Verisk’s AIR Worldwide Updates Losses for Hurricane Ida to Include Impacts of Inland Flooding
September 13 2021 - 6:04AM
Extreme event modeling firm AIR Worldwide updated its insured loss
estimates for Hurricane Ida after analyzing the inland flood
impacts across the entirety of its track, including the Northeast.
AIR now estimates that Ida’s insured industry losses will range
from USD 20 billion to USD 30 billion. AIR estimates wind and storm
surge losses will range from USD 17 to USD 25 billion, and
private-market insured losses from inland flooding will range from
USD 2.5 billion to USD 5 billion.
Included in the estimates are losses to onshore residential,
commercial, industrial properties, and automobiles for their
building, contents, and time element coverage, as well as estimated
insurance take-up rates for wind and flood across the entirety of
Ida’s track, including the flooding that occurred in the
Northeast. AIR’s losses do not include any estimate of losses
from the National Flood Insurance Program, or any losses from
offshore assets. The industry loss estimates also reflect an
adjustment to account for increased material and other repair costs
in the current construction market.Hurricane Ida made its first
landfall as a Category 4 storm near Port Fourchon, Louisiana, about
60 miles south of New Orleans, at 11:55 a.m. CDT that day, with a
maximum sustained wind speed of 150 mph. Ida made a second landfall
just hours later at 2 p.m. CDT southwest of Galliano, Louisiana,
with a maximum sustained wind speed of 145 mph. The storm produced
heavy rains and dangerous storm surge.
The remnants of Hurricane Ida doused the Northeast and caused
flooding damage and disruption across the region. Flooding was
reported from Pennsylvania to Massachusetts, with New York, New
Jersey, and Pennsylvania bearing the brunt of the impact.
In addition to the precipitation-induced flood impacts, damage
was reported across several states due to hurricane-spun tornadoes.
Further, some of the neighborhoods across the inland and
northeastern states saw damage resulting from trees falling on
homes. There were reports of many trees uprooting due to antecedent
saturated soil conditions due to rainfall from Hurricane Henri a
few weeks ago. Claims arising from these would be paid under the
wind category.
According to AIR and Xactware analyses, materials costs have
gone up significantly in the past year from supply chain disruption
in the construction market. Although these costs have moderated
since their peak in July when they were 80% higher than September
of last year, they remain about 30% higher. (Click this Xactware
link for more details.) Repair costs are still up
significantly.
Reconstruction costs are more expensive today than they were a
year ago. The increase in the total reconstruction cost index means
that costs are higher on average nationally; this affects the low-
as well as the high-severity events. The difference in magnitude of
the impact will come from the mix of construction materials used.
For example, minor wind losses are less likely to require repairs
that use more expensive inputs such as structural lumber; however,
dwellings that are a total loss would require a broader mix of
inputs that reflect the higher increases indicated by the total
reconstruction index. These increases are outside the scope of
demand surge, which tries to answer the cost increase question from
a post–extreme event perspective. Therefore, companies should bear
these increases in mind and should expect the average claim to be
higher before considering demand surge.
An additional source of uncertainty related to materials cost
demand surge is the cost of diesel fuel, which has been impacted by
the shutdown of refineries during Ida; this fuel would be used to
transport materials. While some of these facilities were undamaged,
the uncertainty around the timing of the restoration of the power
grid and lack of electricity in the meantime is going to keep some
of them from coming back online and contributing to the diesel fuel
supply. For more details, click this Wood Mackenzie link.AIR’s
modeled insured loss estimates include:
- Insured physical damage to property (residential,
commercial, industrial, auto), both structures and their
contents from winds, wind-borne debris, storm surge, and
precipitation induced flooding
- Additional living expenses (ALE) for residential lines and
business interruption losses for commercial lines
- A 5% leakage is assumed to estimate the amount of damage/losses
caused by storm surge attributed to wind for residential lines
- The losses reflect the insured estimates of
precipitation-induced flood supported by the private flood
residential market
- The loss estimates for commercial and industrial lines reflect
insured estimates of precipitation-induced flood and storm surge,
which is a combination of leakage and take-up depending on the
market segment
- For the automobile line, estimates reflect AIR’s view that
insurers will pay for all the precipitation-induced flood and
storm surge damage in addition to damage from wind
AIR’s modeled insured loss estimates do not
include:
- Losses paid out by the National Flood Insurance Program
- Losses arising from hurricane-spun tornadoes, particularly in
the inland and northeastern states impacted by Hurricane Ida
- Losses arising from trees uprooting and falling on homes due to
saturated soil conditions in parts of the impacted inland and
northeastern states, some of which could end up being paid as
wind-related claims
- Losses to inland marine, ocean-going marine cargo and hull, and
pleasure boats
- Losses to uninsured properties
- Losses to infrastructure
- Losses from extra-contractual obligations
- Losses from hazardous waste cleanup, vandalism, or civil
commotion, whether directly or indirectly caused by the event
- Loss adjustment expenses
- Losses for U.S. offshore assets and non-U.S. property
About AIR WorldwideAIR Worldwide (AIR) provides
risk modeling solutions that make individuals, businesses, and
society more resilient to extreme events. In 1987, AIR Worldwide
founded the catastrophe modeling industry and today models the risk
from natural catastrophes, terrorism, pandemics, casualty
catastrophes, and cyber incidents. Insurance, reinsurance,
financial, corporate, and government clients rely on AIR’s advanced
science, software, and consulting services for catastrophe risk
management, insurance-linked securities, longevity modeling,
site-specific engineering analyses, and agricultural risk
management. AIR Worldwide, a Verisk (Nasdaq:VRSK) business, is
headquartered in Boston, with additional offices in North America,
Europe, and Asia. For more information, please visit
www.air-worldwide.com.
###
Kevin Long
AIR Worldwide
617-267-6645
klong@air-worldwide.com
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