Pressure to settle up to $5bn Hurricane Isaias losses may lead to claims inflation, warns RMS

Insured losses from Hurricane Isaias that caused extensive damage across the Caribbean and the East Coast of the US between July 30 – August 5, 2020 will be between $3 and $5 billion, including estimated losses to the National Flood Insurance Program (NFIP), according to RMS.

The risk modelling firm expects NFIP losses to be between $400 million and $700 million.

For the US, this estimate includes wind, storm surge, and inland flood losses across parts of the Southeast, Mid-Atlantic, and Northeast regions. The US estimate reflects property damage and business interruption to residential, commercial, industrial, and automobile lines of business.

The estimates also include factors for post-event loss amplification and non-modeled sources of loss, including the current COVID-19 pandemic. RMS expects the majority of US insured losses to impact residential lines, driven by wind. Storm surge is expected to contribute to less than 10 percent of the total losses.

Isaias was the ninth named storm of the 2020 North Atlantic hurricane season, and the second landfalling hurricane of the season. The storm made landfall near Ocean Isle Beach, North Carolina on August 3, 2020 as a Category 1 hurricane; the storm subsequently weakened to tropical storm intensity and quickly tracked northeast along the east coast of the US, affecting much of the Mid-Atlantic and Northeast US with tropical storm-force winds and stronger gusts.

Prior to impacting the US, Isaias made landfall over Andros Island in the Bahamas on August 1, also as a Category 1 hurricane. Other Caribbean countries and territories impacted by the storm include Puerto Rico, the Dominican Republic, and the Turks and Caicos.

For the Caribbean, the estimate includes wind-only losses, which RMS expects to be less than $500 million. The Caribbean loss estimate includes property damage and business interruption to residential, commercial, and industrial lines of business.

“The large number of affected exposures, especially in the Mid-Atlantic and Northeast U.S., are likely to produce large claims volumes," said Jeff Waters, senior product manager, RMS North Atlantic Hurricane Models. "Pressure to settle these claims quickly may lead to claims inflation. We also considered the impacts of the COVID-19 pandemic. We expect fewer loss inspections following this event, potentially causing prolonged repairs and recovery times, both of which tend to inflate claims costs” said Pete Dailey, vice president, Product Management, RMS."

Waters explained: “Although Isaias weakened to a tropical storm after landfall, it maintained its intensity as it moved up the U.S. east coast and underwent extratropical transition, due to its interaction with a strong jet stream and favorable atmospheric conditions. As a result, many areas of high exposure, especially in the Mid-Atlantic and Northeast, were subject to stronger winds and wind gusts than would otherwise be expected, especially in coastal areas of these regions. It’s another example of how impactful low intensity storms can be.”