Catastrophe risk modeller and Moody’s Analytics company, RMS, has estimated that insurance and reinsurance industry losses from Hurricane Ian will be between $53 billion and $74 billion.
The best estimate would likely fall somewhere in the middle of this range at around $67 billion, which would still make it the highest industry loss estimate released so far.
And this is excluding losses to the National Flood Insurance Program (NFIP), which RMS says could see another $10 billion of costs, putting the total potential loss to private and public insurance markets at $84 billion.
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 RMS’s North Atlantic Hurricane Models, and also includes impacts from precipitation-induced inland flooding in the same regions.
RMS’s loss estimate, even at the best estimate level of $67 billion, is significantly higher than the previous highest estimate of $63 billion released by KCC earlier this week.
And the potential upper range loss that the firm forecasts also dwarfs the ranges of $29.9 billion to $62.1 billion released by KatRisk, the $42 billion to $57 billion range put out by Verisk, and the $31 billion and $53 billion range from CoreLogic.
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.
Their assessments have proved invaluable in helping our modeling 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.
The RMS estimate reflects losses from property damage, contents, and business interruption, across residential, commercial, industrial, automobile, infrastructure, watercraft, and other specialty lines, as well as the impacts of post-event loss amplification (PLA), inflation, and non-modeled sources such as the assignment of benefits and litigation.
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.
RMS 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.
RMS further explained that its $10 billion estimates for NFIP losses is based on its view of NFIP policy-in-force data published by FEMA in combination with its risk models.
The firm expects the majority of total insured losses from Ian to be driven by wind, but up to 25% of the total insured losses (including NFIP) will be driven by surge and flood, with insured wind losses and losses to the NFIP likely to be driven by residential lines, surge and inland flood and losses to the private market to be dominated by commercial, industrial, and automobile lines.
by Yana Keller