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Hurricane Idalia: Devastating storm could become the costliest climate disaster to hit US this year

Early assessments from UBS risk analysts indicate a preliminary cost of approximately $9.36 billion resulting from the storm's aftermath

MIAMI, FLORIDA: According to analysts, Hurricane Idalia has the potential to be the most financially impactful climate-related disaster in the United States this year.

The storm, categorized as 3, made landfall on Florida's west coast after emerging from the Gulf of Mexico. Its destructive journey extended through Georgia and the Carolinas, resulting in widespread damage and flooding.

Financial fallout of hurricane Idalia and climate crisis

Early estimations from risk analysts at UBS suggest that the preliminary cost of the storm's consequences could amount to $9.36 billion.

In cumulative terms, NOAA revealed that by the end of July, considered Earth's hottest month on record by NASA, the combined estimated cost of damages from various disasters totaled $39.7 billion.

However, this sum does not incorporate the projected $5.5 billion required for the reconstruction of Lahaina, a town on Maui, Hawaii, which was devastated by wildfires.

“The costs are becoming unbearable,” said Tom Larsen, senior director of insurance solutions at CoreLogic, a property analytics provider that publishes an annual hurricane risk report. “The business of insuring for catastrophes used to mean exceptional, very rare events and that’s not what we’re seeing. These are much more common, so something’s got to change.”

The realm of catastrophe insurance once dealt with highly uncommon and extraordinary occurrences. However, the current landscape reveals a shift towards more frequent and less exceptional events, indicating the need for a transformation.

This sentiment was expressed by Larsen, who noted that the recent impact of Hurricane Idalia in a rural and less densely populated region of Florida, containing fewer insured structures, will likely result in a lower ultimate cost compared to other major cyclones like Hurricane Ian from the previous year.

The devastation caused by Hurricane Ian amassed a financial toll of $113 billion. Larsen voiced apprehensions about the potential repercussions on Florida's already fragile insurance market.

Despite attempts by state legislators to foster a more inviting environment, multiple significant insurance providers have departed or ceased operations in Florida over the past two years.

This trend of reduced providers translates to heightened premiums for consumers. Furthermore, the expense of reinsurance, which insurers acquire to limit their own exposure, has surged. These escalated costs are subsequently transferred to customers, exacerbating the existing crisis in the realm of home insurance.

Florida's fragile insurance market and resilience initiatives

“The Florida market … has the characteristics that it should stabilize, but also it hasn’t gotten better over the last 12 months,” Larsen said.

“A storm like Idalia exposes our vulnerabilities. It is an area that hasn’t had a lot of strong events, which means its population of weakened homes is much higher.

“If things remain as they are, the numbers of billion-dollar events will go up, because the population is increasing. The cost is very high. We have to start thinking about how we can mitigate these costs. How can we build stronger homes that are more resilient to these effects?

“It starts with the same key themes we hear with climate, it’s resilience and sustainability. If we want to aspire to a sustainable future we’re going to have to start spending more time thinking about becoming more resilient.”

In Miami Beach, recognized as the epicenter of the climate crisis, city officials are investing substantial sums to elevate roads and enhance drainage systems as a defense against sea level rise.

The implementation of enhanced building codes in Florida and other areas has resulted in increased resilience of new homes against severe weather occurrences. However, all these initiatives come with a financial burden.

“Evidence shows that climate change is impacting hurricane activity in the north Atlantic with a higher proportion of stronger, wetter hurricanes that have the potential to travel further inland before dissipating,” CoreLogic’s hurricane risk report says.

“The combined effects of these factors could significantly impact US properties in future years, including structures once considered out of reach of hurricane wind and flooding.

“Recent seasons have demonstrated that hurricane risk can, and likely will continue to, extend further inland, posing threats to millions more homes.