Although losses might be lower than original estimates, the cost of Hurricane Irma will still be staggering.
As Florida slowly emerges from the wake of Hurricane Irma, insurance experts have begun to assess damages throughout the state. If initial estimates prove accurate, it would be among the costliest storms in the history of the United States.
AIR Worldwide estimated that residential, commercial, and industrial damages, business interruption costs, and other related expenses could total as much as $20 billion to $40 billion. Lloyd’s of London offered much more dire figures, anticipating total losses of as much as $200 billion. Since AIR’s projection excludes National Flood Insurance Program payouts, uninsured property claims, infrastructure damage, and marine cargo and pleasure boat losses, the actual cost could be closer to Lloyd’s estimate.
Other projections were more conservative. J.P. Morgan analyst Sarah DeWitt, for example, pegged insured losses at $10 billion to $60 billion, much less than the $200 billion expected by Lloyd’s. “We think Hurricane Irma could be a top 5 most costly hurricane in the U.S., although the losses could be in-line-to-lower than market expectations,” DeWitt said in a client note.
Impact on Florida’s State-sponsored Insurer
After most major insurers withdrew from Florida’s homeowner market in response to repeated losses caused by hurricanes, the state filled the void in 1993 with its own insurer, Citizens Property Insurance, though a number of smaller insurance companies still work in the Sunshine State. The state also sponsors the Florida Hurricane Catastrophe Fund, which has amassed $17 billion to date, according to the New York Times.
Joseph L. Petrelli, the president of financial rating agency Demotech, told the New York Times that his clients in Florida could survive another storm like Hurricane Andrew, which resulted in $47 billion in losses in today’s dollars, mostly because those insurers expanded their reinsurance coffers. He stressed that he couldn’t make the same claim, however, for insurers he doesn’t rate, and he added that Irma may be more expensive than Andrew because Irma battered the entire state.
Citizens, meanwhile, bolstered its reserves with reinsurance policies in addition to catastrophic bonds. It estimates that it can now cover $1.3 billion in losses. The state-owned insurer also transferred more of its policies to private insurers, which reduced its estimated claims from a 100-year storm to $6.6 billion.
Losses from a 100-year storm could soar to $24.5 billion, according to Citizens’ own estimate. Unfortunately, it would have the resources to fund only $13 billion in losses between the state’s catastrophe fund and its reinsurance policies. If damages caused by Hurricane Irma exceed that amount — and they likely will — Citizens might be forced to assess all insurance policies in the state, regardless of whether they bought insurance from Citizens.
Impact on Florida’s Economy
Besides the financial burden it’s imposed on insurers, Hurricane Irma will take a severe toll on Florida’s economy, creating widespread unemployment, business downtimes, higher fuel prices, and, of course, property and infrastructure damage. Moody’s Analytics set a preliminary estimate of the combined destruction from Hurricanes Harvey and Irma at $150 billion to $200 billion, putting the disasters on par with Hurricane Katrina in 2005.
Florida’s citrus crops likely sustained “widespread damage” from flooding and strong winds, MDA Weather Services’ Kenny Miller told Bloomberg. The state’s $1.2 billion agriculture industry will also weather losses from the once-in-a-lifetime catastrophe.
Moody’s Chief Economist Mark Zandi told ABC News that government aid plus insurance dollars will “roughly cover” economic losses from the storms. Excluding repairs to public infrastructure, Zandi said he expects most of the rebuilding to be complete by the end of 2018.