Present-day impact of 1938 U.S. hurricane estimated at up to $100 billion

The likely impact of a storm comparable to the Great New England Hurricane of 1938 coming ashore today would exceed $35 billion in insured losses, notes a new report from Karen Clark & Company (KCC) marking the hurricane’s 75^th anniversary.

If the storm made landfall today and took a more western track, it would result in an insurance industry loss of more than $100 billion, KCC, independent experts in catastrophe risk, models and risk management, estimates in a statement released Monday.

“In the Northeast, it’s not a question of the intensity, but of the storm track,” KCC president and CEO Karen Clark says in the statement. “It will only take a Category 3 hurricane with the right track to cause industry losses far exceeding anything we’ve seen to date. This type of storm could also result in losses well above many insurers’ PMLs (probable maximum losses),” adds Clark.

The 1938 hurricane – believed to be a Category 3 on today’s Saffir-Simpson scale with sustained winds of 120 mph – made landfall Sept. 21 near Bellport, Long Island. Considered by many to be the greatest single event in the region’s meteorological history, the storm caused unprecedented destruction.

Almost 700 people were killed and an equal number injured, many coastal towns were completely wiped out by storm surge heights exceeding 10 feet in many areas, thousands of homes and other buildings were destroyed, and 3,000 ships sunk or were damaged, notes the KCC press release.

Today, different landfall points along the Long Island, Rhode Island or Massachusetts coastlines would result in dramatically different industry losses and damages, the company reports.

Explaining that hurricanes are “right handed” in the northern hemisphere, KCC points out the strongest winds occur from a few miles to 50 miles to the right of the storm center. Hurricanes that make landfall further to the west will cause greater damage because more of the right, or east, side of the storm will be over highly populated areas, the statement adds.

The new report also explores what industry losses would be from a 100-year characteristic event (CE) for the northeast United States. Based on historical records, which indicated several major hurricanes impacted the Northeast before 1900, KCC notes it is reasonable to assume the 1938 storm is a 100-year type event for the region and has an estimated 1% annual probability of occurring.

The company reports that reliance on PMLs derived from catastrophe models to quantify and manage hurricane risk can give a false sense of security by masking exposure concentrations that can lead to solvency-impairing events.

However, KCC contends that a CE methodology of “floating” the 100-year storms along the coast and estimating the resulting losses provides probability information, identifies exposure concentrations and “hot spots”, and offers transparent and intuitive information for decision-makers. CEs remain constant year to year, providing consistent metrics for measuring and monitoring risk over time, the company statement adds.

“Historically, no major hurricane has tracked this far to the west, but weaker storms have, such as Irene in 1999,” Clark notes. That said, “insurers shouldn’t assume, as the forecasters did in 1938, that a major storm will not follow a particular path simply because there is no record of such an occurrence.”