass those from 2017 Hurricane Harvey. 

For commercial risks, freeze-dominant historical events have resulted in average claims upward of $30,000. Reports suggest that many industries within the manufacturing and energy sectors in Texas were disrupted due to rolling power cuts, which could ultimately result in large claims.

While physical damage resulting from frozen pipes is covered under typical residential and commercial property insurance contracts, business insurance claims may also include an optional utility service interruption coverage as an endorsement. This endorsement typically covers lost business income due to loss of utility services, including loss of use, content spoilage, and others.

This coverage is generally triggered beyond a specific time frame (typically 24, 48, or 72 hours). With wide swaths of Texas and adjacent states lacking power and/or water for several days, service interruption losses for commercial/industrial risks are expected to accumulate. There is some gray area in the coverage, however, as the coverage only pays out if the property damage in question is a result of damage to a covered utility property by the same peril; it remains unclear at this time whether the service interruption losses to commercial/industrial risks were a result of damage to a covered utility by the same peril.

Subrogation remains a possibility with respect to this aspect of the loss. Significant uncertainty exists in the magnitude of insured losses to commercial/industrial lines depending on the trigger time frame for business interruption payouts as well as the take-up of the utility service interruption endorsement.