Hurricane Ian to cost insurers up to $74 billion - RMS

RMS estimates total private market insured losses from Hurricane Ian to be between $53 billion and $74 billion, with the best estimate of $67 billion.

The cat modeller also estimates the National Flood Insurance Program (NFIP) could see an additional $10 billion in losses from storm surge and inland flooding as a result of the event.  

Aside from property damage, RMS expects significant losses to automobile and watercraft lines in this event due to fewer evacuations in the worst-affected region

	Wind incl. coverage leakage	Storm Surge excl. NFIP	Inland Flood excl. NFIP	Total*	Best Estimate
Private Market Insured Loss	$46 – $67 bn	$6+ bn	$1+ bn	$53 – $74 bn	$67 bn

*Losses rounded to nearest billion 

The overall industry loss estimate for Ian includes wind and storm surge losses in Florida, South Carolina, North Carolina, Georgia, and Virginia, based on an analysis of ensemble footprints in Version 21 of the RMS North Atlantic Hurricane Models.

RMS ensemble footprints are reconstructions of Ian’s hazard that capture the uncertainties surrounding observed winds and storm surge.

The industry estimate also includes impacts from precipitation-induced inland flooding in the same regions, using footprints in the RMS US Inland Flood HD Model. 

“Ian was a historic and complex event that will reshape the Florida insurance market for years to come,” said Mohsen Rahnama, chief risk modeling officer, RMS. “Given the complexity of the event and the multiple drivers of the loss, our ability to deploy multiple RMS field reconnaissance teams to conduct damage assessments throughout Florida… has been a critical component of our analysis.”

”Their assessments have proved invaluable in helping our modeling teams to reconstruct and validate the extent and severity of Ian’s wind and water impacts, and our assessment of the magnitude of the various drivers of the total industry loss.”

Inflationary impacts likely

The RMS estimate reflects losses from property damage, contents, and business interruption, across residential, commercial, industrial, automobile, infrastructure, watercraft, and other specialty lines. 

Given the complexity of this event and the multiple loss drivers, the ability to couple RMS’ detailed review of satellite and digital imagery together with the deployment of multiple RMS field reconnaissance teams have proved to be pivotal in establishing losses across the various business lines. 

The estimate also considers the impacts of post-event loss amplification (PLA), inflation, and non-modeled sources such as the Assignment of Benefits and litigation.

“A sizable portion of the losses from Ian will be associated with post-event loss amplification and inflationary trends,” said Rajkiran Vojjala, vice president, Model Development, RMS. 

”A combination of high claims volume, additional living expenses related to the massive evacuation efforts, prolonged reconstruction in the worst-affected areas, and the prevalent higher-than-average construction costs will contribute to a significant economic demand surge.

”Additionally, we expect the Assignment of Benefits and litigation – despite recent legislative efforts to curb their misuse, to influence the overall loss severity, especially in cases where coverage leakage of water losses onto wind-only policies is likely.

“All these social inflation factors will lead to complex and lengthy claims settlement processes in this event, amplifying loss adjustment expenses and corresponding claim costs.”

Significant flood loss event, despite underinsurance

While NFIP policy take-up is substantial in many coastal areas affected by Ian (up to 50 percent), areas hard-hit by inland flooding in the event typically have minimal (less than 10 percent) NFIP participation.

RMS expects the majority of total insured losses from Ian to be driven by wind. However, a sizable portion (up to 25 percent) of the total insured losses (incl. NFIP) will be driven by surge and flood.

While insured wind losses and losses to the NFIP will be driven by residential lines, surge and inland flood losses to the private market will be dominated by commercial, industrial, and automobile lines.

In addition to the US, Hurricane Ian also impacted parts of the Caribbean, notably Cuba, with strong winds, heavy rain, and flooding.

While Cuba saw severe economic and infrastructure damage in the event across many areas, RMS estimates insured losses in Cuba will be minimal due to low insurance penetration in the region.

Hurricane Ian was the ninth named storm of the 2022 North Atlantic hurricane season, the fourth hurricane, and the first named storm to make landfall in the US this season.

Ian was the first major category hurricane to make landfall in Florida since Hurricane Michael in 2018, and the seventh US major hurricane landfall since 2017 (Harvey, Irma, Michael, Laura, Zeta, Ida).

Less than two months remain in the 2022 North Atlantic hurricane season, officially ending on November 30.