Storm Losses Could Reach $100 Billion
Economic losses from Hurricane Katrina are likely to reach $100 billion, an insurance consulting firm estimated Friday, which would make it the costliest natural disaster in U.S. history.
Insurance will cover only a fraction of the losses, according to Risk Management Solutions of Newark, Calif. It estimated insured losses at $20 billion to $35 billion, up from initial projections of $10 billion to $25 billion.
The price tag from Hurricane Katrina is expected to far exceed that of 1992’s Hurricane Andrew, which caused $43 billion in economic losses and $20.8 billion in insured losses, in inflation-adjusted dollars.
The consulting firm said initial Katrina damage estimates failed to fully account for broken levees that turned much of New Orleans into a lake. An estimated 150,000 properties were submerged, surpassing the toll from a 1927 flood on the lower Mississippi that swamped 127,000 homes and businesses.
“The 2005 Great New Orleans Flood has developed into the most damaging flood in U.S. history,” the consulting firm, which provides risk management data for 400 companies, said in a statement. “The insufficient level of flood protection offered by the city’s levees has been exacerbated by shortcomings in preparedness.”
Insurance companies cautioned that damage estimates are still largely guesswork because they have not yet been able to enter flooded areas.
“We have 1,600 adjusters in the affected area,” said Allstate Insurance Co. spokesman Rich Halberg, “but there are about 500 waiting in Baton Rouge for clearance to go into the New Orleans area.”
State Farm Mutual Automobile Insurance Co., which is the largest insurer in both Mississippi and Louisiana, also said it could not provide a preliminary estimate, even though it had taken 76,000 claims.
“We are dealing with so many unknowns right now,” said Pete Moraga, a spokesman for the Insurance Information Network. “We don’t even know when the infrastructure is going to be repaired so that we can get in there and assess the damage.”
Two German reinsurance companies (firms that essentially insure other insurance companies) did project losses Friday. Hanover Re estimated $311 million in claims and Munich Re estimated $502 million.
When it comes to losses, time is of the essence, insurance experts said. The longer that structures remain underwater, the more damage that’s done. Water damage is particularly tricky, Moraga said, because even structures that appear to be salvageable may develop mold later.
Fitch Ratings Service, a New York firm that provides investment ratings for investors, predicted that Katrina would represent the largest insured property loss in U.S. history, surpassing Hurricane Andrew and the Sept. 11, 2001, terrorist attacks. Total insured losses from 9/11, however, are higher -- $30 billion and counting -- because they include workers’ compensation and life insurance claims. Insurers are not yet able to estimate those kinds of losses from Katrina.
The insured loss estimates also do not include damage from flooding. Private flood insurance is rare, with almost all coverage provided through the Federal Emergency Management Agency. FEMA officials estimated that 4 in every 10 homeowners had federal flood insurance.
Property owners without flood insurance might try to recoup damages by saying the storm -- and not the flood -- caused their losses, said Robert Reigel, managing director at Moody’s Investors Service. That could mean lengthy battles ahead with insurers, he said.
Commercial insurers that cover business interruptions and environmental claims are likely to ultimately produce substantial claims as well, Reigel said.
Times wire services were used in compiling this report.