Gustav’s Economic Impact: Some Early Thoughts
September 1st, 2008Posted by: Roger Pielke, Jr.
[UPDATE #2: The cat modelers are suggesting much higher estimates for Gustav. From Bloomberg:
The hurricane weakened as it headed for shore, keeping insured losses on land to between $3 billion to $7 billion and oil-drilling damage at about $1 billion to $3 billion, according to estimates from Newark, California-based Risk Management Solutions Inc. . . . Tom Larson, a senior vice president with Eqecat Inc., a risk modeling-firm in Oakland, California, said insured losses may be $6 billion to $10 billion, primarily in New Orleans and the surrounding area. Larson's data didn't include offshore damage.
Total damage is typically estimated at twice the insured damage, leading to estimates of $6-$14 billion (RMS) and $12 to $20 billion (EQE). $14B would be the 22nd most costly storm (normalized) and $20B would be 12th. Betsy (1965) was about $18B.]
[UPDATE: A question came in by email, here is the answer. To break into the top 50 most damaging storms, Gustav would need to have onshore damages >$3.7B (in 2005 $), and into the top 30, >$7.7B. $2.0B would leave Gustav in 71st place.]
Gustav has made landfall west of New Orleans as a reported categroy 2 storm, according to the NHC:
THE CENTER OF GUSTAV MADE LANDFALL ALONG THE LOUISIANA COAST NEAR COCODRIE ABOUT 1430 UTC. DURING THE PAST FEW HOURS…THE EYE BECAME BETTER DEFINED ON RADAR. HOWEVER…WIND DATA FROM AIR FORCE RESERVE AND NOAA AIRCRAFT ALONG WITH DOPPLER RADAR WINDS SUGGESTS THAT GUSTAV WEAKENED TO A CATEGORY TWO HURRICANE BEFORE LANDFALL. THE INITIAL INTENSITY OF 95 KT IS BASED ON THE AIRCRAFT DATA…AND THIS MIGHT BE A LITTLE GENEROUS.
New Orleans has been spared a repeat of Katrina. RMS, the catastrophe modeling firm estimates that insured damages will be a “few billion”:
Hurricane Gustav, the storm that made landfall in Louisiana today, will have an impact that is “significantly smaller than Katrina,” said Robert Muir-Wood, head of research for Risk Management Solutions Inc.
The storm will cause “a few billion” of insured losses, Muir-Wood said in an interview on Bloomberg television. RMS specializes in projections for catastrophes. Katrina caused a record $41.1 billion of insured losses in 2005.
Presumably, this total also includes offshore losses (e.g. to oil rigs) which are not included in our normalization totals, so the onshore portion would be somewhat less. By contrast CNN is reporting an estimate of $8 billion in damage.
If the current news holds, it looks like Gustav’s impact won’t be nearly as bad as the worst case scenarios, and in fact, very much in line with the historical analogues. Were I a gambler, for the onshore damages I’d take the lower RMS estimate over that reported by CNN. As usual in such things, caveat emptor.