Beyond Insurance Payouts: Tallying Up the Cost of Hurricanes

A hurricane's wrath has often been measured in the cost of insurance claims, particularly when it comes to private property damage. For this year's largest two storms, Harvey and Irma, this figure is destined to be a whopper. More than $25-30 billion  (at the low end) are expected to be paid out by homeowner insurers -- and that doesn't include flood insurance payments, which could raise the tab at least another $11 billion

But this year's barrage of storms taught us an important lesson: The cost of climatic events isn't really limited to what insurance companies pay out.

That may sound like a no-brainer, but quite often it's the insurance companies who publicize financial impact of natural disasters. That's because in the United States most homeowners do have insurance (usually because they are required to as part of their mortgage agreement) and the damage is often reflected in those claims.

And until recently, widespread destruction to multiple state grids wasn't really a concern. In many past years, power outages have been localized: Hurricane Opal in 1995 wreaked havoc across the northwest tip of the Florida Panhandle, flooding and knocking out power in some towns. Hurricane Dora, in the 1960s, was considered monumental for its time with 125 per-hour winds, but damage to the electrical grid pretty much was limited to where it made landfall on Florida's eastern coastline.

But not this year.

The estimates are still coming in, but the damage to electrical grids in Florida, Texas and Georgia from Harvey and Irma alone are expected to tally in the billions.  Florida, which receives most of its electrical power from Florida Power and Light (one of several subsidiaries of NextEra Energy, Inc.) reported $1.3 billion in damages from hurricane Irma's class 4-5 winds. Duke Energy figured its losses in Florida to be around $500 million.

In Texas, Harvey left downed power lines and widespread flooding across the Houston area. Although it was downgraded to a tropical storm by the time it reached Houston, American Electric Power still said it had more than $200 million in damages to the grid.

All in all, more than a half-dozen power companies, including renewable energy provider NRG, sustained damage that in some cases, has resulted weeks without power to many towns. NextEra, which is being sued by several cities and homeowner groups for what they say was a lack of preparation, announced it will be imposing another $4 surcharge to customers' bills to offset the cost of Irma's wrath.

But power grids and insurance claims are still only a small measure of the impact of this year's climatic events. To get a real sense of what hurricane 5 damage means, experts are turning to Puerto Rico. Hurricane Maria, smaller but just as powerful as Irma in windspeed, is proving that the real human cost of climatic events isn't necessarily reflected in insurance payouts.

Many homeowners in Puerto Rico aren't insured, or if they are, their policies often don't include damage from wind. One source placed the number of homes without appropriate insurance coverage on the island at about 50 percent. That means for many of the 3.8 million residents, repairing their homes will have to come out of pocket or, if lucky, with limited assistance from the federal government.

But to make things worse, federal flood insurance also wasn't available in many parts of Puerto Rico. That's because the federal government required municipalities to meet certain standards that were prohibitive for many low-income, rural areas of the island.

It's a catch-22 that has left many communities on the bankrupt island with little options: too poor to meet the standards for insurance and not enough funds to shoulder the price tag of a direct hit from a hurricane.

And as Quartz writer Ana Campoy points out, the cost of a natural disaster is clearest when you can size it up against the population and their economy. For Texas, Harvey's price tag equaled about 5 percent of its gross domestic product -- sizable, but still not the largest part of the purse. Irma's share of decimation equaled about 6 percent of Florida's GDP.  Puerto Rico's on the other hand was shouldered by a much smaller population with a relatively small land mass. For Puerto Ricans, the cost of Maria's destruction is  equal to about 30 percent of its GDP. For Texas and Florida residents, Campoy notes, that's about $3,000 per resident. For Puerto Ricans, it's about $10,000.

With an unprecedented list of nine hurricanes this year, climatologists are trying to look ahead to get a sense of what might be in store for future years. The fact that the White House has (finally) acknowledged that climate change does exist as a phenomena is good news. But will it help buttress regions like Puerto Rico, Texas and Florida from unforeseen impacts of hurricanes and other climatic events with funding and new expertise? We'll have to see.

Flickr image: The National Guard