RMS Estimates Insured Losses from Hurricane Maria Will Be Between USD $15 and $30 Billion
The vast majority of insured losses will be driven by wind damage, although the estimate also reflects the impacts of storm surge and inland flooding
London, U.K. -
September 28, 2017 -
RMS, a global risk modeling and analytics firm, has estimated that the insured loss from Hurricane Maria will be between $15 and $30 billion. This estimate represents the insured losses associated with wind, storm surge and inland flood damage across the Caribbean, with Puerto Rico and Dominica suffering the most widespread destruction.
The estimate includes property damage and business interruption to residential, commercial and industrial lines of business, with the vast majority of losses caused by wind damage. The RMS analysis also reflects post-event loss amplification.
“The Caribbean was hit hard by Maria, but Puerto Rico bore the brunt of insured damage,” said Michael Young, RMS head of product management for U.S. climate models. “It may have avoided the worst impacts of Hurricane Irma at the start of September, which only glanced the island. However, with Maria, Puerto Rico suffered a direct and costly hit. But although there is over $500 billion of exposure on Puerto Rico, the insurance penetration rate is only around 60 per cent. Thus, significant amounts of property damage will not be insured, and this will limit industry losses.”
Furthermore, RMS has had detailed discussions with insurers on the island, who report that in those urban areas with higher rates of insurance penetration, structural damage may be more limited. Instead, the most catastrophic impacts may have been in areas with very low insurance coverage, according to these sources. This is one reason why RMS expects insured losses from Hurricane Maria to be significantly lower than overall economic damages, which will be between $30 and $60 billion across the Caribbean.
However, there are also amplifying effects on industry losses. Hurricane Maria severely impacted power supplies, with outages that will last months. Fuel for electricity generators is running short. As well as being a humanitarian concern, this will have implications for Puerto Rico’s economy with significant business interruption, including to the island’s important pharmaceutical industry. Flooding has also washed away roads and bridges.
“RMS clients are reporting that structural damage on Puerto Rico of key industrial complexes is relatively limited,” said Young. “But the electricity shortages, significant infrastructure disruption, and possible labour shortages, are expected to amplify direct losses by almost 50 per cent, which is reflected in our estimate.”
In addition, RMS expects there may be shortages of claims adjustors and reconstruction workers, following the dual impact of earlier Hurricanes Irma and Harvey on the Caribbean and the U.S. mainland. Along with the significant interruption of transmission and distribution systems this may lead to a unique “Super Cat” situation.
Hurricane Maria was the thirteenth named storm of the 2017 North Atlantic hurricane season, first making landfall over Dominica on September 19 as a category 5 hurricane, maintaining its intensity as it tracked across the Caribbean near to Guadeloupe, Martinique and the U.S. Virgin Islands before weakening to category 4 strength as it made landfall in Puerto Rico.
The widespread failure of wind measuring stations due to storm damage made real-time ground observations sparse – a major hurdle for the industry’s assessment of hurricane impact. RMS was able to overcome this challenge and build a realistic and representative picture of the wind field, including the location of Maria’s maximum winds, using its proprietary RMS HWind system.
Michael Young explained: “HWind draws upon tens of thousands of wind observations from over 30 land, sea, satellite and airborne data sources. It allowed RMS to estimate maximum sustained winds of 130 mph (209 km/h) as Hurricane Maria made landfall on Puerto Rico, enabling an industry loss estimate based on the most comprehensive data.”
For this loss estimate, the wind extent was simulated using version 17.0 RMS North Atlantic Hurricane Models and RMS ensemble footprints, which are hazard reconstructions of Maria’s windfield. The analysis used a 2017 release of the RMS® Caribbean Industry Exposure Database, which was informed by a field visit to Puerto Rico and the wider Caribbean by RMS modeling experts in 2015. This afforded the most up-to-date view of vulnerability.
RMS solutions help insurers, financial markets, corporations, and public agencies evaluate and manage catastrophe risks throughout the world. RMS has over 1,200 employees across 13 offices in the US, London, Bermuda, Zurich, India, China, Japan, Singapore and Australia - our products and models covering six continents.
We lead an industry that we helped to pioneer—catastrophe risk modeling—and are delivering models, data, and risk management solutions on the RMS(one)® platform to transform the world’s understanding and quantification of risk through open, real-time exposure and risk management.
More than 400 insurers, reinsurers, trading companies, and other financial institutions trust RMS solutions to better understand and manage the risks of natural and human-made catastrophes, including hurricanes, earthquakes, floods, terrorism, and pandemics.