RMS Updates Insured Loss Estimate for Hurricane Isabel to $600M

September 24, 2003

Risk Management Solutions (RMS) released a revised loss estimate of $600 million for wind-related claims from Hurricane Isabel, updating its initial estimate of $500 million released on Sept. 17. The company also reported that flood-related losses could bring total insurance payments up to $1 billion for the event.

For the revised wind estimate, RMS reconstructed Isabel’s windfield using reported windspeed data, and validated the estimate through on-site observations by an RMS reconnaissance team. The team plotted actual damage at various points in the impact area and compared these observations to modeled estimates from RMS’ windfield reconstruction. The $600 million estimate includes insured losses for property damage as well as business interruption.

“This storm had a very broad windfield with a large area of low level damage,” Michael Drayton, head of climate hazards at RMS, said. “Storm surge was also a distinguishing characteristic of Isabel. The strongest surge occurred to the right of the landfall location in North Carolina as we anticipated, but Isabel’s track and winds after landfall continued to push a strong surge up Chesapeake Bay.”

Wave heights in the Outer Banks of North Carolina reached 15-20 feet above sea level, while surge of 6 feet in Chesapeake Bay combined with intense rainfall to create flood damage around the margins of the bay. RMS expects total flood related claims to approach those related to wind damage.

“There is still considerable uncertainty regarding how much of the flood claims will be paid by the private insurance industry,” Phil LeGrone, RMS lead engineer and member of the Isabel reconnaissance team, said. “Most flood insurance is provided through the government’s National Flood Insurance Program (NFIP). Losses to the private insurance industry are typically related to commercial properties that purchase flood coverage in excess of the NFIP limits.”

Hurricane Floyd, which made landfall in North Carolina in 1999, cost the insurance industry $1.8 billion at the time. NFIP claims totaled a further $500 million with total economic losses reaching over $6 billion. While the overall insured loss is expected to be lower for Isabel, flood losses could contribute a greater proportion of the total.

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