Morgan Stanley has estimated that the insurance industry loss from hurricane Harvey will be between $15 billion and $40 billion, with the majority coming from flooding to homes and businesses.
Hurricane Harvey flooding in Houston – Photo from ABC News
Overall, economic loss estimations for the event have varied, with Moody’s estimating a $108 billion cost and catastrophe risk modeller, RMS, estimating a total loss of between $70 billion and $90 billion.
Typically, says Morgan Stanley, insured losses account for roughly half of the economic loss, but owing to a lack of flood insurance take-up in the region this might not be the case with Harvey.
A $40 billion insured loss would make Harvey one of the costliest natural disasters, coming behind Katrina’s $80 billion cost but above the $30 billion loss driven by Sandy.
The $40 billion insured loss estimate includes $5 billion – $15 billion of National Flood Insurance Program (NFIP) claims, meaning that with this excluded, the overall insured loss could still be as high as $25 billion, according to Morgan Stanley estimates.
Morgan Stanley estimates between $2 billion and $4 billion of the insured loss to be from wind damage, between $3 billion and $6 billion of auto losses, between $5 billion and $15 billion from commercial flooding, and then the estimated $5 billion – $15 billion of NFIP claims.
Breaking the numbers down, Morgan Stanley explains that the Houston metro area has over 4 million vehicles, and by assuming roughly 70% have comprehensive coverage, and with around 20% of the area flooded, auto losses could reach $6 billion.
“Commercial flooding losses are a wild card and difficult to estimate,” says Morgan Stanley.
Excluding the NFIP claims, storm Allison drove an insurance industry loss of around $3.5 billion, with most of the loss coming from flooding. Harvey impacted a broader area than Allison, bringing heavier rains to the same area that has also experienced population growth.
“Similarly, it is highly difficult to estimate NFIP claims,” continues Morgan Stanley.
The NFIP paid out roughly $1.1 billion from around 30,000 claims during Allison, and with RMS estimating that around 500,000 policies could be impacted by Harvey, the payout could be 15x more than Allison, says Morgan Stanley.
“We expect reinsurers to share a significant portion of the overall losses but the breakdown is unclear, due to various reinsurance on individual commercial policies. If NFIP losses exceed $4b, 25 reinsurers will also share up to ~$1b NFIP claims,” says Morgan Stanley.
