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Large Hail Highlights Risks Severe Storms Pose For Homeowners, Lenders, Insurance Companies

By ERIN FLYNN JAY

Severe storms cause billions of dollars in damage each year in the United States and climate risks are forcing property owners, mortgage lenders, and insurance companies to rethink their strategies.

According to the National Oceanic and Atmospheric Administration, from 1980 to 2024, there were 403 confirmed weather/climate disaster events with losses exceeding $1 billion each, including 203 severe storm events.

In 2024, large hail played a role in a number of severe storms that caused more than $1 billion in total losses, according to NOAA. In February, severe storms produced up to golf ball sized hail across central and eastern Texas causing damage to homes, vehicles, and businesses. 

In March, Kansas, Oklahoma, and Missouri were affected by up to baseball-sized hail. Golf ball to softball-sized hail caused extensive damage across north and east Texas in May.

Severe hail storms caused damage across eastern Colorado, with numerous reports of golf ball to baseball-sized hail, between May 31 and June 1.

And central and northern Minnesota saw quarter to golf ball sized hail while the metro region of Omaha, Nebraska, experienced up to baseball-sized hail in mid-June.

Damaging hail could be part of an ongoing trend due to climate change. Data produced by Verisk shows that storms that delivered hail of at least one inch in size increased by 20% in 2023 compared to 2022. The number of insurance claims resulting from hail events increased by more than 40%.

How should the mortgage and insurance industries adapt?

Sebastian Olascoaga, Ph.D. candidate at MIT in urban economics and policy, said the expected cost of a hailstorm depends on two variables: the likelihood of a housing unit being impacted and the damage costs per property. Both of these factors are on the rise.

“First, larger hail from these storms results in significantly more complex and costly damage to properties, increasing repair and replacement expenses,” said Olascoaga. “Second, the likelihood of housing units being impacted is rising due to two trends: the expansion of housing developments into historically hail-prone areas and the broader geographic reach of hailstorms. These combined effects create a compounding impact, dramatically increasing the overall costs of hailstorms for insurers.”

Climate modeling is a rapidly evolving field. As technology and data improve, the mortgage and insurance industries will have access to increasingly granular and accurate local estimates of all climate risks.

“Since not all risks affect regions equally, precise estimates will enable these industries to price risks more effectively locally,” said Olascoaga. “I strongly encourage these industries to keep pace with these advancements and promote competition among firms providing climate-risk data. This competition can help test the accuracy of forecasts and reduce the cost of datasets.”

Additionally, these industries should closely follow the growing body of research on both the direct and indirect effects of climate change.

“We are starting to understand that indirect effects, such as disruptions to local economies, are as significant as direct physical damage,” said Olascoaga. “Regions affected by climate events face not only structural losses but also shifts in risk perception among residents, potential buyers, and investors. These shifts can lead to reduced property values and increased difficulty in selling or refinancing properties, potentially triggering a ‘climate doom loop.’”

He added that if a mortgage firm holds a significant percentage of properties in a region affected by climate change and experiencing a “climate doom loop,” the resulting indirect damage could further depress property values, increasing the likelihood of defaults, particularly for properties purchased with high mortgage rates.

Providing potential homeowners with comprehensive environmental risk information is also crucial.

Real estate platforms are now embedding climate risk scores into property listings, helping buyers make informed decisions.

In a recent academic paper, Olascoaga showed that access to flood risk information reshapes property search and bidding behaviors. Buyers given flood risk details were more likely to choose lower-risk properties, reducing bids on higher-risk homes by 57%.

Kara Ng, Senior Economist at Zillow, said Zillow survey data shows that more than 80% of home buyers are consider climate risks when purchasing a home.

“As housing shortages persist in high-demand areas, the industry must explore creative solutions to address these concerns,” said Ng. “Powered with climate information, agents, buyers, and sellers can make informed decisions, including choosing to install features that help mitigate risks if they choose a home with a potential for impacts due to climate.” 

Notably, the number of new listings with major climate risks has increased compared to five years ago. Zillow research has shown that areas with higher flood risk tend to see more mortgage application denials and withdrawals.

“However, climate risk is just one of many factors that influence moving decisions,” said Ng. “Areas with higher flood risk often offer desirable amenities and scenic views, making them attractive places to live. Households are eager to enjoy their homes and the unique benefits these locations provide.”

Since climate change is affecting many parts of the country, insurance companies will be forced to make some tough decisions moving forward.

Rick Sharga, president and CEO of CJ Patrick Company, said insurance companies need to carefully monitor extreme weather patterns across the country to determine where it makes sense to issue policies, and how to price those policies.

There’s a limit to how much homeowners can pay for hazard insurance, he said.

“Home affordability today is already worse than it’s been in the past 40 years, and many homeowners who just barely qualified for a mortgage may simply not be able to handle insurance premiums rising by hundreds – or even thousands – of dollars a month,” said Sharga. “So, there are implications for the housing market, and home prices in general tied to hazard insurance rates.”

Sharga suggests that insurance company leaders work closely with local governments, homebuilders, and homeowners to incentivize disaster-proofing properties from extreme weather events.

“This could mean discounting policies for homebuilders who construct, or homeowners who modify their properties, to make them less likely to be damaged by hurricane-force winds or flooding, or less susceptible to wildfires,” said Sharga.

Editor Kimberley Haas contributed to this report.