Preparing for Worse

Florida has survived eight hurricanes in 15 months, but more destruction is coming, according to experts at last month’s National Catastrophe Insurance Summit in Burlingame, Calif. It’s just a matter of time, said the speakers, who forecast dramatic scenarios resulting from hurricanes, earthquakes and terrorism.

Karen Clark, president and CEO of AIR Worldwide, described the potential impact of a major hurricane making landfall in New York City. The 1938 Great New England Hurricane was one of the most destructive storms ever to hit the Northeast. Thousands of buildings were destroyed, and some coastal communities disappeared entirely. That hurricane struck the Long Island Sound but reached 150 miles inland up to Canada and Massachusetts. If a category three storm similar to that one makes landfall in a more populated area, say just east of New York City, it would result in approximately $50 billion of insured losses with total economic losses exceeding $100 billion, according to Clark. Additionally, 3 million people would be forced to evacuate low-lying coastal areas, and major bridges and ferries would be shut down. It could take up to 18 hours to evacuate the first million people from the area. AIR estimates that a loss equal to or greater than that of Hurricane Katrina has approximately a 5 percent annual probability for the U.S.

In examining earthquakes, Dennis Kuzak, senior vice president for EQECAT Inc., described the New Madrid Earthquake that struck the Midwest in Missouri between 1811 and 1812. That earthquake created new lakes and changed the course of the Mississippi river. Analysts predict a similar event will occur every 500 years, with a 15 to 20 percent probability. The probability is higher for smaller events, said Kuzak, who added that if a similar earthquake struck today, estimated damages would likely exceed $300 billion, with only a fraction covered by insurance.

In discussing terrorism-related disasters, Hemant Shah, president of Risk Management Solutions, said a nuclear device exploding in the Port of Long Beach, Calif., would destroy one of the world’s busiest ports and immediate surroundings. “A lot of manufacturing would have to be shut down. Food would be unable to get in and out of ports. Not only would all ships need to be inspected, halting shipments of goods but consumer confidence would plummet. There would be a crash of the financial markets that doesn’t occur after a hurricane or earthquake,” Shah continued. “That would hurt insurance companies, too.”

The National Catastrophe Insurance Summit brought insurance regulators, insurance industry representatives, risk modeling firms, insurers and lawmakers together to develop a plan to manage disasters. The message was clear: As damaging as Hurricane Katrina was, the country needs to prepare for much worse.

Topics Catastrophe Hurricane