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Dolly's cost less than feared

Flood damage and business interruption losses are likely to make up the largest proportion of insured losses after the first hurricane of the 2008 season hit the North American mainland.

Hurricane Dolly made landfall in the US last week as a category 2 hurricane after gathering speed across the Gulf of Mexico and hitting Southern Texas.

Dolly passed between the cities of Brownsville, to the south, and Corpus Christi, to the north, in Texas limiting the extent of damage. However, later rainfall has caused flooding in the southern US state and in Mexico.

Risk modelling firms AIR Worldwide and Risk Management Solutions (RMS) highlighted the effect of heavy rainfall caused by Dolly as one of the key indicators of insured losses in the US.

AIR Worldwide had earlier estimated that insured losses in the US could breach the $1bn mark, but later revised its estimates to between $300mn and $600mn. RMS, meanwhile, predicted that US insured losses would be less than $750mn.

Christine Ziehman, RMS director of model management, said: “The largest uncertainty in the loss estimate comes from potential flood damage.”

“If the flood damage is limited then we expect the total insured loss to come in much lower than $750mn.”

Business interruption claims arising from the closure of oil and gas platforms in Gulf of Mexico may also fuel losses.

The US government said that around 5 percent of the oil and gas production in the area was shut down before Dolly approached, with 49 production platforms evacuated.

Peter Dailey, AIR Worldwide director of atmospheric science, said: “Physical damage to platforms and rigs is likely to be quite limited, with any insured losses dominated by business interruption.”

The expected losses are in line with earlier estimates for Dolly, which had weakened to a tropical storm after first hitting land last Monday just south of Cancun in Mexico – the hurricane went on to make landfall in the US south of Corpus Christi in Texas near the US/Mexico border on Wednesday.

AIR said insured losses in Mexico were likely to be lower, reaching between $50mn and $100mn, despite the heavier destruction it may have caused.

Dailey explained: “In Mexico, wooden shacks in fishing communities like Higuerilla may not be able to withstand Dolly's onslaught. Neither are they likely to be insured.”

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