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AIR Worldwide Lowers Industry Insured Loss Estimates for Hurricane Irene in the Bahamas

Posted on 16 Sep 2011

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Catastrophe modeling firm AIR Worldwide has revised its industry insured loss estimates for Hurricane Irene’s impact in the Bahamas to between $200 million and $400 million (previously $300 million to $700 million). AIR’s loss estimates for other countries in the Caribbean remain unchanged as do the estimates for losses from Irene in the United States. With the new estimates for the Bahamas, AIR now estimates industry insured losses for all impacted Caribbean countries at between $400 million and $800 million. AIR’s estimate of insured losses in the United States from Irene remains unchanged at between $3 billion and $6 billion.

The revision for the Bahamas is based on a refinement of information about insurance penetration (also known as “take-up rates”) obtained from local experts during AIR’s recent damage survey and a reanalysis of detailed exposure data provided by several companies that together represent a significant portion of the market. (Please note that the loss estimates pertain to all insured properties in the Bahamas, and not just to properties insured by Bahamian insurers.)

On August 26, 2011, AIR estimated that industry insured losses to properties in the Bahamas from Hurricane Irene would fall between $300 million and $700 million. These estimates of industry insured losses reflect assumptions about take-up rates—that is, the percentage of properties in the Bahamas that are actually covered against hurricane wind and flood damage.

“Since that initial posting, AIR conducted a damage survey in the Bahamian islands of New Providence, Eleuthera, Abaco, and Green Turtle Cay,” said Scott Stransky, scientist at AIR Worldwide. “The levels of observed damage from both wind and flood were consistent with expectations and with AIR model results. Wind damage to well-built concrete structures was limited to the roof, as the model indicates, while the less prevalent wooden structures suffered more substantial damage. Well-engineered commercial properties typically suffered significant damage to signage.”

While in the Bahamas, AIR’s scientists and engineers also met with local insurance agents and building contractors. AIR determined that the rate of insurance coverage is not uniform across the Bahamas and significant differences exist between islands.

Stransky continued, “In particular, while take-up rates in Nassau and Freeport—which represent the two primary concentrations of exposure in the country—are high, take up rates tend to be much lower in the outer islands where the main impact of Irene was felt.”

AIR’s previous research into industry average take-up rates for the Bahamas indicated a countrywide take-up rate of 80% for residential properties and 90% for commercial properties. These values remain reasonable as an overall take-up rate given the high insurance penetration on the islands of New Providence (Nassau) and Grand Bahama (Freeport), where most of the property exposure is located. However, take-up rates are much lower—20% for residential and 25% for commercial—for the other islands of the Bahamas, including those that experienced the storm’s strongest winds and heaviest precipitation. The exception is Abaco, where AIR believes take-up rates are somewhat higher, at 45% and 50% for residential and commercial properties, respectively. Providing take-up rates by island is important for estimating industry losses for events like Irene that do not significantly impact the major population centers in a territory.