Preliminary Irene Damage Assessment

Property Casualty 360,August 29, 2010

WASHINGTON (AP) — Tropical Storm Irene’s trek up the East Coast caused less damage than many had feared, a bit of reassuring news for a fragile economy.

Insured damages from the storm will likely range between $2 billion and $3 billion, and total losses will likely be about $7 billion, according to preliminary estimates from Kinetic Analysis Corp., a consulting firm.

Both figures are lower than had been expected, suggesting that the storm poses little threat to the nation’s $14 trillion economy. Some economists said that, as with past hurricanes and earthquakes, the recovery could end up boosting growth in the coming months. Demand for building repairs might help the depressed construction industry, for example.

“Irene left several places with black eyes, but it doesn’t seem to have delivered an economic knockout,” said Ryan Sweet, an economist at Moody’s Analytics.

In the short run, the costs will grow as storm-ravaged areas deal with lost business, dislocated workers and transportation delays — damage that will take months to understand. And in some areas, the impact will be measured in lost tourist dollars, canceled flights and shuttered stores.

Irene slammed into a region that’s vital to the economy’s health. The mid-Atlantic and New England account for about 16 percent of the nation’s economic output and about 14 percent of its workforce, Sweet said.

But Kinetic’s estimates suggest that Irene will have caused far less insured damage than the $6 billion the insurance industry paid out after Hurricane Isabel struck the East Coast in 2003. Other analysts agreed broadly with Kinetic’s early estimates, saying insured losses are unlikely to exceed $4 billion. Other consultants will release their own projections this week.

Sweet said small businesses on the North Carolina coast will likely lose two weekends of tourist activity, including the travel-heavy Labor Day weekend. Beach communities spanning the East Coast face the same threat.

For ordinary people in hard-hit areas, Irene’s costs could run high. Victims of natural disasters often lack the insurance they need to recover their losses and return to work quickly, said Susan Voss, Iowa’s top insurance regulator and president of the National Association of Insurance Commissioners. People who lose homes can end up in temporary housing far from their homes and workplaces.

Many don’t realize that flood damage isn’t covered by standard homeowner’s insurance policies, Voss noted. A standard homeowner policy covers damage caused by wind or by rain through a damaged roof. A separate flood insurance policy would be needed to cover damage from rising water, such as from the storm surges unleashed by Irene.

Economists said that reconstruction from Irene could increase U.S. economic growth in the October-December quarter, though the benefits will be limited by the relatively slight damage the storm caused.

“This region is very highly insured, so a lot of money will start pouring in, and that should re-employ a lot of construction workers who are now out of work,” said Mark Zandi, chief economist at Moody’s Analytics. He said the benefits from rebuilding might extend into next year’s January-March quarter.

“That will put some people back to work, at least temporarily,” said David Kotok, chairman of Cumberland Advisors.

For now, power outages and flooding will close some businesses, costing workers pay and likely increasing some temporary layoffs. Transportation and shipping may also be disrupted. The length of the outages and the extent of public transportation problems in cities like New York will help determine the costs, analysts said.

Such disruptions will emerge in economic data starting this coming week, when the government reports how many people applied for unemployment benefits as the storm bore down on the Southeast. Economists expect a post-storm rise in applications.

One concern is that weak economic data, even if blamed on a natural disaster, could weigh on consumer confidence and make businesses reluctant to spend.

But major fixtures of the economy are already returning to normal. The New York Stock Exchange and NASDAQ are preparing to open Monday. Mayor Michael Bloomberg lifted an evacuation order for lower Manhattan as of 3 p.m. Sunday.

Airlines planned to resume some flights into and out of East Coast airports on Monday. Crews are already restoring power in Southern states hit by the storm and are starting work in the northeast.

And Irene will add only about 15 percent to insurers’ weather-related payouts this year, if the current cost estimates hold. Tornadoes, flooding, and droughts in the Midwest and South have forced the industry to handle about $17 billion in weather-related claims this year.

MONTPELIER, Vt. (AP) — The storm that had been Hurricane Irene crossed into Canada overnight but wasn’t yet through with the U.S., where flood waters threatened Vermont towns and big city commuters had to make do with slowly reawakening transit systems.

The storm left millions without power across much of the Eastern Seaboard, killed at least two dozen, and forced airlines to cancel about 9,000 flights. It never became the big-city nightmare forecasters and public officials had warned about, but it caused the worst flooding in a century in Vermont as well as damages across several states.

Property Casualty 360,August 30,2011

Hurricane Irene: Up To $6B in Losses Expected; Insurers Take Stock of Claims.

Catastrophe modeler AIR Worldwide says it expects between $3 billion and $6 billion in insured losses in the U.S. from Hurricane Irene.

Hurricane Irene would become one of the 10 costliest storms in U.S. history if losses fall on the high end of the estimate.

Much of the damage caused by the storm is the result of more than a foot of rain to some parts of the East Coast. Vermont in particular is “experiencing its worst flooding in a century,” says Tim Doggett, principal scientist.

The loss estimate includes wind and storm surge damage to onshore property and contents, automobiles, ALE, demand surge, as well as direct and indirect business interruption losses.

Damage from flooding, including flooding generated by storm surge, is not covered by a standard homeowners’ or renters’ insurance policy, though there are some exceptions.

Flood damage to vehicles is covered if comprehensive coverage was purchased.

Added to the insured loss estimate is the impact of additional living expenses (ALE) doled out by insurers to the millions who were ordered to evacuate. Mandatory evacuation is not always covered by a homeowners’ policy but “these losses are often paid for reasons of good will,” says AIR.

Doggett says there was some inconsistency between winds of 85 mph in North Carolina reported by the National Hurricane Center (NHC) and readings of onshore instruments on winds of 50-60 mph.

“A similar disparity was observed along the length of the East Coast,” he says. “It appears that the winds aloft were not being transferred efficiently to the surface.”

Hurricane Irene made landfalls Saturday morning in North Carolina and Sunday in Little Egg Inlet, N.J. and Coney Island, N.Y. as a Category 1 storm, according to the NHC.

Hurricane Jeanne in 2004 affected many of the same states as Hurricane Irene and caused about $4.15 billion (in 2009 dollars) in insured losses, making it the 10th costliest storm in U.S. history.

The ninth costliest hurricane is Hurricane Frances, also in 2004. Frances caused $5.21 billion in insured losses.

Hurricane Irene—if insured losses end up at the high end of AIR’s estimate—would eclipse Frances and fall just under the eighth costliest storm, Hurricane Rita in 2005, which caused $6.18 billion in insured losses.

The Boston-based modeling firm earlier released an insured loss estimate for the Caribbean of between $500 million and $1.1 billion.

State Farm, the top insurer of the states affected by Hurricane Irene, says it received more than 37,660 homeowners’ insurance claims as of midday Aug. 30. The insurer has gotten more than 4,410 auto insurance claims. State Farm is still calling the claims count “very premature” and it expects it to increase as homeowners return to assess damage.

About 7,575 homeowners’ claims have come from New Jersey, with New York and Maryland close behind with 6,692 and 6,683 claims, respectively, says State Farm. The insurer says its has deployed more than 1,200 catastrophe claim representatives to assist thousands more state-based employees.

About 80 percent of premiums written by regional insurer Providence Mutual comes from Massachusetts, Rhode Island, and New Jersey. President and Chief Executive Officer Sandra Parrillo says most claims are coming from New Jersey and Rhode Island.

Claims Providence Mutual is receiving similar calls for claims as other companies, such as damage from fallen trees and food spoilage due to power outages. However, many calls are for flood losses.

“We have to tell them that wouldn’t be covered,” Parrillo says. “There is some coverage for sump pump back-ups but mostly it isn’t covered.” However, the insurer doesn’t stop at a declination letter. Providence assists policyholders in getting federal disaster aid if available.

From a commercial insurance perspective, FM Global Executive Vice President Jonathan Hall says the final chapter on Hurricane Irene has not been written because flooding is still occurring in places like Vermont and New Hampshire.

"Intuitively you think nothing is up there but there are lots of cities and towns built along the rivers, with a good amount of retail,” Hall says. Flooding also remains a factor in New Jersey.

FM Global says New Jersey and Pennsylvania account for the most claims so far. Hall predicts property losses will continue to manifest as people return to their businesses after taking care of their homes.

“Loss estimates will continue to creep up,” he says. “This is a big event that affected a lot of territory from Puerto Rico to Canada, and it did a lot of damage.”

Hall says he thinks there will be a lot of insured flood losses. Business interruption will play a role in losses but not as much as an event with “widespread devastation,” like destroyed buildings or points of entry.

“Ports aren’t destroyed, trains and airlines are up—so there will probably be less of a business continuity aspect to losses,” he explains. “The average loss will be for short-term clean-up and spoilage.”