The Evolving Threat of Hail Damage for Dealers: Skyrocketing Costs and Shifting Geography

With 2019 marking the eleventh consecutive year of $10 billion+ hail damage, a recent study shows that across the U.S., favorable environments for large hail is growing—and shifting eastward.

Nothing can give a car dealership GM a sinking feeling in the pit of his/her stomach like incoming weather alerts of an impending hailstorm in the local area.  Many have stood inside their showroom and helplessly watched out the window, hearing the sounds of countless tiny ice missiles thudding off the hoods and roofs of brand-new vehicles—causing potentially hundreds of thousands or even millions of dollars in damage.

An Underrated Threat

While tornadoes and hurricanes grab the major news headlines, hail and severe thunderstorms can be equally or even more devastating in terms of property damage.  Hail damage is more widely dispersed and fatalities are rare (the last time someone died because of hail was in 2008), yet the impact and cumulative destruction they cause is undeniable.  A perfect example is the June 6, 2018 storm that occurred in the Dallas-Fort Worth area, when large hail, including baseball-sized monsters, caused $1 billion in property loss.

Hail has long been a serious threat to car dealerships—especially in certain high-risk areas across the U.S.—however, recent years have seen hail damage costs soar, starting in 2008.  This was the year that marked a steep upward pivot for annual costs relating to hail and severe thunderstorm damage, from $9 billion in 2007 to over $19 billion in 2008.

Since then, total U.S. insured losses from hail and storm damage has averaged around $19 billion annually, greater than double the adjusted rate typical at the start of the millennium, and four times the adjusted rate from the 1980s.

Searching for Answers

This has prompted many to ask meteorologists and risk experts for reasons for the steep increase in yearly losses.

  • Is it due to an annual increase in the storms that produce “large hail” (as defined by the National Weather Service, 3/4 inch or greater diameter) likely to do damage?
  • Are hail sizes getting larger due to shifting weather patterns or climate change?
  • Or, is it simply a matter of an extended streak of bad luck, with major hailstorms randomly hitting larger, increasingly populated metro areas, as opposed to empty fields?

The likely answer—a combination of all the above, as many experts are struggling to pinpoint a precise reason.  What’s not in question: the chilling effect that hail has had on the insurance market for dealers, particularly those in hail-prone states with significant claims.  Non-renewals, sharply increasing premiums and more limitations are putting many dealers in a difficult position.

With hail season right around the corner (specifically May through September), brokers who specialize in the Dealers Open Lot market need to keep a few things in mind with regard to hail coverage:

  1. Favorable Days for Large Hail are Increasing Across the U.S.—even in the Northeast

The majority of large hail storms in the U.S. occur along “Hail Alley,” which refers to a mile-high plain running along Colorado’s Front Range of the Rockies; in total, spanning a region from Texas and Oklahoma up to North and South Dakota.  According to the NCIB, the top five states for losses from hail are Texas, Colorado, Nebraska, Missouri, and Kansas.

However, a new December 2019 research study seems to suggest that more areas outside Hail Alley should be of the threat of large hail.

A team of scientists led by the University of Albany’s Brian Tang looked at nearly four decades of different data sets, zeroing in on a range of different variables (temperature, humidity, wind) as they relate to hail production during severe storms.  The goal—determine how many days in each year during this 38-year span exhibited conditions conducive for large hail.

The study found that over the near four-decade span, regular increases were seen east of the Rockies, notably a 10- to 15-day increase in portions of the central U.S.  Additionally, the research indicated that most Northeast states showed an increase of approximately three to eight days favorable to large hail.

This aligns with what Kevin Gast, Program Manager for All Risks’ Dealers Open Lot Program is seeing with hail reports.  “Yes, it’s definitely moving east.  The severity is still in Hail Alley with the larger hail, but that doesn’t mean other dealers aren’t affected.”

He goes on to say, “Last year we had hail in Maine, Ohio, Pennsylvania, New York, North Carolina, Kentucky, Maryland, Virginia, even in Idaho.  These aren’t the typical hail states.”  Given this, dealers in these states should take a close look at their coverage to see if changes are needed.

  1. Know How Your Provider Pays a Hail Claim

For brokers and insureds, Gast has a simple but important piece of advice.  “Know your coverage form.  Know your carrier.  And above all, know precisely how a hail claim would be paid,” he says.

He adds, “When it comes to looking at options, you absolutely need to ask the prospective provider to provide examples of how a hail claim would be paid.  There are often hidden restrictions and exclusions that aren’t advantageous to the dealer, and if you don’t ask, you won’t know.”

“This is important knowledge both for agents in understanding the product they’re selling, for and car dealerships in terms of security and peace of mind.”

  1. Weather Aggregate is The Hot Topic

“The big topic that everybody is talking about and brokers are asking is, “Can you do weather aggregate?” says Gast.  Weather aggregate deductibles allow dealers to protect their inventory and satisfy lender requirements.

Kevin explains, “The Insurance DOL markets who are willing to offer a weather aggregate do it because their claim adjustment practice is advantageous to the insurance company—not the dealership.  When you ask the important questions on how a claim is paid out and you do the simple math, many of the markets who offer a weather aggregate will actually pay much less in a hail loss to dealerships than those who have a per car no aggregate.”

  1. Ask the Right Questions

Gast offers some additional important questions to ask prospective providers:

  • Can you get a copy of the carrier’s Hail Matrix?  By comparing companies’ hail matrices, you can quickly see who has a better program.
  • Does your carrier provide an automatic discount to the gross loss before deductible?  If so, how much?
  • Does your carrier offer you a reduction of the per car deductible if they use paintless dent repair to adjust the loss?
  • Do they have a CAT team to handle large hail claims?

All Risks has a seasoned team of new auto dealer insurance specialists dedicated to helping you place all lines of coverage for your franchised auto dealers.  You can access our exclusive non-admitted Dealer Physical Damage (Dealers Open Lot) program with an A.M. Best “A+” XV carrier or our admitted package program with an A.M. Best “A” XIV carrier.  We offer nationwide access, broad coverage forms and top notch service that you are expecting from All Risks, Ltd.  We offer multi-state capabilities with no audits and no monthly reporting.  Contact us today to learn more about our franchised auto dealer insurance programs!

Crazy hail fact: The largest hailstone recorded to fall in the United States landed near Vivian, South Dakota in July 2010.  The hailstone measured 8 inches across and weighed 1.94 pounds!

Legal Disclaimer: Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.