Risk Management Solutions recently announced that insured lossesfrom Hurricane Katrina are estimated to be $40-$60 billion, ofwhich $15-$25 billion are related to the Great New Orleans Flood.Total economic losses are now expected to exceed $125 billion. OnSeptember 2, RMS released a preliminary insured loss estimate of$20-$35 billion (excluding flood losses in New Orleans). At thattime, total economic losses were estimated at over $100 billion.Today's revised estimates reflect an extensive analysis that RMShas performed to model and estimate the insured and uninsured losscomponents of the flood.

Standard commercial and residential policies issued by privateinsurers cover wind damage, but flood is excluded. Businesses andhomeowners can obtain coverage with fixed limits through theNational Flood Insurance Program (NFIP). Private sector insurersalso offer coverage in excess of the limits provided by the NFIP,which is commonly purchased for high-value commercial properties orhomes.

Katrina's eye passed to the east of New Orleans on the morningof August 29, and there was little time to assess wind damagebefore the levees broke and flooding began. Distinguishing theportion of damage attributable to wind or flood will be difficultin many areas that were impacted by winds in excess of 100mph. Thefinal insured loss from Hurricane Katrina will depend on how floodclaims are apportioned among the NFIP, private insurers, andindividuals. Insurers can also expect deterioration losses inhouses that are abandoned for a long period of time, and lossesfrom fires and looting in the flooded city.

At least 50% of the total economic loss resulting from theeffects of Hurricane Katrina can be expected to come from the GreatNew Orleans Flood. According to the Army Corps of Engineers, thefloodwaters in New Orleans are receding at a rate of four to sixinches per day, but approximately 60% of the city remainsinundated. Due to extensive power outages, only about 25% of thepumps in the local parishes are currently operational. It couldtake months to drain the water and fully assess the level ofstructural damage, as well as the contamination in the soil andground water.

Economic losses from business interruption and displacement ofresidents are highly dependent on the duration of the flooding andresulting contamination. “This is the first urban flood that hasaffected such a vast and industrialized region. Without benchmarks,authorities have little experience to inform them of the levels ofcontamination to expect once the waters recede, or how long it willtake before the region can be inhabited again,” commented RMS VicePresident Laurie Johnson, who leads the company's post-catastropheresponse and reconnaissance. “Ultimately, public safety concernswill determine when businesses can reopen and residents are allowedto return, even in areas that appear to be undamaged.”

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