Posted on September 9, 2021
Flood damages suffered in the Mid-Atlantic and Northeast region of the United States from the remnants of hurricane Ida are expected to add double-digit billion dollars of economic loss to the overall toll from the storm.
As if hurricane Ida’s landfall damage in Louisiana wasn’t catastrophic enough, the hurricane carried immense quantities of water north and east, soaking the Mid-Atlantic and Northeast region states and resulting in record rainfall levels in some parts.
Hurricane Ida is estimated to have caused economic losses into the tens of billion of dollars already from its landfall related impacts. But insurance and reinsurance broker Aon noted that another double-digit billion dollar economic loss is expected to be added for the flood related impacts as well.
For the insurance, reinsurance and insurance-linked securities (ILS) market this is set to be an additional stress, on top of the predicted $15 billion to $25 billion of insured losses from the initial landfall in Louisiana and impacts to the states surrounding it.
As we explained yesterday, this significant flood event also puts the reinsurance and catastrophe bonds of the National Flood Insurance Program into focus and possible at-risk of attaching.
FEMA’s FloodSmart Re catastrophe bonds cover flood losses from a named storm across a large 504 hour period, meaning all of the flooding related losses to the NFIP from hurricane Ida, from Louisiana to the northeast, can be counted as a single event.
We assume that similar may prove to be true of the traditional reinsurance component of FEMA’s reinsurance tower for the NFIP, which may also contemplate losses from a single event in a similarly extended manner.
Aon’s catastrophe modelling and meteorology division Impact Forecasting explained how the flood event will exacerbate losses from hurricane Ida.
“The catastrophic flood-related damage in the Mid-Atlantic and Northeast is additionally poised to result in an additional double-digit billion economic damage toll,” the brokers’ unit said.
How much of the economic falls to insurance is very hard to say, being flood loss related which is often uncovered, or only covered by the NFIP.
Flood claims are also complex and can be challenging to assess and adjust against, while further south there may be some issues related to wind versus water confusion, as to what peril actually caused the damage.
Overall, the flooding from hurricane Ida’s remnants is set to complicate and prolong the whole process of deriving an industry loss total for the insurance and reinsurance market, and for ILS market players.
Aon’s Impact Forecasting said, “The enormous scale of damage along Ida’s path will result in a lengthy period of damage assessment and quantifying the direct fiscal cost to residential and commercial property, vehicles, the energy sector, infrastructure (transportation and electrical), agriculture, and direct net-loss business interruption. Ida is anticipated to become one of the costliest U.S. mainland tropical cyclones on record – based on nominal (actual) and inflation-adjusted values.”
All of this has the potential to prolong claims, which can ultimately result in prolonged holding of collateral on exposed private ILS or collateralized reinsurance positions as well.
That’s something to watch out for in relation to hurricane Ida, as with the addition of the flood event in the north east, some nationwide carriers could call on reinsurance support for the overall damages from the storm.
Demand surge, business interruption and therefore a subsequent amplification of claims inflation and losses, is also now seen as a significant concern with Ida, given the footprint of the storm damage and the complications that are set to emerge.
Because of the flood event impacts, Aon noted that, “A sizeable portion of the eventual economic damage cost is not likely to be covered by insurance. This includes most coastal and inland flood damage, such as damage to infrastructure (roads, bridges, electrical grid, etc) or properties without an active National Flood Insurance Program (NFIP) policy. Damage photos across New York and New Jersey noted a high volume of property flooding due to either drainage back-ups or sewage back-ups. How specific language is written in contractual policies and how individual damage cases are assessed will be key to how much of the flood damage to homes, condos, and businesses is covered by insurance. Flooded vehicles are typically covered in a standard auto policy. Coastal areas in New York, New Jersey, and Connecticut have a relatively high percentage of NFIP take-up, which could lead to elevated program claims payouts in the Northeast.”
So the additional double-digit economic costs of the north east flooding from Ida’s remnants may only translate into additional private insurance market losses in the low billions, alongside an NFIP loss that could be counted in billions as well.
How high into the billions either of those figures go is impossible to predict at this stage.
Aon stated, “The expectation is that the insurance impact – including losses from private and public entities – will be a significant double-digit billion (USD) total. It will take many months or longer for the financial view of this event to fully develop. Loss estimates will be subject to several revisions as more data is obtained.”
