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AIR Worldwide : estimates insured losses from Hurricane Irene

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Hurricane Irene caused estimated insured losses between USD 3 billion and USD 6 billion to onshore properties in the US. These estimates from modelling firm AIR Worldwide include wind and storm surge damage to onshore residential, commercial and industrial properties. These also include their contents, automobiles as well as time element coverage (additional living expenses for residential properties and business interruption for commercial properties).

“After battering the East Coast over the weekend, Irene weakened considerably on its way toward the Canadian border,” said Dr. Tim Doggett, principal scientist at AIR Worldwide. “The storm has transitioned to an extra tropical storm system, having become absorbed in a large frontal system.”

Irene first made U.S. landfall Saturday morning in North Carolina as a Category 1 hurricane, then paralleled the East Coast, and slammed into Little Egg Inlet, New Jersey on Sunday morning as a weakened storm, but still at Category 1 status as reported by the NHC. Irene made a third landfall on Coney Island, NY, at tropical storm strength a few hours later.

“It should be noted that while the NHC was reporting sustained winds of 85 miles an hour in North Carolina on Saturday, onshore instruments (anemometers) were reporting sustained winds only in the 50- to 60-mile-an-hour range,” continued Dr. Doggett. “A similar disparity was observed along the length of the East Coast.  Thus it appears that the winds aloft were not being transferred efficiently to the surface. The final range of loss estimates issued by AIR for Hurricane Irene reflects the still-present uncertainty in surface-level wind speeds.”

According to AIR, Irene brought more than a foot of rain to some parts of the Atlantic coast from North Carolina to Maine, and flooding remains a concern; officials continue to closely monitor river levels, which are receding slowly. Along the Atlantic coast and into New England, the flooding was exacerbated by record or near-record rainfall in August, which created wet soil conditions and had raised water levels in major rivers. Many rivers and streams have overtopped their banks and will remain high as runoff continues. At least 10 rivers or creeks are at or above record flood levels, with most centred over eastern New York and Vermont.

Typically, coverage for flood damage resulting from surface water, including storm surge caused by hurricanes, is excluded under standard homeowners and renters insurance policies. Coverage is offered by the National Flood Insurance Program (NFIP).

Dr. Doggett continued, “Vermont is experiencing its worst flooding in a century. Two major Vermont rivers—the Otter Creek and the Winooski River—are both at the highest flooding levels ever recorded after 3-7 inches of rain fell in just twelve hours. At the Otter Creek gauging station in Rutland, Vermont, water levels rose to over 17 feet—11 feet above flood stage and nearly 4 feet above the previous historical record. The Winooski River is expected to crest at near 20 feet later this evening.”

In an unprecedented move, public officials enforced mandatory evacuations of low-lying areas of numerous metropolitan areas. More than two million people were ordered to evacuate—the largest evacuation since Hurricane Frances. This could have a significant impact on insurance losses from Additional Living Expenses (ALE), particularly in the Northeast where the cost of hotels and living expenses are higher. Although mandatory evacuation is not always covered in homeowners insurance policies, these losses are often paid for reasons of good will.

 “In Philadelphia, several residential structures are reported to have been destroyed and streets were littered with tree branches and other debris. Officials have reported broken windows, siding and roofing materials blown off houses,” commented Dr. Doggett.

 “In New York City, city officials had been worried that the arrival of Irene would coincide with a high tide and potentially inundate the flood defenses of lower Manhattan. Fortunately, only minor flooding occurred and it receded quickly.”

Vermont has been particularly hard hit by river flooding. Several area bridges were washed away or were closed due to eroding banks.

Across the New England and the mid-Atlantic, there was widespread tree damage and many roads remain impassable as a result of fallen tree limbs and power lines. Compounding the situation were soils already saturated by earlier heavy rains.

AIR’s loss estimates reflect:

– Insured wind and storm surge damage to onshore property (residential, commercial, industrial, auto), both structures and their contents;

– Additional living expenses (ALE) for residential claims;

– For residential lines, estimates reflect AIR’s view that insurers will ultimately pay 10% of modeled storm surge damage as wind losses. However note that there is considerable uncertainty with respect to the geographic extent of storm surge associated with this storm;

– For commercial lines, insured physical damage to structures and contents, and business interruption directly caused by storm surge, assuming a 10% take-up rate for commercial flood policies (Note: Other flood losses are not modeled or reflected in estimates);Business interruption losses include direct and indirect losses for insured risks that experience physical loss;

– Demand surge.

Loss estimates do not reflect:

– Losses resulting from the compromise of existing defenses (e.g., levees, flood walls);

– Losses to uninsured properties;

– Losses to infrastructure;

– Losses from extra-contractual obligations;

– Losses from hazardous waste cleanup, vandalism or civil commotion whether directly or indirectly caused by the event;

– Other non-modeled losses;

– Losses for U.S. offshore assets and non-U.S. property (AIR estimates these losses separately).

 Source : AIR Worldwide