Hurricane Laura May Cost $25 Billion, Rivaling Rita
Storm Surge, Flooding, Winds to Have Severe Economic Impact
As Hurricane Laura wreaks havoc in the Gulf Coast, one hazard modeling group estimates an economic impact of $25 billion—potentially putting it in the same league as Hurricane Rita, which devastated the region in 2005.
Laura, which made landfall overnight Wednesday near Cameron, Louisiana, as a major Category 4 storm, has been a particular concern for the oil and gas industry along the Gulf, which accounts for more than 45% of the nation’s oil refining capacity and 17% of its oil production. Important facilities including Motiva’s refinery in Port Arthur, Texas, were in Laura’s path, though a slight shift to the east has reduced expected flood damage in some areas, according to Enki Research, which models the potential damage from natural hazards.
“A key issue with the total damage amounts will be driven by the five major refineries in the damage swath,” Enki wrote in a blog post early Thursday morning.
- Hurricane Laura, projected to cause “unsurvivable” storm surge along the Gulf Coast, made landfall overnight Wednesday near Cameron, Louisiana
- One hazard modeling firm estimates an economic impact of $25 billion
- Some of the nation’s most important oil refineries are in Laura’s damage swath
Enki’s $25 billion estimate, which accounts for property damage as well as business closures and other economic loss, reflected information available as of early Thursday morning.
For this point in a calendar year, the Atlantic has seen a record number of named storms in 2020, with Laura being the seventh to hit the continental U.S. (if you count a very brief landfall by Marco earlier this week), according to the Insurance Information Institute.
It is by far the strongest hurricane to make landfall this year, and damage estimates put it clearly within range of other major Gulf Coast hurricanes in the recent past. Rita’s 2005 damage is estimated at $25.2 billion in today’s dollars, while Ike, which hit in 2008, cost $36.9 billion, according to the National Oceanic and Atmospheric Administration (NOAA). In 2017, Harvey became the second-most expensive Atlantic hurricane since at least 1980, with an estimated cost of $131 billion.
Storm Surge and Insurance
The risk of storm surge is particularly worrisome for low-lying regions like the Gulf Coast, both because of the devastating effects it can have and because of the potential to be underinsured for it. Laura’s storm surge alone threatened more than 430,000 single- and multi-family homes that would cost more than $88 billion to rebuild, real estate data firm CoreLogic projected early Tuesday.
And while standard homeowner’s insurance covers wind damage from a hurricane, it typically does not include protection for flooding due to storm surge or other causes like wind-driven waters. For that, homeowners need to get separate flood insurance from FEMA’s National Flood Insurance Program (NFIP) or private insurers.
Only about 15% of homeowners nationally have flood insurance, according to Mark Friedlander, a spokesman for the III, and flood damage can be costly.
In fact, the average NFIP paid loss for homeowners hit by Harvey—a Category 4 hurricane that came ashore near Rockport, Texas—was almost $117,000, according to the III, an insurers’ trade association. Those who lacked flood insurance, had they had similar damage, would have had to incur those costs on their own, and very little of the loss was covered by FEMA’s emergency relief, Friedlander said.
“It just shows the magnitude of a major flood event,” he said.
Homeowners may not realize they are vulnerable to flooding. More than 40% of all NFIP flood insurance claims between 2014 and 2018 were outside of high-risk flood areas, according to FEMA.
Laura came ashore around 1 a.m. Central Time as a ferocious category 4 hurricane with maximum sustained winds of nearly 150 mph, according to NOAA. While wind speeds had tempered to 100 mph as of 7 a.m., “life-threatening” storm surge continued along much of the Louisiana coastline, NOAA said. The storm is forecast to continue to weaken, moving northward across western and northern Louisiana and then over Arkansas and the mid-Mississippi Valley on Friday.
Offshore energy operators had evacuated almost half of the personnel manning platforms in the Gulf as of midday Wednesday, the U.S Department of Interior’s Bureau of Safety and Environmental Enforcement reported, and some rigs were being moved out of the storm’s path. Coastal facilities were particularly at risk due to salt water’s ability to ruin electrical infrastructure, Chuck Watson, director of research and development at Enki, said in an interview Wednesday.
“You can flood a transformer, say, with freshwater, and generally speaking, you can dry it out and probably recover that equipment. You get saltwater in it, and now it’s a paperweight,” he said.
Watson’s projection incorporates models that predict the physics of storm surges, floods, wind, and rain and combines it with 3-D terrain elevation data, and economic data about infrastructure that might be damaged. It also includes economic effects such as businesses being closed, he said.
But he cautioned that predictions are complicated by the COVID-19 crisis. For example, many people whose work might be interrupted by the hurricane are already unemployed.
“This year’s calculations are pretty squirrelly on a lot of levels because the economy is in a pretty strange situation,” he said.
AccuWeather President Joel Myers, also the founder, made his own estimate of Laura’s cost, saying total damage and economic loss may amount to $25 to $30 billion. Myers said he evaluated potential direct and indirect impacts, including damage to homes and businesses, job and wage losses, infrastructure damage, auxiliary business losses, medical expenses, and closures.
"The estimates also account for the costs of power outages to businesses and individuals and for economic losses because of highway closures and evacuations, as well as extraordinary government expenses for cleanup operations," Myers wrote in an email to The Balance Wednesday. NOAA’s estimates on past storms, by comparison, include direct damage and business interruptions, but not indirect effects such as health care costs.