Estimates also suggest that Hurricane Sandy will rank as the nation’s second-worst storm for claims paid out by the National Flood Insurance Program. With 115,000 new claims submitted and thousands more being filed each day, the cost could reach $7 billion at a time when the program is allowed, by law, to add only an additional $3 billion to its already substantial debt.
Eqecat said that the damage from the storm will likely be far worse than it initially predicted, largely a result of Sandy hitting the most densely populated part of the country.
The firm doubled its previous estimate for the total bill and now says Sandy may have caused between $30 billion and $50 billion in economic losses, including property damage, lost business and extra living expenses. The cost to insurance companies could run as low as $10 billion and as high as $20 billion.
The new numbers square with an earlier estimate from IHS Global Insight. IHS said Sandy could cause about $20 billion in property damages and between $10 billion and $30 billion in lost business.
The firm pointed to two reasons that Sandy will leave a bigger bill than it first thought. Power outages are more widespread than in a typical Category 1 storm, Eqecat said. Sandy knocked out electricity for more homes and businesses than any other storm in history, according to the Department of Energy.
The lack of subway service in New York City and blocked roadways will also push the total cost higher, Eqecat said. Before the storm hit, Eqecat had estimated that total economic losses from Sandy could range as high as $20 billion and that losses to insurance companies could reach $10 billion. Payouts for insurance claims are typically a fraction of the overall cost to the economy.
If the damages hit $50 billion, it would make Sandy the second-costliest U.S. storm after Katrina in 2005. Katrina’s overall costs were $108 billion. Taking inflation into account, that works out to $128 billion in today’s dollars.
Even after adjusting for inflation, the high end of Eqecat’s damage estimates for Sandy would be higher than those caused by previous major storms. Andrew, which struck in 1992, cost $44 billion in today’s dollars, and the Ike storm of 2008 cost $32 billion.
Estimates by a California-based risk modeling firm have placed insurer losses from Hurricane Sandy to as high as $25 billion.
Risk Management Solutions projected that insurers may face losses between $20 billion and $25 billion. Initial estimates on property and casualty claims from the hurricane by Fitch Ratings were roughly $5 billion, similar to that of last year’s Hurricane Irene. RMS said that it has two reconnaissance teams out surveying the damage. The firm has offices in Hoboken, NJ, where floodwaters stranded thousands of people.
Eqecat’s estimates only cover private losses, not costs covered by the government through the National Flood Insurance Program administered by the Federal Emergency Management Agency. Max Mayfield, the hurricane center director during Katrina, said the costs to FEMA can be $2 to $2.5 for every dollar of losses covered by private insurance.
A FEMA official said the government-backed flood insurance program expects to take a $6 billion to $12 billion hit from Hurricane Sandy, making it very likely the heavily indebted program will soon turn to Congress to raise its borrowing authority.
Ed Connor, deputy associate administrator at FEMA’s Federal Insurance and Mitigation Administration, told the Treasury Department’s Federal Advisory Committee on Insurance that he estimates that Sandy would inundate the program with about 143,000 claims.
Flood claims from Hurricane Sandy are expected to cost the National Flood Insurance Program at least $8 billion, far above the roughly $4 billion the government-backed insurance program can currently pay, according to the Consumer Federation of America. According to the consumer group, Hurricane Sandy will give rise to 200,000 claims for wind damage and an additional 200,000 claims for flood damage.
Flood Damaged Vehicles
While most reports say Sandy flood-damaged cars will not exceed 250,000, Black Book’s Ricky Beggs said Superstorm Sandy will have an even bigger industry impact than Hurricane Katrina did seven years ago, which he estimated at 640,000 units destroyed. The National Insurance Crime Bureau estimates than Katrina damaged ‘only’ 325,000 vehicles.
Insurance companies so far concur with the lower estimates for Sandy. State Farm, Progressive, New Jersey Manufacturers, Nationwide and USAA have received about 40,000 car-damage claims as of Nov. 10.