Ike Aftermath: Initial Loss Estimates

Hurricane Ike narrowly failed to reach Category 3 status, but the high-end Category 2 storm nevertheless inflicted damage across a huge geographical area. At its peak the measured 450 miles in diameter, measured to the extent of tropical storm force winds, with hurricane-force winds of 190 miles in diameter. Owing to flooding, lack of electricity and other disruptions of normal communications, the extent of the damage caused by the storm remains unclear. However, several industry sources have issued estimates of insured losses.

On Saturday, Risk Management Solutions (RMS, London) estimated Hurricane Ike could cause $6 billion to $16 billion of insured damages, following the storm's landfall at Galveston, Texas early that morning. The estimate excluded losses from inland flooding or those covered under flood policies issued by the National Flood Insurance Program.

Also on Saturday, Boston-based catastrophe modeling firm AIR Worldwide reported that it expected $10 billion of losses, within an estimated range of $8 billion to $12 billion.

On Sunday, New York-based Deloitte LLP issued an estimate of $20 billion to $25 billion in total insured losses, including the National Flood Insurance Program, of which around $10-20bn will go to the commercial insurance and reinsurance industry and the balance to the NFIP.

A statement from Deloitte noted that its estimate places Ike as the third largest insured hurricane loss historically, after Hurricanes Katrina and Andre, and probably the fourth largest insurance loss eve, after Hurricane Katrina in 2005, the terrorist attacks of September 11, 2001, and Hurricane Andrew in 1992. An RMS source said the estimated losses from Hurricane Ike were the result of onshore damage from wind and rain across the extensive area affected by the storm. Widespread damage was expected to buildings in the coastal areas that experienced the highest winds, despite building codes second only to those enforced in southern Florida, according to RMS.

RMS noted that losses to high-rise buildings in downtown Houston could contribute significantly to the total losses caused by Ike. "High-rise office buildings in downtown Houston have been subject to winds around 30 miles per hour higher than at ground level, potentially aggravated by debris from the proximity of these buildings in the downtown area. Damage that has been observed so far to windows and facades is similar to that experienced in southeast Florida from Hurricane Wilma in 2005," said Dr. Christine Ziehmann, director of model management at RMS.

As more post-storm data becomes available, estimates are likely to drop, according to Howard Mills, chief advisor for Deloitte's insurance industry group. "The industry has gotten much better at putting together quick total estimates," Mills says. "You'll see some numbers come together quickly now that the storm has passed and it has become possible to get into some of the areas and get a better look."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio