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Insurance costs increase in Tornado Alley

On Behalf of | Jun 4, 2020 | Insurance

The American Midwest is experiencing a resurgence lately as people steadily move from metropolitan areas. As the state’s population grows, the demand for homes increases. Insurance companies then enjoy a flood of new customers searching for comprehensive homeowner’s insurance.

This booming industry comes with increased risk, however. Covering several homes in a compacted area may help salespeople find leads, but what if that area’s name is “Tornado Alley?”

Regional disasters cause numerous payouts

Tornado Alley sits firmly across the Midwest of the U.S., its borders containing parts of Texas, over half of Oklahoma, most of Nebraska and Iowa, and about a third of South Dakota. The region’s name comes from the high number of tornadoes that touch down in the area. The flat lands of the region give ample room to create what meteorologists call “supercell thunderstorms,” the perfect catalyst for tornadoes.

Most tornadoes in the U.S. (about 77%) only reach an EF-0 or EF-1 classification on the Enhanced Fujita Tornado Damage Intensity Scale. About 18% of tornadoes reach EF-2, and only 5% reach EF-3. Still, with around 1000 tornadoes touching down in the U.S. every year, residents, disaster relief agencies and insurance carriers can expect around 20 “violent” tornadoes and one “incredible” tornado at EF-5. These storms leave massive property destruction, injury and death in their wake.

For insurance companies, insuring these regions comes with significantly increased financial risk. Where one homestead once stood, an entire neighborhood of houses now sits. When a tornado would have ruined one family’s roof, now it flings the debris from two dozen houses around a populated neighborhood. The payouts leave insurance companies struggling.

In 2019, a record-setting 149 tornadoes touched down in Oklahoma, contributing to the most expensive year of natural disasters in the U.S.

Legal services for insurance policies

Despite the dangers, the population of Tornado Alley continues to grow. Insurance companies responded to last year’s disasters by hiking premiums and reducing coverage for homes in disrepair. Oklahoma residents have found success in reviewing potential policies with a lawyer to ensure coverage and manage the fine print.