Why are high-definition (HD) models the required solution for managing severe convective storm risk?

Author: Julie Serakos, Senior Vice President - Head of Model Product Management, Moody's

With rising severe convective storm (SCS) losses and the sheer complexity of managing exposures for these highly granular perils, the insurance industry is struggling for answers when managing SCS risk.

In 2024, Munich Re reported that SCS accounted for $41 billion in insured losses in the U.S. alone. Swiss Re stated that first-half 2025 SCS insured losses for the U.S. topped $31 billion.

Catastrophe models are invaluable tools for understanding risk and making informed business decisions, whether for portfolio steering or capital management. Yet, for SCS perils, such as hail, straight-line winds, or tornadoes, the industry struggles with a prevailing ‘black box’ modeling approach.

Many vendor modeling solutions compute loss results without the means to test the accuracy of losses, leaving users to accept the results ‘out of the box.’ The losses that are generated leave a lingering uncertainty about whether the risk is properly captured before the results are used as a basis for important business decisions.

Moody’s RMS™ high-definition (HD) models overcome many of these issues and represent a real change, as HD models are significantly more sophisticated than traditional simulation model methods available in the market. 

Here are three reasons why:

First, all our HD models leverage the cloud-native computing power of Moody’s Intelligent Risk Platform™ (IRP). This is important, as the platform provides the compute that our HD models need to model the hundreds of millions of simulated events required to ensure proper spatial coverage across the full range of event sizes and severities.

This is especially important for the highly granular perils of tornado and hail, which affect small geographic areas. With the computing power of the IRP, there is no need to take shortcuts or boil down event sets to just the most populated areas to achieve better modeling run times, thereby missing modeling locations in less populated areas.

Second, while the HD approach is simulation-based, it’s a more sophisticated simulation, offering model transparency not possible with other models on the market. Using HD models allows you to test the accuracy of the modeled losses and understand if the losses from 'out of the box' are biased high or biased low. 

Third, rather than modeled results based on mean damage ratios, losses are based on a full vulnerability distribution—from zero to total damage—providing a more comprehensive representation of the full spectrum of loss, which is needed for appropriately representing highly localized losses from hail or tornado events. 

Having the ability to understand how uncertainty is manifested in your modeled results—whether the modeled results are reflective of the true risk—will definitely change how you use models for setting rates or when deciding how much capital is needed to support a growing book of business.

Using HD models gives you the power to control the level of 'model miss' in your loss results. Often, business leaders point to the inaccuracy of models, or 'model miss', when they fail to inform important business decisions. 

The reality is that many models in the market do 'miss' when representing the true risk.  With HD, the 'miss' or the amount of uncertainty is made transparent and in your control. This is an important game-changer for understanding and managing risk from hail and tornado events.

With HD, you have control over how confident you are in the model's ability to represent your risk. This allows you to make more decisive and prudent decisions about how much to charge, where to grow your book of business, identify areas that are utilizing your important capital the most, and analyze the benefit of using reinsurance capital or your own capital. 

HD models are a game changer for understanding highly granular perils such as those created by severe convective storms. 

And we can’t wait to bring our new Moody’s RMS North America Severe Convective Storm HD Model later this year to you, so you can start making smarter business decisions.