RMS pegs up to $74bn insured losses from ‘historic and complex’ Hurricane Ian

Risk modeller  RMS, a  Moody’s Analytics company, has said that its “best estimate” for total private market insured losses from Hurricane Ian is of $67 billion (excluding NFIP), however, losses could reach up to $84 billion.

Insured Losses from Ian are expected to be between $53 billion and $74 billion, RMS said, noting that the National Flood Insurance Program (NFIP) could see an additional $10 billion in losses from storm surge and inland flooding as a result of the event.

The overall industry loss estimate for Ian includes wind and storm surge losses in Florida, South Carolina, North Carolina, Georgia, and Virginia, based on an analysis of ensemble footprints in Version 21 of the RMS North Atlantic Hurricane Models. RMS ensemble footprints are reconstructions of Ian’s hazard that capture the uncertainties surrounding observed winds and storm surge. The industry estimate also includes impacts from precipitation-induced inland flooding in the same regions, using footprints in the RMS US Inland Flood HD Model.

“Ian was a historic and complex event that will reshape the Florida insurance market for years to come. Given the complexity of the event and the multiple drivers of the loss, our ability to deploy multiple RMS field reconnaissance teams to conduct damage assessments throughout Florida, including the heavily affected areas of Fort Myers and Cape Coral along the southwest coast, has been a critical component of our analysis,” said Mohsen Rahnama, chief risk modelling officer at RMS.

“Their assessments have proved invaluable in helping our modelling teams to reconstruct and validate the extent and severity of Ian’s wind and water impacts, and our assessment of the magnitude of the various drivers of the total industry loss,” he added.

The RMS estimate reflects losses from property damage, contents, and business interruption, across residential, commercial, industrial, automobile, infrastructure, watercraft, and other specialty lines. Given the complexity of this event and the multiple loss drivers, RMS said its ability to couple its detailed review of satellite and digital imagery together with the deployment of multiple RMS field reconnaissance teams have “proved to be pivotal” in establishing losses across the various business lines. The estimate also considers the impacts of post-event loss amplification (PLA), inflation, and non-modelled sources such as the Assignment of Benefits and litigation.

“Much of the building stock affected by Ian was also impacted to varying degrees by Hurricane Irma in 2017 and Hurricane Charley in 2004. In some cases, roofs or structures were replaced after Irma and performed well in Ian. However, where buildings were not upgraded to recent codes, Ian’s destructive wind and storm surge will cause widespread roof replacements or total losses,” said Jeff Waters, staff product manager at RMS.

“In the loss estimation process, we also considered key aspects of the Florida Building Code, including mandatory limit extensions for ordinance and law, and the application of the 25 percent roof replacement rule. Aside from property damage, we expect significant losses to automobile and watercraft lines in this event due to fewer evacuations in the worst-affected region,” he added.

Rajkiran Vojjala, vice president of model development at RMS, continued: “A sizable portion of the losses from Ian will be associated with post-event loss amplification and inflationary trends. A combination of high claims volume, additional living expenses related to the massive evacuation efforts, prolonged reconstruction in the worst-affected areas, and the prevalent higher-than-average construction costs will contribute to a significant economic demand surge. Additionally, we expect the Assignment of Benefits and litigation–despite recent legislative efforts to curb their misuse, to influence the overall loss severity, especially in cases where coverage leakage of water losses onto wind-only policies is likely. All these social inflation factors will lead to complex and lengthy claims settlement processes in this event, amplifying loss adjustment expenses and corresponding claim costs.”

Losses to the National Flood Insurance Program of approximately $10 billion are based on using the RMS view of NFIP policy-in-force data published by FEMA, the Version 21 RMS North Atlantic Hurricane Models, and the RMS US Inland Flood HD Model. While NFIP policy take-up is substantial in many coastal areas affected by Ian (up to 50 percent), areas hard-hit by inland flooding in the event typically have minimal (less than 10 percent) NFIP participation.

RMS expects the majority of total insured losses from Ian to be driven by wind. However, a sizable portion (up to 25 percent) of the total insured losses (incl. NFIP) will be driven by surge and flood. While insured wind losses and losses to the NFIP will be driven by residential lines, surge and inland flood losses to the private market will be dominated by commercial, industrial, and automobile lines.

In addition to the US, Hurricane Ian also impacted parts of the Caribbean, notably Cuba, with strong winds, heavy rain, and flooding. While Cuba saw severe economic and infrastructure damage in the event across many areas, RMS estimates insured losses in Cuba will be minimal due to low insurance penetration in the region.

After Ian passed Cuba, it made landfall near Cayo Costa, Florida on September 28, as a strong Category 4 hurricane on the Saffir-Simpson Hurricane Wind Scale. At landfall, Ian produced sustained winds of 150 miles per hour (240 km/h), according to the National Hurricane Center. After traversing slowly over central Florida, it emerged over the Atlantic before making a second landfall near Georgetown, South Carolina on September 30, as a Category 1 hurricane. Ian brought destructive hurricane-force winds to a broad swath of southwest and central Florida, catastrophic storm surge along the southwest Florida coastline, and widespread inland flooding throughout Florida and the Carolinas.

Hurricane Ian was the ninth named storm of the 2022 North Atlantic hurricane season, the fourth hurricane, and the first named storm to make landfall in the US this season. Ian was the first major category hurricane to make landfall in Florida since Hurricane Michael in 2018, and the seventh US major hurricane landfall since 2017 (Harvey, Irma, Michael, Laura, Zeta, Ida). Less than two months remain in the 2022 North Atlantic hurricane season, officially ending on November 30.

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