AIR Worldwide estimates that industry insured losses to onshore property resulting from Hurricane Ida’s winds and storm surge will range from $17 billion to $25 billion, the extreme event modeling firm said in a statement issued Sept. 3, less than a week after the storm made landfall in Port Fourchon, Louisiana.
AIR’s modeled insured loss estimates include insured physical damage to property (residential, commercial, industrial and auto), both structures and their contents from winds, wind-borne debris, storm surge, and the impact of demand surge. The industry loss estimates also reflect an adjustment to account for increased material and other repair costs in the current construction market. Hurricane precipitation induced flood losses, including any impacts from flooding as Ida moved through the Northeast, are not included in AIR estimates at this time, the modeler said. AIR Worldwide is a Verisk business.
Ida traveled over very warm Gulf waters, including a thick layer of warm water in the Loop Current (the flow of warm water which travels through the Gulf of Mexico, past the Florida Keys, and up the Atlantic Seaboard), and intensified to make two landfalls in Louisiana, both at Category 4 strength, on Aug. 29. The storm’s first landfall was near Port Fourchon about 60 miles south of New Orleans, with a maximum sustained wind speed of 145 mph. About the time of landfall, the storm was undergoing an eyewall replacement. In practical terms, New Orleans experienced strong winds on the order of 90 to 100 mph due to the large windfield and a slow decay of the storm.
The storm surge Ida produced was along expected lines and generally not as severe as Hurricane Katrina’s – particularly in Mississippi and New Orleans (the latter of which was fully protected during Ida by the city’s levee system) – but some areas in southeastern Louisiana with insufficient protection experienced severe storm surge during Ida.
According to analysis by Wood Mackenzie, a sister company in the Verisk family, Hurricane Ida had a significant impact on Louisiana refinery operations and Gulf of Mexico production, causing an historic U.S. crude supply chain disruption. Utility disruptions caused by lack of power, mobile data services and water could lead to Ida becoming a long-tailed event particularly when it comes to claims reporting and payouts.
While the New Orleans levees held, the city was not spared Ida’s wind impacts. Damage was variable given the nature of building inventory in the metro New Orleans area. Areas close to where Ida made landfall, such as Lafourche Parish, where Port Fourchon is located, was particularly hard hit with widespread destruction. Grand Isle, a barrier island in Jefferson Parish, was declared uninhabitable. Even in towns just inland from where Ida came ashore, such as Galliano and Houma, wind damage was severe to catastrophic.
In terms of storm surge, most levees held up well, with a few localized failures that have created flooding beyond that from storm surge. Communities to the north, west, south and east of the hurricane protection levee system that surrounds New Orleans were inundated. Ida’s storm surge inundated far into the bayous and inhabited areas of southeastern Louisiana as well as areas near Lake Pontchartrain. Minor near-coastal inundation also occurred in Mississippi and Alabama. Key areas flooded by storm surge in Louisiana include Port Fourchon, Grand Isle, Delacroix, Alliance, Lafitte, Jean Lafitte, Barataria, Laplace, Mandeville, Braithwaite, Shell Beach, Galliano, Golden Meadow and Venetian Isles. Surge inundation depth exceeded 10 feet in some places, but several tide gauges near maximum storm surge broke, leading to uncertainty in Ida’s maximum storm surge water level.
Subsequent to Hurricane Katrina in 2005, Louisiana adopted a statewide construction code, the Louisiana State Uniform Construction Code. The state has amended the code several times since its adoption. According to the code’s standards, buildings are required to be designed to a prescribed wind speed that varies spatially with higher design wind speeds along the coast and the values decreasing based on distance inland. For Port Fourchon and Grand Isle, the design 3-second gust wind speeds for typical residential and commercial structures is between 160 and 170 mph. For towns such as Golden Meadow, Galliano, Dulac and the southern portions of Houma, design requirements are between 150 and 160 mph on a 3-second gust basis. New Orleans, Lockport and towns along U.S. highway 90 require buildings to be designed to winds of 140 to 150 mph 3-second gust.
Commercial buildings with higher human occupancy requirements and those serving essential functions such as hospitals are typically subject to more stringent requirements per the IBC, given the risk category in which individual commercial buildings fall. Generally Hurricane Ida was below the design standards for structures built under these standards. Widespread catastrophic structural failure was, therefore, not expected. Buildings that are older and predate the adoption of some of these standards can be expected to perform worse and sometimes become debris sources that can impact adjacent newer buildings. While adoption of building codes is one aspect, an equally important aspect is their enforcement. While enforcement is good for coastal parishes, the same is not true for inland parishes, according to AIR. Therefore, as Ida trekked through the state and continued to produce damaging winds, damage can be expected to buildings across the entire state.
According to AIR and Xactware, a sister company within Verisk, materials costs have gone up significantly in the past year from supply chain disruption in the construction market. Although these costs have moderated since their peak in July when they were 80 percent higher than in September of last year, they remain about 30 percent higher. Repair costs are still up significantly.
Reconstruction costs are more expensive than they were a year ago. The increase in the total reconstruction cost index means that costs are higher on average nationally; this affects the low-severity as well as the high-severity events. The difference in magnitude of the impact will come from the mix of construction materials used. For example, minor wind losses are less likely to require repairs that use more expensive inputs, such as structural lumber; however, dwellings that are a total loss would require a broader mix of inputs that reflect the higher increases indicated by the total reconstruction index. Therefore, companies should bear these increases in mind and should expect the average claim to be higher before considering demand surge.
An additional source of uncertainty related to materials cost demand surge is the cost of diesel fuel, which has been impacted by the shutdown of refineries during Ida; this fuel would be used to transport materials. While some of these facilities were undamaged, the uncertainty around the timing of the restoration of the power grid and lack of electricity in the meantime is going to keep some of them from coming back on line and contributing to the diesel supply.
One other important aspect of demand surge to note is that after Hurricane Katrina, about half of the population of New Orleans moved away and the city never returned to pre-Katrina population levels. This mass migration probably mitigated economic demand surge, which was not as great as it might have been after that storm.
RMS on Ida
On Sept. 7, catastrophe risk modeler RMS estimated that onshore and offshore U.S. insured losses from Hurricane Ida in the Gulf of Mexico will be between $25 billion and $35 billion.
RMS’s estimate includes wind and storm surge losses of between $21 billion and $28 billion; inland flood (Gulf states only) losses of $1.0 billion to $1.5 billion; NFIP (Gulf states only) losses of $2.3 billion to $4.0 billion; and offshore energy losses of $700 million to $1.5 billion.
The estimate excludes wind and inland flooding impacts in the Ohio Valley, Mid-Atlantic, and Northeast U.S. regions. According to RMS, analysts said that as damages farther in the north start to be factored in, (re)insured loss estimates for Ida are expected to rise to between $30 billion and $40 billion.
Tom Sabbatelli-Goodyer, director, event response, RMS, said, “As expected, Ida underwent rapid intensification in the hours leading up to landfall as it moved over favorable oceanic and atmospheric conditions in the Gulf of Mexico. At landfall, the storm was most similar to that of Hurricanes Betsy (1965), Camille (1969), and Laura (2020) in terms of intensity and overall Integrated Kinetic Energy. Remarkably, the storm maintained its Category 4 intensity for six hours after landfall. Ida’s slow rate of decay was due to unique surface roughness conditions in that region, which limited the frictional weakening effects it could impose on the storm. That combined with an eastward shift in the track closer to areas of high exposure, such as the New Orleans metropolitan area, exacerbated wind and water-related impacts further inland.”
Ida not a capital event
Hurricane Ida’s trajectory and proximity toward the New Orleans area could tilt insured losses more to the insurance industry’s commercial lines sector, according to an AM Best report released Aug. 31.
Property damage and business interruption losses may contribute more heavily to overall losses than did Hurricane Laura last year, which had a greater impact on personal lines business. Louisiana insurers are already trying to move past a 2020 spike in weather-related losses, with more than 300,000 claims attributable to Hurricanes Laura, Delta, and Zeta, according to the report.
The Best’s Commentary also notes that a surge in demand for materials and goods post-Hurricane Ida could increase the level of (re)insured losses meaningfully, especially in light of a 5.4 percent rise in the U.S. consumer price index from roughly a year ago.
Total losses from Hurricane Ida are not expected to impact overall capital levels due to the number of regional players in the market who will likely be able to cede off larger losses to the reinsurance sector, AM Best predicted. The (re)insurance industry should be able to absorb the magnitude of losses without impacting their capital positions. Hurricane Ida will add to uncertainty about the growing frequency of weather events and provide momentum to reinsurance pricing.