Estimate of Economic Losses Now Up to $50 Billion

Sandy's impact on New York City has been devastating. The subway system is closed and Wall Street was shutdown for two days., a photo by Pan-African News Wire File Photos on Flickr.

November 1, 2012

Estimate of Economic Losses Now Up to $50 Billion

By MARY WILLIAMS WALSH and NELSON D. SCHWARTZ
New York Times

Economic damages inflicted by Hurricane Sandy could reach $50 billion, according to new estimates that are more than double a previous forecast. Some economists warned on Thursday that the storm could shave a half percentage point off the nation’s economic growth in the current quarter.

Losses from the storm could total $30 billion to $50 billion, according to Eqecat, which tracks hurricanes and analyzes the damage they cause. On Monday, before the storm hit the East Coast, the firm estimated $10 billion to $20 billion in total economic damages.

The flooding of New York’s subways and roadway tunnels and the extensive loss of business as a result of utility failures across the region were behind the sharp increase in the estimate, the firm said.

“The geographic scope of the storm was unprecedented, and the impacts on individuals and on commerce are far larger,” said Tom Larsen, Eqecat’s senior vice president and product architect. “Lost power is going to contribute to higher insurance losses.”

Eqecat predicted that New York would bear 34 percent of the total economic losses, with New Jersey suffering 30 percent, Pennsylvania 20 percent and other states 16 percent. That includes all estimated losses, whether covered by insurance or not. The estimates and the share that will be covered by insurers are far from certain at this point, as government officials, property owners and insurance adjusters struggle to assess the destruction.

While the stock market, banks and other financial institutions regained some of their stride on Thursday, other sectors like retailing, transportation and leisure and hospitality face a much longer and more difficult recovery. With fuel in short supply in many areas and utilities warning that power may not be back for a week or more in some areas, businesses found themselves preparing for the equivalent of a long siege.

FedEx, for example, was trying to rent fuel tankers for its trucks in New York and New Jersey as commercial gas stations ran dry.

“We’re reaching out to everyone who has a gasoline tanker that we can move to these areas,” said Shea Leordeanu, a spokeswoman for the company. While FedEx had stocks of oil in advance of the storm for generators, it was not prepared for the gas shortages that caused long lines at stations on Wednesday and Thursday.

“There has not been an impact yet, but this is something we can see as an issue and we’re concerned,” she said.

As logistical problems mounted, and damage estimates surged, economists raised their estimates of the storm’s impact.

“I think the effect will be quite big,” said Julia Lynn Coronado, chief economist for North America at BNP Paribas. “In the fourth quarter, we’re probably looking at an impact of half a percentage point.”

She said some of those losses would be made up in the first quarter of 2013, as insurance reimbursements were distributed and homeowners and businesses rebuilt.

Hurricane Sandy will rank high among disasters in terms of economic impact but will not be at the top of the list, said Mark Zandi of Moody’s Analytics. He estimated that the losses would be less than half of those suffered because of the 9/11 terrorist attacks and from Hurricane Katrina.

Moody’s Analytics also put the impact in the $50 billion range, with about $12 billion in losses falling in the New York City metropolitan area.

About $20 billion of that total is from lost economic activity like meals not served in restaurants, canceled plane flights and bets not placed in casinos, Mr. Zandi estimated. The rest, about $30 billion, will be from property destruction, including damage to homes, cars and businesses, Mr. Zandi said.

Eqecat said it believed that various forms of insurance would cover $10 billion to $20 billion of the total cost. Other losses will be borne by individuals and businesses, or covered by federal government programs like the National Flood Insurance Program. Much of the federal spending will be used to repair damaged public infrastructure, rather than for private property.

Eqecat said that if insured costs remained at the lower end of its predicted range, at $10 billion, then about 60 percent of the losses would be covered by homeowners’ and, to a lesser extent, auto insurers. The remainder would be covered by commercial and industrial insurance.

The firm’s officials said that if total insured losses rose to the higher end of its predicted range, it would be because of costs like business-interruption losses — and in that case, commercial insurers pay more.

They said this possibility would depend to a great extent on how long power failures continued. They said there were no solid data yet on the number of transformers and power lines that had been knocked out. They added that in some cases, power might not be restored until well into December.

Moody’s issued a report on Thursday stating that the large nationwide insurers had “diversified exposures and strong capital bases to withstand” payouts related to the storm. It added, however, that the costs could disrupt the capital bases of smaller regional insurers.

State Farm, the largest writer of home and auto insurance in the region, reported having received nearly 25,000 homeowners’ claims and 4,000 auto claims as of Wednesday. Those numbers are probably a fraction of the eventual totals. Some of the losses will not be recouped. Lost Halloween sales will be especially painful for some retailers, according to a separate analysis by Moody’s.

“As shoppers in the affected regions focus on the storm, other discretionary spending will fall and not be recouped,” Moody’s said.

Patrick McGeehan