U.S. can expect hurricane loss of $10 billion once every four years

Twenty-eight hurricanes that wreaked havoc on the United States in years past would likely produce insured losses reaching or exceeding $10 billion if they struck today, suggests a new study by Karen Clark & Company (KCC).

The research concludes the U.S. can expect a hurricane loss of $10 billion or greater once every four years, on average, equating to a 25% probability in 2012. Moreover, there is a 5% probability this year of a $50-billion hurricane loss, notes KCC, independent experts in catastrophe risk, models and management.

Employing a company-developed methodology, KCC examined the almost 180 hurricanes in the U.S. since 1900 and determined that 28 of those storms would result in $10 billion or more in insured losses in 2012 given the greater number, size and cost of structures in their paths.

Estimated losses run from $125 billion for the Great Miami Hurricane in 1926 to between $10 billion and $15 billion for 17 storms on the list. KCC estimates Hurricane Andrew – marking its 20th anniversary this week – would cause $50 billion in insured losses today, triple the amount in 1992, while Katrina seven years ago, which would produce estimated insured losses of $40 billion.

Today’s bills for historical hurricanes tend to underestimated, the report notes. KCC’s approach went beyond adjusting original losses by the general rate of inflation to also considering the impact of increasing population, larger structures and the fact that building square foot construction costs usually rise more quickly than the general inflation rate.

“This information is useful for many purposes, including better understanding the magnitude of potential catastrophe losses in different regions, benchmarking the model output, and assessing the value of certain risk transfer options such as industry loss warranties,” says Karen Clark, president and CEO of KCC.