Filed Under:Claims, Catastrophe & Restoration

Expect a $10b Loss Every Four Years from Hurricanes

The track of
The track of "The Great Miami Hurricane," which made landfall on Sept. 18, 1926 near downtown Miami.

NU Online News Service, Aug. 21, 2:55 p.m. EDT

A new report by Karen Clark & Co. says storms capable of major losses are not as infrequent as we might assume. In fact, the United States can anticipate insured losses of at least $10 billion from a hurricane an average of every four years, based on an analysis of more than a century of hurricane experience. 

Using a new methodology, Clark’s firm ran nearly 180 U.S land-falling hurricanes through a formula to determine which storms would likely cause at least $10 billion of insured losses if they were to strike today.

Karen Clark tells PC360 the report highlights the results of a multi-month-long project on historical events requested by clients.

“Clients like to know history,” she says. “'If a storm is repeated, what would happen to my book of business today?' They can also benchmark model results.”

The results shift the common perception of the worst storms in terms of insured loss due to denser areas, especially on the coast, as well as larger and more valuable buildings that exist today.

For example, 2005’s Hurricane Katrina—known as the costliest hurricane in U.S. history at about $40 billion—falls to the seventh position on Clark’s new list.

Download the report here.

The top spot—by far—now belongs to an unnamed storm, the “Great Miami Hurricane” of 1926. Clark’s experts in catastrophe risk, models and risk management say the storm would cause a whopping $125 billion in losses today.

The second costliest storm would be the 1928 Okeechobee (Florida) Hurricane at about $65 billion, according to the report.

Interestingly 1992’s Hurricane Andrew would cause more damage than Katrina if Andrew hit the same spot—just south of Miami—today. Clark says Andrew’s insured loss tally would be about $50 billion.

TOP 10 COSTLIEST HISTORICAL HURRICANES

Andrew caused about $15.5 billion in losses when it traveled over Florida 20 years ago. The losses were accurately predicted by Clark, founder of what is now known as AIR Worldwide, back then.

Among the findings some readers might discover surprising is the fact just two storms from the Southeast—Hazel and Hugo—would cause more than $10 billion in losses. There simply is not the kind of concentration of exposure here as there is along other portions of the coastline, such as in the Northeast, Clark says.

Karen Clark & Co. says the report “fills an important void” because it doesn’t simply adjust original losses by the rate of inflation. Instead, it takes into account population increases, valuations and construction costs using multiple sources of information in the methodology.

Estimates were rounded to the nearest $5 billion “to avoid the illusion of accuracy and false precision given the uncertainty around the estimates.” 

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