Severe Convective Storms: A Quiet but Growing Threat to Loan Collateral and Portfolio Stability

For decades, hurricanes have dominated conversations around weather-related financial risk. But in today’s insurance market, a different peril is driving more insured losses than any other natural catastrophe in the United States, Severe Convective Storms (SCS).

While less visible in headlines, SCS events are reshaping insurance availability, coverage terms, and loss outcomes in ways that directly affect banks, lenders, and servicers with property-backed portfolios.

 

What Are Severe Convective Storms?

Severe Convective Storms are intense thunderstorms fueled by rising warm air. They typically include one or more of the following hazards:

• Large hail

• Tornadoes

• Straight-line (derecho-style) winds

• Flash flooding

Individually, these events may seem manageable. Collectively, they represent the largest source of insured catastrophe losses in the U.S., not because of one massive event, but because of their frequency, geographic spread, and cumulative damage.

Where Convective Storm Risk Is Highest, and Expanding

SCS activity is no longer confined to a narrow region. It is concentrated, and growing, across much of the central and eastern United States:

1. Central Plains (“Tornado Alley”)Texas, Oklahoma, Kansas, Nebraska, ColoradoFrequent hail, tornadoes, and wind-driven property damage.

2. MidwestMissouri, Iowa, Illinois, Minnesota, WisconsinRecurring eastward-moving systems producing widespread roof and exterior losses.

3. Southeast (“Dixie Alley”)Mississippi, Alabama, Tennessee, GeorgiaHigh tornado frequency, often fast-moving with limited warning time.

4. Eastward ExpansionOhio Valley, Mid-Atlantic, NortheastIncreasingly impacted regions that were not historically underwritten as high-risk.

For banks, this expansion matters. Properties once considered “low catastrophe exposure” may now face material insurance limitations and higher post-loss volatility.

• The frequency of U.S. billion-dollar disasters has increased dramatically since 1980 due to the rise in extreme weather and a growing number of people, homes, and businesses in harm’s way. https://www.climatecentral.org/climate-matters/2025-in-review

• Severe weather accounted for a record 21 billion-dollar disasters in 2025, concentrated in a series of spring and summer tornado outbreaks across the central U.S. The January 2025 Los Angeles wildfires were the costliest event of the year as well as the costliest wildfire on record. With $61.2 billion in damages, this devastating event was about twice as costly as the previous record wildfire. https://www.climatecentral.org/climate-matters/2025-in-review

Why SCS Matters to Banks, Not Just Insurers

Unlike hurricanes, which are episodic and seasonal, severe convective storms occur dozens of times per year, often affecting multiple states in a single event.

Loss severity is driven by:

• Thousands of small-to-mid-sized claims per storm

• Rising construction and repair costs

• Aging roofs and building systems

• Increased development in storm-prone areas

For lenders, this translates into:

• Higher claim deductibles paid by borrowers

• Partial repairs instead of full restoration

• Delayed claims settlements

• Increased risk of insurance proceeds shortfalls

Over time, these factors can erode collateral value, borrower resilience, and recovery outcomes following a loss.

How the Insurance Market Is Responding

Because of the sustained loss activity, reinsurers now treat SCS as a primary catastrophe peril, not a secondary risk. That shift is already visible in property insurance policies nationwide:

• Higher wind and hail deductibles

• Roof schedules limiting payouts based on roof age

• Greater use of Actual Cash Value (ACV) settlements

• Stricter underwriting on roof condition and materials

• Increased emphasis on mitigation (impact-resistant roofing, wind ratings)

• Growing use of deductible buy-downs and parametric solutions

These changes can leave borrowers underinsured.

What This Means for Portfolio Protection

From a banking perspective, Severe Convective Storms introduce a new layer of silent risk:

• Insurance compliance may not equal insurance adequacy

• Older roofs represent a growing concentration risk

• Repeated hail losses can degrade collateral faster than anticipated

• Deductible exposure can impair a borrower’s ability to restore property

Key Takeaway for Banking Professionals

Severe Convective Storms are frequent, widespread, and increasingly costly. Though they rarely dominate national headlines, they quietly generate more insured losses than any other weather peril in the U.S.

For banks and lenders, understanding this emerging term, and how the insurance market is responding, is essential to:

• Protecting collateral value

• Anticipating coverage gaps

• Strengthening portfolio resilience

• Managing long-term risk in a changing climate and insurance environment

As SCS continues to shape underwriting and claims outcomes, proactive awareness will separate portfolios that absorb losses from those that compound them.

CPIA works with financial institutions to provide insurance tracking services that help identify coverage deficiencies, monitor compliance, and support effective portfolio oversight. For eligible tracked collateral, CPIA’s automatic lender-placed insurance solutions help ensure coverage remains in place when borrower policies lapse or no longer meet requirements. Together, these services help lenders manage risk, support regulatory expectations, and protect collateral value in a changing insurance environment.