The role of building codes in reducing natural disaster property losses: Hailstorms in Missouri

An issue brief by Jeffrey Czajkowski and Kevin Simmons

To reduce losses from natural disasters, communities must properly enforce effective building codes.

  • Strong building code enforcement is frequently touted as a critical component to reducing property damage due to natural disasters.
  • However, many states in the United States have no statewide building code in place; adoption is up to individual municipalities. Even if localities adopt similar building code standards, it’s unlikely all jurisdictions would equally and/or properly enforce their adopted codes.

House Shingles


ISO’s Building Code Effectiveness Grading Schedule (BCEGS®) ratings provide a joint assessment of both the stringency of adopted codes and how well communities enforce those adopted codes.
  • Since 1995, ISO has administered the BCEGS ratings for the property/casualty insurance industry across the entire country. The ratings place special emphasis on the mitigation of natural hazard losses and the role of code enforcement.
  • We use the BCEGS ratings in Missouri to examine and quantify the role that effective and well-enforced building codes play in the mitigation of residential property damage from hail.

Hailstorms are a persistent and chronic source of property losses for homeowners and insurance companies in the United States.

  • U.S. property insurer losses due to hailstorms are conservatively estimated at $1.6 billion per year. In recent years, the trend in severe weather damage has increased significantly. In 2011, the insurance industry experienced its worst wind/tornado/hail year ever, at more than $26 billion in claims.
  • Forty-four percent of the country is at “average risk” (2 to 3 hailstorms per year on average) or above of being hit by a hailstorm, with 75 percent of the cities in the continental United States experiencing at least one hailstorm per year.

Hail losses were the second-largest cause of insured property loss in Missouri from 2008 to 2010, as well as the most frequent source of a loss claim incurred.

  • For each of the three years from 2008 to 2010, affected ZIP codes in Missouri averaged 4,000 claims per year, with an average loss of approximately $7,500 per claim.
  • Missouri is a state where building code adoption and enforcement are at the jurisdictional level.

Based upon various industry and exposure-based models, the more favorably rated ZIP codes in Missouri — with effective and well-enforced building codes — significantly reduced damage from hail from 12 to 28 percent on average, as compared with less favorably rated and unclassified ZIP codes.

  • By adopting and enforcing appropriate building codes, a midsize community of 50,000 people that experiences a moderate hailstorm could expect to reduce losses by approximately $4 million to $8 million.
  • Highlighting this type of substantial savings is critical for decision makers weighing the costs and benefits of implementing more effective and well-enforced building standards.

Adhering to local building codes and communities’ ensuring the proper licensing of contractors play a critical role in the mitigation of hail losses.

We model industry- and exposure-based hail claims insurance data from 2008 to 2010 in the highly hail-impacted state of Missouri.

  • The property loss data comes in two forms: 1) ISO property/ casualty insurance industry claim data aggregated at the ZIP code level and 2) more granular exposure-based data from a national property insurer.
  • We use data on insured losses from 2008 to 2010 to explain the observed damage while controlling for hazard (for example, hail size and frequency), exposure, and vulnerability variables (for example, construction type and roof type) that can either increase or decrease loss.
  • For our loss models, we use a discrete group of BCEGS ratings in the empirical analysis of “more favorable” (average ratings 1 to 4), “less favorable” (average ratings 5 to 10), and “unclassified” (average rating 99).

Adhering to local building codes and communities’ ensuring the proper licensing of contractors play a critical role in the mitigation of hail losses.

  • Proper installation (for example, only one layer of shingles) and the quality of materials used to construct the roof and supporting structures determine how much damage a structure will sustain if exposed to hail.
  • It’s better to have some minimally effective and enforced code in place as opposed to none at all.

Jeffrey CzajkowskiJeffrey Czajkowski ( is the Travelers and Willis Research Network Fellow at the Wharton Risk Management and Decision Processes Center. He holds an M.S. in environmental and urban systems from Florida International University (FIU) and a Ph.D. in economics from FIU. His primary research fields are the economics of natural hazards and environmental economics. Leading risk, natural hazards, and environmental economics journals have published his research.

Kevin SimmonsKevin Simmons ( holds the Clara R. and Leo F. Corrigan Chair of Economics at Austin College. Dr. Simmons received his Ph.D. in economics at Texas Tech University, where he developed an interest in the economics of natural hazards. In 2010, he served as a Fulbright Scholar in Norway and will again serve as a Fulbright Scholar in Canada in 2014. Funding for his research has come from NOAA, NIST, and the National Science Foundation. In addition, he has received funding from various insurance-related institutes, the Institute for Catastrophic Loss Reduction (Toronto, Ontario), and the Insurance Institute for Business and Home Safety (Tampa, Florida).

About the Wharton Risk Center
Established in 1984, the Wharton Risk Management and Decision Processes Center develops and promotes effective corporate and public policies for dealing with catastrophic events, including natural disasters, technological hazards, terrorism, pandemics, and other crises. More information is available at

The authors acknowledge research support by the Travelers Companies, Inc., and ISO.

Reprinted with the permission of the Wharton Risk Management and Decision Processes Center, University of Pennsylvania.

Hail Loss in Missouri: 2008–2010

The map above shows the location of each of the 532 ZIP codes in Missouri with a hail loss in at least one of the three years from 2008 to 2010, overlaid with their average BCEGS rating. Among the 532 ZIP codes with at least one claim, 59 percent have a BCEGS rating — either more favorable (19 percent) or less favorable (40 percent). Thus, for our analysis, conditional upon the occurrence of the hazard, only 41 percent of ZIP codes in Missouri used in the loss analysis have an unclassified 99 BCEGS rating. The more heavily populated areas of the state, such as Kansas City, St. Louis, Joplin, Springfield, and so forth, have BCEGS ratings in place.

Expected Hail Damage by Hail Size and BCEGS Ratings

We are able to use our industry loss model results to illustrate expected damages. For example, the chart shows predicted losses from our estimations for various categories of hail size. The chart also illustrates lower average predicted damages in ZIP codes with more favorable BCEGS ratings for all hail sizes.

ISO Fire Suppression Rating Schedule

Our Fire Suppression Rating Schedule (FSRS) is free to chiefs and other fire officials. It's a manual containing the criteria Verisk uses in reviewing the fire prevention and fire suppression capabilities of individual communities or fire protection areas. To recieve a copy of the FSRS, contact our National Processing Center at 1-800-444-4554 and select Option 2.

H2O and Verisk

Water supply and distribution systems are important factors in determining a community’s ISO Public Protection Classification (PPC®). We provide complimentary educational training and seminars to water providers and associations throughout the country. Contact Hugh Gibson, national water resources manager, at for more information.

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