Surprisingly, at least to me, the Ida-related flooding on the East Coast is being estimated as a very small insured loss, maybe $1 or $2 billion. This is incomprehensible to me. Sure, a lot of the damage is water and a lot of water is uninsured, but enough water is insured and this storm flooded a very significant geographical area.

I would suggest these losses will be at least $5B, probably more. And yes, I’m flying blind on this given I don’t have access to the same tools I used to have to vet these numbers, so we’ll see how good my instincts prove to be.

The Experts Make Mistakes Too

Losses from Hurricane Ida are being estimated in the $15-25B of insured damage. This seems reasonable when you look at past storms in the same vicinity and the heightened risk of demand surge.

When the post-tropical Ida reached the East coast and caused major flooding from Maryland to Massachusetts, I expected those estimates to go up materially. Instead, the preliminary reports are it is only will move estimates marginally. I’m usually not one to doubt Karen Clark, as she has a great track record, but this time I’m doubting Karen Clark.

Why? The experts tend to get major flood events wrong. They started out way low on Katrina. They started out way low on Sandy. They started out way low on Harvey. I wish I had the old AIR alerts handy to show you, but trust me, the initial bids were low and all had to be revised up.

My general rule is when you see people getting rescued from roofs…the loss estimates are too low. There were people being rescued from roofs on the East Coast.

Irene and Other Northeast Events

Hurricane Irene in 2011 is probably the most similar event to Ida. That storm did ~$5B in insured damage. However, with the passage of ten years, that would be more like $7B in today’s dollars. Now, Irene did do a little damage in North Carolina before hitting the Northeast, but it also mostly hugged the coast rather than coming from the west like Ida.

Thus, Ida covered a much wider geographic area. Additionally, it hit more city centers including Philadelphia, Newark, and New York City. These were impacted by Irene but not as widely. Irene similarly caused heavy flooding as its main impact rather than destructive winds.

You can also sanity check against things like winter storms. How is it a bad Nor’easter can cause $1-2B in losses, but a giant 1 in 250 like flood isn’t any more than that? Sure, damage from snow and ice is covered while residential flood isn’t, but you also have a lot more homes, and especially businesses, affected than in a snowstorm.

Commercial Flood

While it’s easy to focus on residential flood and play down the loss potential from post-tropical Ida, I sure saw a lot of pictures of flooded out suburban and urban business districts. Irene’s impact was greater on the Jersey Shore and then up in rural New England, so the potential for commercial flood and BI seems a lot worse with this storm.

It is also worth considering the “turn in the keys” risk. If your business was struggling due to Covid and you were operating at a loss, will you be in a rush to re-open if BI is paying? Or will you not mind so much if contractors aren’t readily available to make repairs?

Personal Auto

Auto losses do pay for flood damage. Given the sudden nature of the flash flood and the lack of warning from meteorologists, people did not have time to move their cars to garages or covered lots. Many people were still out on the road.

In the urban areas affected, many people have no choice but to park on the street. This is also a lot different from Irene and closer to Sandy or Harvey (not same magnitude, but similar elevated component of the loss).


As you probably saw, there were a number of tornadoes that hit decent sized suburbs. While these are unlikely to be huge losses, they should at least add a few hundred million to the total.

Named Storm Deductibles

Notice how the media keeps calling this the “remnants” of Ida. In other words, it’s not Ida. Thus, it is not a Named Storm, which means the named storm deductible does not apply. This helps homeowners who won’t have to pay the higher deductible if Ida were still tropical. This likely would be a source of model error.

Second Event, Hours Clauses, and Other Variables

There are also some interesting reinsurance angles here. Given the Northeast floods were not still Ida and that most of them were arguably just past the 72 hour window of Ida’s landfall, there is a good case to call the Northeast a second event.

This means insurers will face a second retention and will likely get little reinsurance benefit. It also means they will have used their reinstatement leaving them potentially naked for the rest of the season (or they can arguably not put in claims on this one to save the reinstatement for a subsequent storm).

Also, if your cat treaty only applies to wind from named storms and possibly tornadoes, you may not be able to recover against it anyway.

Postscript: Katrina 16 Years Later

Coincidentally, Ida landed near New Orleans 16 years to the day after Hurricane Katrina. Katrina ended up being a $41B event in 2005 dollars. Aon suggests that in inflation adjusted dollars it would cause $86B of insured loss. Does this seem reasonable?

Fortunately, there is an easy way to check. A mathematical rule of thumb called the Rule of 72 suggests that if you multiply the time between a current and future value by the growth rate of the variable, then if that product equals 72, your FV will be double your PV.

Thus, if you buy a 10 year bond with a 7.2% coupon, since 10 * 7.2 = 72, you would expect your money to double over ten years. You can check this by calculating 1.072^10 which equals approximately 2.

What does this have to do with Katrina? $86B is a little over twice $41B. Thus, over 16 years, this implies the inflation rate of insurance claims has averaged 72/16. Fortunately, that is a nice round number…4.5 (16*4.5 = 72).

Thus, if we believe insurance claims inflation has averaged 4.5% over the past 16 years, then the original $41B of Katrina losses would be $82B today, very close to the Aon estimate.

If you’d like to check the math, it’s 41 * 1.045^16 (you actually get $83B, not $82B due to rounding as the Rule of 72 is only an approximation).

Why mention this? Well, for one, I like fun math exercises. Why else? If you have to ask, you’re not in on the joke! 🙂 I bet at least a few people will get it.

Postpostscript: NFL Predictions!

OK, this will be quick. Remember, on average half of last year’s playoff teams don’t make it back. So all the national pundits who have 10 or 12 of last year’s teams back in the playoffs are posers. Don’t listen to them! I am cheating a little with 8 teams returning, instead of 7, but it’s a honest effort.

AFC: Chiefs, Bills, Ravens, Titans, Broncos Dolphins, Patriots

NFC: Packers, Bucs, Niners, Team Who Shall Not Be Named, Seahawks, Vikings, Falcons

Super Bowl Prediction: The Chiefs won’t make it and the Bucs won’t make it. Don’t make a sucker’s bet! The NFL is too unpredictable.

Actual Super Bowl Prediction: Ravens-Packers. Rodgers get his ring and still won’t make up with the Pack. He gets traded to the Raiders after the parade. The fans can’t decide whether he’s the hero or the villain.

The Pack is at 14-1 on the futures market. Only 14 teams make the playoffs so all else equal, they have a 1 in 14 chance, so should be 13-1 if you think they’re all the same. Green Bay is clearly better than an average playoff team. Not sure why they’re not 10-1 or lower.

Interesting Super Bowl long shots: The Seahawks at 25-1. You kidding me? They’re pretty close to a lock for the playoffs. If a neutral playoff team should be 13-1, why are you getting twice that? Sold!

Washington at 40-1 and Denver at 50-1 are interesting to me if you really want to take a flier. You have two top defenses that may not score enough, but we’ve seen teams like the Niners two years ago ride a strong D and an offense without much at QB but a lot of weapons get to the Super Bowl. Washington and Denver both have that potential. You could probably consider 40-1 Minnesota in that bucket too though there is a lot of history you’re fighting there.

So if it seems like I picked everyone, well, yeah, sort of. I would split my actual ticket between Green Bay and Seattle. If either one wins the NFC, you can hedge your bet by buying the AFC winner as a Super Bowl bet and still come out well ahead.