Industry Faces Potential Data Gaps in Secondary Peril Modeling, Pricing, and Risk Strategy.

The insurance industry may soon face a significant data shortfall following the National Oceanic and Atmospheric Administration’s (NOAA) decision to discontinue updates to its widely used Billion-Dollar Weather and Climate Disasters database. This move, announced in late May, could have far-reaching consequences for how insurers assess, price, and manage risk — especially in light of rising secondary perils.

NOAA has confirmed that it will retire the database — a public resource that cataloged climate and weather events in the United States causing at least $1 billion in damages — after finalizing the 2024 data set. While the historical data from 1980 to 2024 will be archived and remain accessible, the absence of ongoing updates leaves a critical information gap in a time of escalating climate volatility.

A Blow to Industry Analytics and Risk Forecasting

Rating agency AM Best has expressed concern that the discontinuation could disrupt insurers’ ability to monitor and respond to emerging weather-related risks. In a statement, Sridhar Manyem, AM Best’s Senior Director of Industry Research and Analytics, emphasized the importance of consistent and authoritative data sources.

“Having a common and agreed-upon data source would help insurers trend these losses in their modeling and use the data for pricing, reinsurance and risk management,” Manyem said. “It also allows the industry to assess the gap between insured losses and economic losses and work toward minimizing that gap.”

The NOAA database has long been regarded as a benchmark for evaluating the financial toll of extreme weather events. Its retirement means insurers could lose a vital tool in tracking the frequency, intensity, and financial impact of secondary perils such as wildfires, flash floods, and severe convective storms — perils that have grown increasingly costly and common, particularly in North America.

The Rise of Secondary Perils: A New Norm in Catastrophic Loss

Secondary perils are smaller-scale events compared to primary catastrophes like major hurricanes or earthquakes, but they are collectively responsible for a growing share of insured losses. In 2023 alone, NOAA recorded 27 separate billion-dollar weather events — a stark indicator of climate trends that continue to challenge the industry’s capacity to manage cumulative risk.

Without NOAA’s consistent tracking of these events, insurers may struggle to detect emerging patterns or recalibrate their models in real time. This could lead to pricing inefficiencies, insufficient reinsurance strategies, and gaps in coverage availability in high-risk areas.

Parametric Insurance and CAT Bonds Could Be Affected

Manyem also noted that NOAA’s decision could have unintended implications for innovative insurance products like catastrophe bonds and parametric insurance, which rely on specific environmental data triggers.

“If more databases disappear, parametric triggers within catastrophe bonds, which depend on measurement by NOAA, may need to be redesigned,” he warned.

Parametric insurance products are designed to pay out automatically when certain criteria — such as wind speed, rainfall amount, or temperature threshold — are met. These criteria are often based on data from government agencies like NOAA. The loss of reliable, standardized data may force insurers and reinsurers to rework these triggers or seek alternative data providers.

Can the Private Sector Fill the Void?

While other nations have government-run agencies tasked with climate risk tracking, the U.S. has long relied on publicly funded and scientifically credible sources like NOAA. With this shift, private companies may attempt to step into the gap, offering proprietary climate risk data and forecasting services.

However, AM Best cautions that building trust in these private data sources could take years — if not decades. “Private companies may have to step in to fill the void, but it could take time to build credibility and trust among market participants,” Manyem added.

A Call for Industry Collaboration

The unexpected loss of the NOAA disaster database has sparked conversations across the insurance and climate science communities. Industry stakeholders are now weighing the potential need for collaborative solutions — possibly through public-private partnerships or third-party data standards — to ensure the continuity of robust, reliable climate loss records.

As secondary perils continue to reshape the landscape of catastrophic risk, the retirement of this key NOAA resource may become a pivotal moment that tests the resilience and adaptability of insurers around the world.