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2011 Catastrophic Losses $23 Billion and Counting


2011 Catastrophic Losses $23 Billion and Counting

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The United States this spring has incurred approximately $23 billion in catastrophic losses and hurricane season hasn't started yet. With people and government budgets suffering from weather costs, what will summer bring?

In addition, meteorologists at AccuWeather.com predict four direct hits on the United States by tropical systems this year. Cleanup costs and repairs from those storms will drain already fragile state budgets hit by extreme weather this spring.

And what if the prediction is on the low side and the U.S. coastline is instead hit by five or six hurricanes? How will the insurance market respond then?

The damage this spring broke records. Last week, a report from Aon Benfield, a reinsurance company, estimated $21 or $22 billion in damage from severe weather so far this year. Aon Benfield's report included uninsured losses from April and May's tornadoes and severe storms. Aon said that in those two months, the amount of severe weather insured losses is three times the U.S. annual average (1990-2010).

The damage total reported by Aon does not include damage from flooding, drought, and wildfire. So the floods long the Mississippi and in Minot, N.D. are not factored in. Neither are the Texas, Arizona, and New Mexico wildfires.

Year of Devastation

Flooding of the Mississippi River from Illinois to Louisiana caused between $850 million and $2 billion in damage, John Michael Riley, agricultural economist at Mississippi State, said. In Minot, N.D., $90 million is the preliminary estimate to public structures. With the Minot flood waters still high, there is no prediction on damage to homes and other private property.

Aon Benfield's damage total also doesn't cover the amount of damage caused by drought and wildfires in the Southwest. The National Climatic Data Center estimates damage between $1 and $3 billion just for those wildfires.

The severe weather events included in Aon Benfield's reports, added together with some other unusual weather events, totals between $23 billion and $28 billion. For comparison, the top estimate, $28 billion, is three times the 2011 operating budget for the Environmental Protection Agency.

And if those tropical system hits occur as predicted this year, severe weather damage totals will grow.

A tropical system hitting the United States does not necessarily mean that the storm will be a hurricane. A tropical system could be anything from a tropical storm to a Category 5 hurricane. A hurricane is a tropical cyclone with winds more than 73 mph.

How Much Does a Hurricane Cost?

$1.8 billion (2011 adjusted) is the median cost of an Atlantic hurricane that hits land in the United States.

By way of comparison, the devastating Massachussetts tornados that struck just more than a month ago accounted for $175 million in damage. The Alabama / Mississippi tornados in late April accounted for $2-3 Billion in damages.

The median cost is the most accurate measure of the middle of the data because Hurricane Katrina's immense damage, at $145 billion (2011 adjusted), inflates the average cost of a hurricane to close to $9 billion.

Cost estimates from a hurricane don't include damage the system causes once it moves inland. For example, Hurricane Ike hit land in Texas but Ike's high winds knocked down power lines across North America.

The hurricane costs don't include costs from tropical storms. Slower-moving storms hover over an area, dumping more rain than a hurricane with high winds that quickly passes through.

The National Weather service says that more than half of U.S. tropical cyclone deaths from 1970 to 1999 were caused by inland flooding.

How to Insure Against Hurricane Losses

One of the most prevalent means to insure against hurricane risks is the hurricane deductible. A deductible is the amount of money policyholders pay out-of-pocket before their insurance coverage kicks in. A standard homeowners insurance policy deductible is usually either $500 or $1,000. State insurance regulators in 18 states allow property insurance policies to include hurricane deductibles, which are tied to a percentage of a home’s insured value, rather than a flat dollar amount.

The states allowing hurricane deductibles include the suspects you'd expect: Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas and Virginia.

For businesses the costs of a disaster can extend beyond the physical damage to the premises, equipment, furniture and other business property. There's the potential loss of income due to business interruption while the premises are unusable. Business disaster recovery plans should include a detailed review of your insurance policies to ensure there are no gaps in coverage. This includes property insurance, business interruption insurance and extra expense insurance.

Understanding how best to protect your client, and the perils they face in damage losses, business interruption, and more is essential to building a successful business. Being a valuable resource with quality solutions is key.

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