Tornadoes represent a serious and increasing threat to the insurance industry in the US, a new report from Lloyd’s warns.

Each year on average 1200 tornadoes kill 60 people, injure 1500 and cause at least $US400 million ($388.38 million) of economic damage.

In 2011 – a record year – more than 1600 reported events caused $US25 billion ($24.27 billion) of damage, according to the report.

The number of tornadoes may not be growing – the increase in reports can be attributed to population movement to rural areas – but insured losses are.

“There is a clear trend of increasing annual aggregate losses to the insurance market, and billion-dollar losses are becoming more common,” the report – Tornadoes: A Rising Risk? – says.

“As exposure continues to increase, tornadoes represent a more serious threat to the insurance industry. An active tornado season hitting populated areas could result in high damages and it is important that insurers consider modelling and managing potential exposure.”

While the effects of climate change are unclear, it is likely rising temperatures will affect some of the atmospheric conditions that favour tornado formation, the report says.

“It is important to bear in mind these possible effects when considering the future of tornado risk.”

Most tornado damage involves wind tearing apart structures. The force is so powerful it often appears buildings have exploded.

Modelling insured losses from tornadoes is difficult, the report concedes. Wind-speed measurements are often unavailable and damage is often localised; in some cases one side of a street may remain intact while the other is destroyed.

“While vast areas are vulnerable to tornadoes, only a small area and number of people will be severely affected each year,” the report says. “Due to these factors, insurers often invest little in tornado modelling in comparison with hurricanes and earthquakes.

“Despite tornado frequency and the magnitude of potential losses, many insurers treat severe thunderstorm events simply as a cost of doing business, which arguably contributes significantly to volatility in financial results.”

Because tornado losses are localised, insurers should consider managing their portfolios to diversify exposure, the report says.

“For example, insurers may wish to limit their exposure within a given development or community or, alternatively, to increase their reinsurance program.

“Insurers may also wish to look at building construction and balance their book against structures more prone to wind damage.

“In certain areas insurers have introduced mandatory percentage wind deductibles or have begun to follow more restrictive underwriting guidelines that may exclude outbuildings and other structures.”

Tornadoes have been reported on all continents except Antarctica; about 20 are reported in Australia each year, although the actual number is probably much higher.

Many Australian reports come from NSW, with 173 between 1901 and 1966.