Rising Cost of Sandy Damages

It’s been a month since Superstorm Sandy wreaked havoc along the East Coast, devastating coastal towns and bringing a record storm surge and flooding and prolonged power outages.

And the cost keeps rising. On Nov. 26, New York City Mayor Michael Bloomberg estimated that total public and private losses to the Big Apple from Sandy would be $19 billion – including a whopping $5.7 billion in lost gross city product.

Private insurance could provide up to $3.8 billion to the city, the mayor said. The figure is based on the city’s share of high-end overall U.S. insured loss estimates provided by catastrophe modeling firms including AIR Worldwide, Eqecat and Risk Management Solutions.

But even with the insurance coverage and funds from the Federal Emergency Management Agency, the net cost to repair the damage caused by Sandy to New York City would be $9.8 billion, according to the mayor. The city is seeking supplemental federal aid to cover that cost.

“I am hopeful that together with our partners in the federal government, we will be able to secure the necessary resources for a successful recovery,” Mayor Bloomberg wrote in his letter to Congressional delegates.

Meanwhile, in Albany, New York Gov. Andrew Cuomo said the state would require $41.9 billion overall, including $32.8 billion to restore damaged housing and infrastructures and to cover lost business activities.

In New Jersey, the overall losses from Sandy is thought to be at least $29.4 billion and growing, according to the analysis published by the governor’s office on Nov. 23.

Catastrophe modeling firms are also revising up loss estimates. AIR Worldwide on Nov. 26 increased its industrywide Sandy insured loss estimate to the $16 billion-$22 billion range, up from the $7 billion-$15 billion range. In early November, Eqecat doubled its insured loss estimate to the $10 billion-$20 billion range, citing large electric and utility losses, and the prolonged subway outage and blocked roadway tunnels as contributing factors.

AIR said its revision is driven mostly by an increase in estimated losses from storm surge damage. And on commercial flood insurance penetration, AIR previously assumed that 10 percent of commercial structures carry flood insurance. But AIR said that based on further investigation into how storm surge losses will be covered under Sandy, the firm now believes an assumption of 20 percent is more applicable. For residential lines, AIR anticipates that insurers will ultimately pay 10 percent of modeled storm surge damage as wind losses.

The hot-button issue of hurricane deductibles was also factored into the revised estimate. On homeowners deductibles, the firm said it is now taking into account a flat $750 deductible as opposed to hurricane deductible assumptions normally used in AIR industry loss estimates.