RMS Totals Economic Loss for Katrina at $100 Billion+

Risk Management Solutions announced that the economic loss from Hurricane Katrina and subsequent flooding in New Orleans is expected to exceed $100 billion.

Losses are resulting from two separate catastrophic events: first, the landfall of Hurricane Katrina in southeast Louisiana and coastal Mississippi on Aug. 29 causing extensive wind and coastal surge damage; and second, the Great New Orleans Flood which has resulted from failure of the levee systems that protect New Orleans.

At least 50 percent of total economic loss is expected to come from flooding in New Orleans, in addition to hurricane losses from wind and coastal surge, infrastructure damage, and indirect economic impacts. RMS issued preliminary insured loss estimates of up to $25 billion on Monday for Hurricane Katrina, prior to evidence of levee failure and flooding in New Orleans that was reported on Tuesday, Aug. 30.

The 2005 Great New Orleans Flood has developed into the most damaging flood in U.S. history. RMS currently estimates that at least 150,000 properties have been flooded, surpassing the previous U.S. record from flooding and levee failures on the Lower Mississippi river in 1927, which inundated 137,000 properties. Hurricanes of category 4 or 5 strength are well-understood to occur in this region of the country, yet the levee system in New Orleans was designed only to protect against a category 3 strength storm. The insufficient level of flood protection offered by the city’s levees has been exacerbated by shortcomings in preparedness.

“The economic and insurance consequences of the 2005 Great New Orleans Flood will depend highly on how quickly authorities can respond to the event,” said Laurie Johnson, vice president of technical marketing at RMS, who is responsible for the company’s catastrophe response services and reconnaissance. “The speed at which existing pumps are reactivated and additional pumping capacity is added will determine how rapidly the flood waters are removed. But this is only the first step in restoring services to flooded areas of the city.”

The value of physical property in the flooded areas is approximately $100 billion. While the majority of property damage occurs once flood waters enter a structure, prolonged immersion of wooden residential buildings in warm polluted water will lead to rapid deterioration requiring an increasing proportion of the building stock to be completely replaced. There will also be significant costs associated with land and building decontamination.

Losses from business interruption and displacement of residents are highly dependent on the duration of the flooding. RMS estimates that the costs of interrupted economic activity exceed $100 million per day. There is also some risk that businesses may choose to relocate if they are unable to return in a timely manner, impacting the city’s long-term economic recovery.

The nearest historic analog to the 2005 Great New Orleans Flood is the 1953 flood in the Netherlands, also caused by a major wind driven storm surge that overwhelmed poorly maintained defenses protecting land below sea-level. The 1953 Dutch flood led to more than 1,800 deaths and the inundation of 47,000 properties. It took six months to pump out all the water from the flood bowl.