The stunning price tags for Hurricanes Harvey and Irma, explained

Estimates for the cost of Hurricane Harvey’s damage have come in at $65 billion, $180 billion, and as high as $190 billion — the last of which would make it the costliest disaster in US history.

The numbers from the second record-breaking storm that hit the US this summer, Hurricane Irma, meanwhile, are still rolling in. But totals range from $50 billion to $100 billion.

To appreciate how staggering these figures are, consider that they could be enough to make the $18.57 trillion US economy lose a step, knocking between 0.6 percent and 0.8 percent off of US GDP growth this quarter, according to projections from investment banks.

While these estimates vary based on how different factors are measured and modeled, what’s consistent is that Harvey and Irma are just the latest in a growing stream of increasingly expensive megadisasters, some of them linked, as these storms were in part, to climate change. And the numbers have huge implications for the insurance industry, city planning, decisions about rebuilding, and the lives of millions of Americans.

Let’s unpack them and explore what they mean not just for Texas and Florida, but for all communities at risk of intense hurricanes in the future.

Hurricanes keep costing more and more

Here’s one way to put the rising number of costly disasters in perspective: Nine of the 10 costliest Atlantic hurricanes (not including Harvey or Irma) have occurred since 2000.

Munich Re, Geo Risks Research

According to NOAA’s National Centers for Environmental Information, the United States has suffered 212 weather and climate disasters since 1980 that have cost more than $1 billion, totaling $1.2 trillion. (You can see the trend in this great infographic from National Geographic.)

Adam Smith, a scientist at NCEI, said in an email that the inclusion of Harvey and Irma will “increase this cost number considerably.”

But “official” hurricane price tags are almost always too low

So what will be on the receipt for Harvey and Irma?

NCEI’s Smith explained that a storm’s price tag includes what can be measured: blown-over homes, shattered glass office towers, flooded factories, and waterlogged machinery. Estimates also include losses to public infrastructure like roads and bridges, crop damage, and reductions in work hours.

The first damage totals following a storm come from insurance companies. Then, as floodwaters recede, governments add the repair costs of roadways, bridges, parks and power lines to the bill.

The economic damage from a hurricane can continue to rise for months, if not years. After Hurricane Katrina in 2005, which was until Harvey the most damaging hurricane in US history, employment in New Orleans crashed and stayed low for months, as this chart from the Bureau of Labor Statistics shows:

Bureau of Labor Statistics

Even accounting for all of these factors, the best dollar assessment of a disaster still leaves out the values of degraded ecosystems, displaced cultural heritage and ruined lives.

More than a decade after Katrina, musicians struggled to resuscitate New Orleans’s vibrant music scene after the city was flooded.

“These loss assessments do not take into account losses to natural capital/assets, health care related losses, or values associated with loss of life,” Smith said.

That means that just about every estimate is an underestimate, and the damage totals from extreme weather events are rising.

The Congressional Research Service reported that the inflation-adjusted disaster relief appropriations have increased from a median of $6.2 billion between 2000 and 2006 to $9.1 billion between 2007 and 2013, a 46 percent increase.

The bills are high because the coasts are booming

There are a couple factors converging to drive this trend.

Climate change is certainly an important aspect — it is fueling sea level rise and the increasing intensity of storms.

“According to the studies [the Government Accountability Office] reviewed, climate change may substantially increase losses by 2040 and increase losses from about 50 to 100 percent by 2100,” GAO wrote in a 2014 study.

But a bigger part of the rising damage bills comes from the facts that the economy is growing, populations are booming, property values are rising, and people are continuing to build where floods and winds can topple them.

Nasa Earth Observatory

In 2010, 123.3 million Americans lived in coastal counties, about 39 percent of the population. By 2020, another 10 million will be catching sea breezes.

“A lot of people want to live near the water,” said David Samuhel, a senior meteorologist at AccuWeather.

So far, the rise in hurricane damage hasn’t deterred development along the coast. And while some cities are taking measures to resist rising seas and make buildings withstand stronger winds, more residents are moving in, increasing risk exposure.

“I think the population growth is going to overwhelm things,” Samuhel said. “I think we kind of repeat our mistakes over and over.”

The science says “leave,” but the market says “stay”

While some academics are now openly pushing for a “managed retreat” from vulnerable coasts, property developers are still putting plenty of new high rises along beaches.

The World Bank found in 2013 that among cities facing the costliest damage in the world, Miami ranked second, while Tampa ranked seventh.

Yet Floridians are gleefully building in these cities, and the value of these properties is shooting up.

The Miami Herald reported in May that Miami-Dade County is undergoing $5 billion in new construction and saw property values rise 8.6 percent this year. “Every local jurisdiction saw growth in taxable values on real estate,” wrote the Herald’s Douglas Hanks.

And as Florida’s state climatologist David Zierden, who is also a researcher at Florida State University, told me, “It’s this continued development in vulnerable areas that’s increasing our hurricane risk much more than climate change itself.”

Who gets stuck with the check?

This puts private insurers and the government on the hook for bigger recovery bills.

“From 2007 through 2013, data from the Federal Emergency Management Agency (FEMA) and the Risk Management Agency (RMA) show that exposure to potential losses for insured property grew from $1.3 trillion to $1.4 trillion (8 percent),” the 2014 GAO study found. “According to industry data, private sector exposure to such loss grew from $60.7 trillion to $66.5 trillion (10 percent) from 2007 through 2012. Federal exposure to uninsured loss also increased by 46 percent over this period, based on a 2013 analysis by the Congressional Research Service.”

With Irma’s last-minute course change, many insurers breathed a sigh of relief as the storm caused less damage than expected, but the industry as a whole is facing growing anxiety about future tallies.

"The financial impact on the insurance industry is probably going to be a little bit lower than initially expected,” Niklaus Hilti, managing director and CEO of Credit Suisse Insurance Linked Strategies, told CNBC. “I think what is interesting is the impact on the insurance industry is probably more from the fact that we have now two storms in a relatively short period of time.”

After Harvey dissipated and before Irma made landfall, stock prices for insurance companies tanked as much as 16 percent as they braced for the bill.

When a massive disaster like a hurricane strikes, insurance companies that suddenly have to disburse massive payouts for homes, cars, and health care often turn to their own insurance firms called, fittingly, reinsurers.

These companies have been paying close attention to the variables that influence extreme weather and have long sounded the alarm on climate change and disasters.

With several multibillion-dollar payouts in quick succession, reinsurers are facing greater pressure.

CNN reported that because of claims from Harvey and Irma, German reinsurance firm Munich Re is facing a quarterly loss and will miss its annual profit target.

At the same time, the federal government is also bearing burdens from the storms through emergency disaster relief and payouts from the National Flood Insurance Program.

The looming contentious question is “Who pays?” and it’s unlikely everyone who suffered a loss will fully recover after these storms.

Critics have blamed the federal government for creating perverse incentives with these programs, since NFIP shoulders some of the costs of living in flood-prone areas while larger disaster relief payouts often go to states that prepared the least for extreme weather.

The NFIP program will have to ask Congress for more money to cover payouts as Harvey and Irma burn through its on-hand cash and current borrowing authority. The program is already $24 billion in debt to the US Treasury.

Officials from the Federal Emergency Management Agency are now canvassing to help people in afflicted regions apply for government assistance.

However, fewer than 20 percent of Texans and fewer than 18 percent of Floridians have insurance against floods, the dominant cause of property damage after hurricanes.

Many inundated property owners will have to pay out of pocket or write the damages off as losses, and some proposed changes in state laws will make it harder for policy-holders to file claims.

That means taxpayers and the people most affected by the hurricanes will bear the largest costs of the storms. And with greater numbers of them living on the coast and property values continuing to rise, the bills are sure to surge higher.

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