WASHINGTON — Residents along most of the U.S. East Coast began cleaning up Tuesday the wreckage left behind by Hurricane Sandy and it was immediately clear that the bill for the unprecedented late season storm is likely to be astronomical and shared by all Americans.
“One of the big lessons here is there is going to be a very large gap between the insured losses and the total direct losses, and the overall economic losses due to Hurricane Sandy,” said Cynthia McHale, director of insurance services for the business advisory firm Ceres.
The insured losses from Sandy are initially estimated by Ceres and others to come it between $5 billion and $10 billion. That’s a fraction of the total losses, however, since damage from flooding and Sandy’s storm surge would be covered not by the private sector but rather the National Flood Insurance Program. Only a small percentage of homeowners - 5.6 million policies nationwide last year - are thought to actually have the federally provided insurance coverage.
That means taxpayers may be on the hook for a lot of the disaster assistance to 15 affected states along or near the East Coast. And Americans will also feel Sandy’s effect on gas prices, which are likely to spike for the short period that the storm forced refinery shutdowns and disrupted gasoline deliveries along the East Coast.
Sandy shut down the New York Stock Exchange Monday and Tuesday, the first time weather has closed the symbol of American financial might for two consecutive days since 1888. Leaders of the exchange announced Tuesday afternoon that trading will resume Wednesday morning at normal hours and without anything out of the ordinary.
Initial estimates of broader economic losses range from $20 billion to $50 billion, although these numbers could go sharply higher in days ahead as more is known about the extent of damage in and around the densely populated New York City area. The flooded subway system there is expected to be closed for days, and for millions of New Yorkers, in a city proud of its toughness, it’s sure to be a week demanding patience.
“Early estimates of potential infrastructure damages currently stand around $10 billion of insured damages and about twice as much, or $20 billion, in terms of total damages. This would put Sandy on par with Irene (in 2011) in terms of total infrastructure damage estimated around $15 billion,” wrote Nigel Gault and Gregory Daco, economists at forecaster IHS Global Insight, in a research note Tuesday. “However, with Sandy being a much larger storm, it is likely to end up causing more flooding damage than its 2011 peer which would increase total damage estimates.”
As a point of comparison, Irene, which hit New Jersey and Vermont the hardest, caused about $4.3 billion in insured losses last year. Sandy is sure to top that, but still pales compared to 2005 when Katrina, Rita and Wilma combined for insured losses of $45 billion.
To give a sense of Sandy’s massive reach, President Barack Obama signed emergency declarations for New York, Massachusetts, Connecticut, Rhode Island, New Jersey, Pennsylvania, Maryland, Virgina, West Virginia and the District of Columbia. Claims for damages are expected to range from flooding and wind to business interruption to a blizzard in western Maryland and West Virginia.
“In addition to infrastructure damage, Sandy has forced the idling of about 70% of the East Coast’s oil refineries. This does not bode well for the supply of refined oil products as capacity was already quite tight prior to the shutdowns,” said Gault and Daco. “We are likely to see an accumulation of crude supply and a shortage of refined products in the coming days which will inevitably put upward pressure on gasoline prices.”
Sandy is expected to drag on U.S. economic growth for the final three months of 2012. Some of the business losses will be gains as communities, businesses and homeowners rebuild and purchase supplies to do so. But the losses at restaurants, movie theatres, bars and nightclubs and the like don’t get made up and this subtracts from growth. This lost business is also reflected in places such as the famed Atlantic City boardwalk in New Jersey, which televised images Tuesday showed to be little more than driftwood in some places.
Email: khall@mcclatchydc.com; Twitter: @KevinGHall
