Wind and Rain

Consider US$70 billion to US$90 billion. US$15 billion. US$25 billion to US$37 billion.

These are just some of  the many loss estimates —  insured, economic and other — meant to pin down the spiralling, drenched mess that Harvey has created in Texas and Louisiana.

RMS reports its modelling, in part based on anonymized data on National Flood Insurance Program (NFIP) exposures, indicates Harvey-related losses to the program could reach US$7 billion to US$10 billion. This assumes a US$65,000 mean average claim (in line with Superstorm Sandy) and the NFIP receives 100,000 to 150,000 claims.

The combined wind, surge and inland flood losses from Harvey could be 10 times that, ranging from US$70 billion to US$90 billion, RMS notes.

Then there are the economic losses, which the catastrophe modeller anticipates will “outstrip insured losses by a considerable margin” as a result of the low uptake of private flood insurance. Corelogic points out more than 98% of residential flood insurance in the United States is provided through the NFIP. It estimates the residential insured and uninsured flood loss for a 70-county area in Texas and Louisiana at US$25 billion to US$37 billion, with 70% of that total uninsured.

Angela Stelmakowich, Editor, Canadian Underwriter

As for Karen Clark & Company (KCC), its storm surge, inland flooding and wind models — NFIP loss is not included — estimate total industry insured loss at  approximately US$15 billion.

The hurricane turned tropical storm dumped in excess of 50 inches of rain on parts of Texas, causing catastrophic inland flooding made worse by Harvey’s slow storm motion and duration.

“Such rainfall was made possible by the storm’s continued presence over the Gulf of Mexico, which provided Harvey with a sustained source of water,” KCC notes. “Significant damage to residential and commercial properties is expected from Harvey’s inland flooding.”

Broking and risk management solutions provider Marsh would surely agree.

Harvey will likely result in complex claims for many businesses, industries and organizations, it suggests.

Beyond the hardship and upset caused by Harvey itself, the NFIP is up for reauthorization and reform.

And if that were not enough for those affected, there is the instability the flux creates for the insurance industry itself.

Then there is the new law in Texas for weather-related property insurance claims, which took effect September 1. Among other things, it reduces the 18% penalty if an insurer fails to pay a covered claim in a timely manner.

“It may affect disputed claims and lawsuits arising from Harvey,” Marsh suggests.

As is always the case with an event of this magnitude — one that some experts say could provide the financial hit of at least Sandy — wrapping one’s mind around the enormity of such punishing losses is a challenge.

That sort of contortion, though, will be needed in light of the importance of U.S. hurricane on the re/insurance market overall and the likelihood that severe weather events could be more common in the future.

A new report from S&P Global notes the expectation is “Hurricane Harvey will likely be an earnings event rather than a capital event” for the property and casualty re/insurance industry. Any impact on re/insurance pricing will likely be limited to affected regions and business lines.

While that may seem something akin to a silver lining, many losses will be covered by the beleaguered NFIP.

With the program struggling, that does not bode well for its future or for those who will be left without insurance.

New markets could develop, but to assume that all who now rely on the NFIP will more to private insurance should not be assumed.

Ultimately, costs could fall to governments of all levels. Regardless of location, that is not a sustainable option.