What U.S. weather agency cuts mean for P&C

Recent and ongoing cost cutting initiatives at U.S. federal agencies may impact the ability of insurers across North America to gauge how severe weather events could impact secondary perils claims going forward, industry sources suggest.

Agencies experiencing significant layoffs include the National Oceanic and Atmospheric Administration (NOAA), and its subsidiary, the National Weather Service (NWS). Both U.S. agencies create data sets relied on by forecasters and industries exposed to weather risks worldwide.

“The NWS has developed leading weather forecast models by working with the academic and global science communities, and partners with others beyond national borders to share their data,” Gordon McBean, professor emeritus at Western University’s department of geography and environment writes in The Conversation. “The multi-year development and implementation of these weather systems has led to high quality and reliable information for weather, climate and ocean situations.”

Losing that data is concerning at a time when Canada has seen increasingly costly years for natural catastrophes payouts ($9 billion in 2024) due to more frequent and diverse weather events. Last year, claims exceeded 278,000 and strained the capacity of insurance adjusters nationwide.

Related: Canada’s P&C financial results weathered the 2024 storms

It’s also problematic because Canada shares a continent with the U.S., and by extension weather agencies in both countries have traditionally shared large amounts of data.

Environment and Climate Change Canada (ECCC) notes it has a longstanding relationship with NOAA in operational weather, climate, satellites and water monitoring activities.

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So far, ECCC tells Canadian Underwriter, it “has not been officially informed of any changes to its collaboration with NOAA. It adds the two agencies “also collaborate daily on a number of different fronts, including in Arctic waters and the Great Lakes through joint ice observations and forecasts via the North American Ice Service, and [by] producing integrated weather models as part of the North American Ensemble Forecast System.”

In the event of a disruption, ECCC says “officials will work with contingency plans and approaches to minimize impacts. These plans include working with other national hydro-meteorological services and with the World Meteorological Organization (a United Nations agency that coordinates real time data exchange).

Billion-dollar claims

In the U.S., McBean notes, disaster costs are rising and there has been an increase in billion-dollar events. It’s troubling news given that NOAA recently announced plans to decommission several of its databases, including one that’s tracked Nat Cats resulting in US$1 billion in economic damage since 1980. It will not be updated following beyond the current 2024 data sets, NOAA adds.  

“Removal of the billion-dollar weather disaster database could impede insurance companies’ ability to track losses due to secondary perils,” global ratings agency AM Best says in a May commentary.

“This decommissioning comes following a year when there were 27 US$1 billion weather events, and 28 in 2023 [in the U.S.]…compared with an average of 15 events in 2010-2022.”

Over the past five years, a continued increase in the frequency of secondary perils has been a major cause of loss for U.S. property & casualty insurers with property catastrophe exposed lines of business, AM Best says in its commentary. This is predominantly due to weather patterns, the effects of inflation and exposure growth spurred by population migration.

Related: What Canada can learn from LA’s wildfires

“Having a common and agreed-upon data source would help insurers trend these losses in their modelling and use the data for pricing, reinsurance and risk management, as well as help assess the gap between insured losses and economic losses and see how insurance can work to minimize the gap,” says Sridhar Manyem, AM Best’s senior director of industry research and analytics.

“If more of these data sources were to disappear, parametric triggers within catastrophe bonds, which depend on measurements by the NOAA, may need to be redesigned. While some other countries have governmental agencies that track similar data, private companies may have to step in to fill the void and it could take some years to build credibility and trust among market participants.”

Further commentary on the database decommissioning came in a Jun. 9 letter signed by several organizations, including the Americans for Financial Reform Education Fund and the Union of Concerned Scientists.

“The decision to cut this tool comes at a moment when we still have yet to fully account for the damages from the devastating fires in Los Angeles or flooding across the South and Midwest…homeowners and communities will be left in the dark, unable to track, respond, and prepare for disasters. The private sector will not fill this information gap with accurate, accessible climate data. It will be kept behind paywalls, if it is rebuilt at all,” the letter read.

With files from Alyssa Di Sabatino.

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.