AIR Worldwide says insured loss from hurricane Isaac $700m to $2 billion

by Artemis on August 31, 2012

Risk modeller AIR Worldwide has issued an updated estimate for the amount of insured losses they expect from hurricane Isaac. In line with most other estimates, AIR Worldwide say they believe that insured losses from Hurricane Isaac to onshore properties in the U.S. will be between $700 million and $2 billion. The estimate includes wind and storm surge damage to onshore residential, commercial and industrial properties and their contents, automobiles, and time element coverage.

“Isaac made two separate landfalls, both as a Category 1 hurricane,” said Dr. Tim Doggett, principal scientist at AIR Worldwide. “The first occurred on August 28 at low-lying Plaquemines Parish, Louisiana, at around 7:45 PM CDT. Instead of continuing inland as expected, the storm veered sharply to the southwest and re-emerged over the water, which allowed it to maintain its strength. It then made a second landfall on the morning of August 29 just west of Port Fourchon, Louisiana, at around 2:15 AM CDT.”

“Inland flooding from continuing precipitation remains a risk and isolated tornadoes may still be spawned by the storm,” continued Dr. Doggett. “Total rainfall accumulations of 7 to 14 inches are expected, with isolated amounts up to 25 inches.”

Flooding has been the major impact to Louisiana since the storm came ashore with extremely high levels of rainfall, meaning that the National Flood Insurance Program will be picking up a large bill.

Wind damage has been less extensively reported, say AIR. “However, Isaac’s slow forward speed and refusal to dissipate will exacerbate wind damage,” commented Dr. Doggett. “As the winds persist, roof fasteners and connections can become fatigued and overloaded causing additional damage, and the possibility of damage from flying building debris persists. It should also be noted that with soils heavily saturated by rain, trees can be downed by much lower wind speeds than would otherwise be necessary.”

AIR does not expect significant physical damage to offshore oil rigs and gas platforms either from wind or waves they say. They note that as a result of the Gulf hurricanes of 2005 (Katrina, Rita and Wilma), Hurricane Gustav in 2008, and the Deepwater Horizon disaster of 2010, business interruption is a much rarer coverage than in years past. Therefore, they do not expect significant insured losses to offshore assets in the Gulf of Mexico as a result of Isaac.

AIR’s loss estimates reflect:

  • Insured physical damage to property (residential, commercial, industrial, auto), both structures and their contents;
  • Additional living expenses (ALE) for residential claims;
  • For residential lines, estimates reflect AIR’s view that insurers will ultimately pay 10% of modeled storm surge damage as wind losses;
  • For commercial lines, insured physical damage to structures and contents, and business interruption directly caused by storm surge, assuming a 10% take-up rate for commercial flood policies (Note: Other flood losses are not modeled or reflected in estimates); business interruption losses include direct and indirect losses for insured risks that experience physical loss;
  • For the automobile line, estimates reflect AIR’s view that insurers will pay 100% of storm surge damage;
  • Demand surge.

Loss estimates do not reflect:

  • Losses resulting from the compromise of existing defenses (e.g., levees);
  • 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;
  • Other non-modeled losses;
  • Losses for U.S. offshore assets and non-U.S. property (AIR estimates these losses separately).

This insured loss estimate is in line with the early estimate reported by risk modeller EQECAT. While loss estimates remain in this range there will not be a significant impact to reinsurers and the affected insurers will be able to cope with their claims burden. The unknown remains Louisiana Citizens and their Pelican Re catastrophe bond which remains at risk at this time. We will likely receive other estimates over the coming days which we’ll report on.

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