Katrina's economic cost put at $100B Flooding, slow response exacerbating losses, RMS says
By Alistair Barr, MarketWatch Last Update: 11:12 AM ET Sept. 2, 2005
SAN FRANCISCO (MarketWatch) - Katrina and the flooding of New Orleans will probably cost more than $100 billion in total economic losses, Risk Management Solutions, a leading catastrophe risk-modeling firm, said on Friday.
At least half of those losses will be triggered by the failure of levees surrounding New Orleans, the firm said, adding that the subsequent flood is turning out to be the most damaging in U.S. history.
RMS's economic-loss projection is different from its earlier estimate of "insured losses," which only include the cost of damage and disruption that's covered by insurance policies. Insured losses may be as high as $25 billion, RMS said earlier this week.
More than 400 insurers, reinsurers, trading companies and other financial-services firms rely on RMS to help them gauge and deal with the cost of catastrophes.
RMS said the lack of preparedness and slow response to the disaster will exacerbate losses. Every day that economic activity is disrupted will cost more than $100 million, the firm warned.
"The economic and insurance consequences of the 2005 Great New Orleans Flood will depend highly on how quickly authorities can respond to the event," said Laurie Johnson, vice president of technical marketing at RMS, who is responsible for the company's catastrophe response services and reconnaissance.
"The speed at which existing pumps are reactivated and additional pumping capacity is added will determine how rapidly the flood waters are removed," he added. "But this is only the first step in restoring services to flooded areas of the city."
RMS compared the New Orleans disaster to flooding in the Netherlands in 1953. Both regions are at or below sea level and were protected by poorly maintained defenses, RMS explained.
The Dutch flood led to more than 1,800 deaths and the inundation of 47,000 properties. It took six months to pump out all the water from the flood bowl.
At least 150,000 properties have been flooded in New Orleans this week, surpassing the previous U.S. record from flooding and levee failures on the Lower Mississippi river in 1927, which inundated 137,000 properties, RMS said. The value of physical property in the flooded areas is approximately $100 billion, RMS estimated.
While the majority of property damage occurs once flood waters enter a structure, prolonged immersion of wooden residential buildings in warm polluted water will lead to rapid deterioration requiring an increasing proportion of the buildings to be completely replaced, the firm warned.
While hurricanes of Category 4 or 5 strength are well-understood to occur in the Gulf of Mexico (Katrina was a Category 4), the levee system in New Orleans was designed only to protect against a Category 3 storm, RMS said.