The devastating destruction caused by Hurricane Irma in parts of the Caribbean is expected to result in billions of dollars of insured losses, but the economic damage is likely to be much worse, analysts say.
The total insured losses in the islands of Barbuda, Anguilla and St. Martin alone are estimated to be about US$3 billion, according to risk modeling company Risk Management Solutions.
Paul Wilson, vice president of model development for RMS, wrote in a blog post last week that it is clear the damage ratios in the three islands and the British Virgin Islands are high.
The total insured value in Anguilla is about $1.6 billion with an initial estimate of 50 percent damage. Barbuda has an insured exposure of $200 million, but the damage may be higher than 90 percent, Mr. Wilson noted.
Philmore Mullin, the director of Antigua and Barbuda’s National Office of Disaster Services, repeated the $200 million damage figure for Barbuda to The Daily Observer in Antigua. He said it could take three to nine months for basic utilities to return to the island.
The French-Dutch island of Saint Martin/Sint Maarten has an insured value of approximately $6.6 billion, with initial estimates of 30 percent damage, RMS said. There are no current estimates for the BVI.
“Of course, this is all preliminary and information from the ground remains uncertain. More information will come to light in the near term as reconnaissance efforts continue and the islands and their communities begin the long recovery process,” Mr. Wilson noted.
Caribbean islands are still cleaning up and attempting to restore power and telecommunications several days after the storm’s initial impact, Tom Sabbatelli, hurricane risk expert at RMS, added in another blog post Monday. “For instance, as many as one-quarter of customers in Puerto Rico remain without power four days after Irma’s passage. This prolonged restoration may prove to be a figure that could compound insured losses across the island.”
Insured losses, however, are typically much lower than economic losses because they are applied more narrowly and only pay out based on the coverage and insured value. It is likely that much of the economic damage in the Caribbean is uninsured.
Nikhil da Victoria Lobo of reinsurer Swiss Re said in the Wall Street Journal that in developing nations, on average only 7 percent of the economic losses in major catastrophes are insured, compared to 50 percent in developed countries.
In 2015, Swiss Re reported that 70 percent of economic losses from natural disasters in the past decade were not insured.
While commercial buildings and more expensive private residences are likely to have property insurance, it is common in parts of the region that mortgage-free residential and small business properties have either no insurance or are significantly underinsured.
After Hurricane Ivan in 2004, the direct economic impact of the storm on Cayman was mitigated by widespread insurance coverage in both the public and private sectors. Insurers and reinsurers paid out approximately $1 billion in Cayman at the time.
Short-term liquidity from risk facility
CCRIF SPC, an insurer for governments in the Caribbean and Central America, announced it will pay US$29.6 million to the governments of Antigua & Barbuda, Anguilla, St. Kitts & Nevis, The Turks and Caicos Islands, Haiti and The Bahamas after Hurricane Irma triggered payments on the countries’ tropical cyclone policies.
While the sum appears modest compared to the damage, the purpose of the insurer, formerly known as the Caribbean Risk Insurance Facility, is to provide short-term liquidity quickly to the governments to limit the financial impact of catastrophes such as hurricanes, earthquake and excess rainfall.
The preliminary payout is $13.6 million to Turks and Caicos, nearly $6.8 million to Antigua and Barbuda, $6.5 million to Anguilla and about $2.3 million to St. Kitts and Nevis. The Bahamas and Haiti receive smaller amounts of $234,000 and $162,000 respectively.
Anguilla and St. Kitts and Nevis also have excess rainfall policies, and CCRIF is assessing if these policies were triggered by the rains from Hurricane Irma, which could result in a second payout.
Florida escapes worst-case scenario
On Monday, catastrophe modeler AIR Worldwide estimated that U.S. insured losses resulting from Irma will range from $20 billion to $40 billion. The estimate was based on Sunday’s slightly more optimistic predicted track of Irma than Friday’s forecasts, when predicted losses were pegged at up to $50 billion. For some time Irma appeared destined to be the costliest U.S. storm on record, as initial insured damage estimates were as high as $200 billion based on a Category 5 hurricane hitting Florida’s larger cities.
According to AIR, the estimated exposure value in the coastal counties along the Gulf Coast up to Tampa is as high as $1 trillion.
Ultimately, both a change in direction and intensity of the storm limited the potential for catastrophic damage similar to that seen in parts of the Caribbean. Irma quickly weakened to a Category 1 in the early hours of Monday after making landfall as a Category 4 storm in the Florida Keys on Sunday.
Insurance analyst Randy Binner of FBR Capital Markets said on Monday that insured losses from Hurricane Irma are likely to total between $10 billion and $30 billion.
“Those are very big numbers, but that’s well off the worst-case scenario the market was discounting last week,” Mr. Binner told CNBC’s “Squawk Box.”