Why Harvey, Irma could make it much more expensive to insure NYC properties

With losses from Hurricane Harvey estimated to cost as much as a record $180 billion, and the deadly Hurricane Irma expected to ravage South Florida by early Sunday, this year’s storm season could prove costly for New York City property owners.

Depending on losses from the storms, experts say that property insurance rates could see a spike across the country and in New York City. Rates are almost certain to climb for federally backed flood insurance.

“This could end up being a one-two punch to the industry,” said Kevin Madden, director of the New York City real estate practice for the insurance broker Aon.

While the impact of Harvey is yet to be determined, a clearer picture is starting to emerge. Texas Gov. Greg Abbott estimated damages could reach up to $180 billion, which would make it the costliest storm in the country’s history (there are estimates by Moody’s that put the low figure around $48 billion). And Irma, which obliterated an estimated 95 percent of the French section of Saint Martin, could cause $250 billion in damage if it strikes Miami as a Category 5 storm (it was downgraded to Category 4 on Friday).

Boston-based modeling firm AIR Worldwide estimated property losses from flooding caused by Harvey could range between $65 billion and $75 billion. But only a fraction of that – about $10 billion – is expected to be paid out by insurers from losses on wind, flood and storm damage.

Property analytics firm CoreLogic estimates that only about 70 percent of homes affected by Harvey are covered by flood insurance, according to CNN. In South Florida, an estimated 1.3 million homes in Collier, Broward, Monroe and Miami-Dade counties are estimated to be in flood hazard sounds, and the number of homes with flood insurance is just 34.3 percent, according to a recent Associated Press analysis.

Some insurance experts say that payouts will have a ripple effect across the country.

“Insurance companies need to keep a certain amount of reserves to pay out claims. When their reserves are high, insurance rates typically are low,” said Izzy Green, CEO of the New York-based insurance brokerage Evergreen Insurance and Risk Management.

“When a catastrophe like a hurricane like this hits and insurance companies pay out high claims, their reserves go down, which ultimately forces them to increase insurance rates across the board – meaning even in New York – in order to increase the reserves again,” he added.

Aon’s Madden had a rosier view, though. He said that, the way things are now, it looks like insurance companies can pay Harvey claims out of their earnings instead of having to dip into their balance sheets. All that could change, he warned, depending on damages from Irma.

“I think the story within the next [few] days is going to change dramatically,” he said.

One area where it seems as though there’s a consensus that rates will rise is on flood insurance.

The National Flood Insurance Program was already $24 billion in debt before Harvey and Irma, and the program needs to be reauthorized in September. There have been talks about privatizing the program, but it seems almost inevitable that rates will have to go up to cover losses.

Green said that after Sandy in 2012, which caused an estimated $73 billion in damage, insurance rates across the board rose between 3 percent and 7 percent, but flood insurance rose 25 percent or more.

Some relief may be on the way. Mayor Bill de Blasio and the Federal Emergency Management Agency late last year announced a plan to redraw New York City’s flood maps.

Keith Shearer, executive vice president of the insurance brokerage Ryan Turner Specialty, said private capital has been rushing into the insurance market for years and driving rates so low that there’s “nothing left to give.” He said he sees a big jump coming in rates, depending on how large a correction is needed.

“Anything that is at a negative elevation or a in a flood zone is going to see changes within their policy with the next 12 months,” Shearer said. “’Flood’ is a four-letter word.”