Katrina causes economic loss of US$100 billion

The economic loss from Hurricane Katrina and subsequent flooding in New Orleans may exceed US$100 billion, according to Risk Management Solutions (RMS). Losses are resulting from two separate catastrophic events the landfall of Hurricane Katrina in southeast Louisiana and coastal Mississippi on August 29 causing extensive wind and coastal surge damage; and, the Great New Orleans Flood which has resulted from failure of the levee systems that protect New Orleans. Losses result from wind and coastal surge, infrastructure damage and indirect economic impacts while at least 50% of the total economic loss is a result of flooding in New Orleans. RMS recently issued preliminary insured loss estimates of up to US$25 billion but this figure proceeded the levee failure and flooding in New Orleans.RMS currently estimates that at least 150,000 properties have been flooded, surpassing the previous U.S. record from flooding and levee failures on the Lower Mississippi river in 1927, which inundated 137,000 properties. The severe extent of the damage may have resulted because, although category 4 or 5 hurricanes are known to occur in the said region, New Orleans’ levee system was designed only to protect against a category 3 storm. “The insufficient level of flood protection offered by the city’s levees has been exacerbated by shortcomings in preparedness,” RMS says. In order to manage the economic and insurance consequences of the New Orleans Flood, authorities must respond quickly, according to Laurie Johnson, vice president of technical marketing at RMS.Most of the property damage has already occurred as a result of flood waters entering structures but RMS says “prolonged immersion of wooden residential buildings in warm polluted water will lead to rapid deterioration requiring an increasing proportion of the building stock to be completely replaced.” There will also be significant costs associated with land and building decontamination. The value of physical property in the flooded areas is approximately US$100 billion. Losses from business interruption and displacement of residents depend on the duration of the flooding. RMS estimates that the costs of interrupted economic activity exceed US$100 million per day. Johnson, who is responsible for the RMS’s catastrophe response services and reconnaissance, says that the removal of flood water is completely dependant upon how quickly the existing pumps are reactivated and additional pumping capacity is added.