Estimated Insured Losses for Irene: $1.8 Billion to $3.4 Billion
Hurricane Irene made three landfalls as it moved north along the US Atlantic Coast last week. The combination of Category 1 winds and heavy rainfall impacting the populous New England coast created the potential for significant insured losses. Insured losses in the US from this event are estimated to range from $1.5 billion to $2.8 billion, with New York, New Jersey and Connecticut contributing about 60% of the losses from this event. When added to the losses in the Caribbean, the total insured losses from Irene are estimated to range from $1.8 billion to $3.4 billion.
The Progression of Hurricane Irene
After traversing the Bahamas with an intensity that peaked as a Category 3 hurricane (125 mph sustained winds), Irene made landfall near Cape Lookout, North Carolina (34.7N 76.5W) as a Category 1 hurricane with maximum sustained winds of 85 mph at approximately 8:00 a.m. on August 27. The radius to maximum winds - a key parameter in the estimation of the breadth of land covered by hurricane force winds - was approximately 20 nautical miles, not unusual for storms of this intensity and latitude. The eye of Irene translated on a north-northeast course and re-emerged onto the Atlantic Ocean near Norfolk, Virginia with maximum sustained winds of approximately 80 mph.
Irene remained close to the Delmarva peninsula before making a second US landfall near Little Egg Inlet, New Jersey (39.4N 74.4W), early on August 28. The winds at landfall were estimated to be 75 mph, and the radius to maximum winds was estimated to be 40 nautical miles. Irene had become a large storm compared to typical storms of this intensity at this latitude. The eye of Irene was moving at about 18 mph - slow for this latitude A slower storm increases the amount of time the storm is over an area, and increases the total rainfall accumulations on land.
After briefly remaining on land, the center of Irene again moved over New York City as a Tropical Storm with an estimated intensity of 65 mph. Now moving at 26 mph, Irene was beginning to transition to an extra-tropical storm. The reduction in wind speed is caused by many factors including the decay rate of the low-pressure center of the storm, and the frictional effects of land use and land cover and topography.
Irene brought very heavy rains to North Carolina and the Delmarva area, with up to 16 inches of rainfall recorded in North Carolina. Further north in New Jersey, up to 9 inches of rain were recorded. Widespread flooding resulted in North Carolina, although the flood severity was far less than observed from Hurricane Floyd (1999). This was due to more rainfall from Floyd and Hurricane Dennis - (1999) 6 to 10 inches of rainfall that preceded Floyd by 10 days, which saturated the soils and set conditions for flash flooding in many North Carolina and Virginia river basins. Record flood levels were recorded for many river basins between Hartford, CT in the north to Trenton, NJ in the south, including flooding along the Mettawee River, Hoosic River, Saxton River, Schoharie Creek, Esopus Creek, Passaic River, Rockaway River, Pompton River, Millstone River, and Assunpink Creek.
Storm surge is the increase in wave heights from the water surface being pushed onto the coast by storm winds. A storm surge is usually estimated by subtracting the regular high tide level from the observed storm tide. Storm surge of up to 8 feet in places contributed to hazardous and damaging conditions along the coast. This flooding can be the most dangerous part of a hurricane because it is accompanied by large waves and high winds. Irene was responsible for multiple fatalities as the storm progressed northwards. A storm surge is usually estimated by subtracting the regular high tide level from the observed storm tide.
Estimating Damage and Losses from Irene
Irene caused significant damage to property. Using its US Insured Exposure Database (IED 2011) EQECAT estimates that Irene caused in excess of $10 billion in economic damages in its traverse across the mainland US. In general, damage severity (a measure of the damage to specific buildings in terms of replacement cost) was low, due to wind speeds that only approached the 75 mph threshold for hurricane force in many areas. Hurricane Irene affected a populace of more than 40 million people, significantly more than from recent hurricanes in the Gulf, and the result is a large multi-billion dollar loss. Based on the preliminary storm track information from the US National Hurricane Center and on EQECAT's North Atlantic Hurricane Model (WORLDCATenterprise 3.16), an estimate of insured losses to Property and Automobile insurance to Personal lines insurers as well as Commercial/Industrial insurance can be made. Tree damage and power outage are also contributing factors. Federal and state governments declared emergency conditions in most of the states affected. State and local officials ordered mandatory evacuations from residences, businesses, and hospitals. The cost involved when millions of people are forced to evacuate can add to the amount of insured loss, depending upon actual policy terms. Business Interruption insurance for Commercial/Industrial insurance policies is accounted for, as well as Adjusted Living Expense (ALE) coverages for Personal lines carriers. Estimates include flood insurance that is written to private insurance carriers, and flood losses ceded to the National Flood Insurance Program (NFIP) are not included in this estimate. Marine insurance, including private boat insurance coverage, is not included in this estimate.
Insured losses are estimated accounting for the effects of insurance deductibles and limits. Special hurricane deductibles have been introduced in 10 of the states affected by this event (DE, MA, MD, ME, NC, NY, RI, SC, VA), increasing the portion of hurricane damage that is the responsibility of policy holders. Hurricane deductibles are separate thresholds that damage must exceed before insurers will indemnify losses. These thresholds are often significantly higher than the normal Fire deductibles and become active with special storm criteria, or triggers, that vary company to company and sometimes county by county within a state. Hurricane deductibles of from 1% to 5% of the structure replacement value are not uncommon. The intensity of Irene varied along its track northward, from a Category 1 hurricane to a Tropical Storm, and wind deductibles in many areas will not be triggered. Uncertainty in which deductible will apply in the state of New York is reflected in larger uncertainty in the loss estimate for NY.
The overall insured loss estimate for the US for this event is from $1.5 billion to $2.8 billion, with about two-thirds of the losses attributable to Personal lines policies, and the remaining one-third attributed to Commercial/Industrial insurance policies. Experience from prior events reinforces the higher relative vulnerability to damage of personal homes and residences, especially at low hurricane wind speeds. The loss estimate by state/group of states is as tabulated below:
|State/Group of States||Estimated Insured Loss Range|
|SC/NC||$200M - $400M|
|RI/MA/NH/VT/ME||$50M - $100M|
|DC/DE/MD/VA||$200M - $400M|
|CT||$150M - $250M|
|NY||$400M - $900M|
|NJ||$400M - $600M|
|PA||$100M - $200M|
Key Aspects of Hurricane Irene
The strong winds from hurricane Irene combined with heavy rain and a high tide caused dangerous flooding in low-lying coastal areas. This flooding in part due to storm surge can be the most dangerous part of a hurricane causing many deaths. A storm surge is usually estimated by subtracting the regular high-tide level from the observed storm tide. EQECAT's Storm Surge methodology takes into account the bathometry of the coastline, which is relatively shallow along the Atlantic seaboard.
Flooding is frequently an excluded peril, but heavy rainfall has the potential to cause significant losses with roof leaks and/or collapses due to clogged roof drains. Storms immediately prior to Irene in the Northeast effectively saturated soils in the area - producing the potential for flash floods and rapid run-up of water levels and rivers - and also makes trees far more vulnerable to being blown over (causing property damage). Flooding causes significant disruptions to roadways and access to properties, sometimes leading to increased damage due to the inability to access the property and mitigate risks such as damaged roofing material. Areas exposed to both flooding and hurricane force winds have increased uncertainty in the allocation of damage to insured and uninsured components.
Tornadoes sometimes accompany hurricane events. For stronger hurricanes, damage from tornadoes comprises a relatively small portion of the overall losses and the identification of specific tornado touchdowns (a manual and difficult process) is not necessary. Not all tornado touchdowns that occurred within Hurricane Irene have yet been identified and the presence (or lack) of tornadoes may affect the allocation of losses within regions.
Business Interruption insurance is a complex settlement process that incorporates many policy-term specific conditions that cannot be included in a market level analysis.
Post - event inflation is the response of the construction labor and materials market (supply) to a massive increase in the need for materials and labor for immediate repairs (demand). Irene affected a very large portion of the US Atlantic coast and some areas may experience this type of inflation.
Properties in many coastal communities are insured in wind pools known as FAIR plans or residual markets. Plans affected by this storm include the NCIUA (BEACH plan), NCJUA, NYPIUA, NJIUA, VPIA, CT FAIR Plan in North Carolina, New York, New Jersey, Virginia and Connecticut and all states have at least one. FAIR plans primarily cover Personal Lines insurance and have large concentrations in the most exposed coastal areas. Many of the wind pools indemnify only the Actual Cash Value (ACV) of the property as opposed to indemnifying the replacement cost of a structure. The difference between ACV and replacement cost is a deduction for depreciation of the assets. The ACV is equal to or less than the replacement cost, minimizing the amount of losses ceded to these pools.
Hurricane terms in this CatWatch:
Landfall - The approximate location where the center of the hurricane crosses from water to land.
Eye of the hurricane - The "eye" is a roughly circular area of comparatively light winds and fair weather found at the center of a hurricane.
Radius to maximum winds - The distance between the center of a hurricane and its band of strongest winds. The highest rainfall occurs near the radius to maximum winds, as well as the highest storm surge. A larger radius to maximum winds indicates a larger area affected by storm winds. It is often included in the Hurricane Advisory.
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