How do you calculate the price of a storm?

2017 is shaping up to be a record breaking year

What will be on the receipt for Harvey, Irma, and Maria? We speak with Adam Smith of the National Oceanic and Atmospheric Administration, who calculates the cost of weather and climate disasters. Smith explains that a storm’s price tag includes all measurable things: destroyed office towers, damaged homes, farms and crops, business interruption costs, and public infrastructure like roads and bridges. Insurance companies provide initial totals, and then government agencies add the cost of repairing roadways, bridges, parks, and power lines.

To learn more about how the costs are calculated, visit Smith’s project US billion-dollar weather and climate disasters.

ResearchGate: What motivated you to study the cost of weather and climate disasters?

Adam Smith: This research seeks to bring the best and most complete disaster loss data together in a unified, systematic approach. We seek to quantify the total, direct costs for numerous weather and climate disasters including: hurricanes, drought, inland floods, severe local storms, wildfires, crop freeze events, and winter storms.

RG: Can you give an overall picture of these costs?  

Smith: The US has sustained 212 weather and climate disasters since 1980 where overall damages reached or exceeded $1 billion (including consumer price index (CPI)-adjustments to 2017 dollars). The total cost of these 212 events exceeds $1.2 trillion (as of July 2017).

RG: What are the costliest type of weather and climate disasters? 

Smith: Tropical cyclones have caused the most damage ($580.7 billion, CPI-adjusted) and also have the highest average event cost ($16.6 billion per event, CPI-adjusted). This calculation does not yet include the costs of Hurricane Harvey, Irma, and Maria, which will considerably increase the average hurricane costs in the US.

RG: How do you calculate a storm’s price tag?

Smith: These disaster cost assessments require input from a variety of public and private data sources including insurance and government agencies. Each of these data sources provides unique information as part of the overall disaster loss assessment. One of the key transformations is scaling up insured loss data to account for uninsured and underinsured losses.

RG: With Harvey, Irma, and now Maria, do you think 2017 could already be a record breaking year?

Smith: With every passing week, it seems more likely that 2017 could become the record breaking year in terms of costs, exceeding the historic 2005 hurricane season, which includes Hurricane Katrina. However, we are not yet certain, as the ongoing disaster costs continue to be assessed.

RG: For how long do cities feel the economic pain from a hurricane?

Smith: Hurricanes impact cities in many ways that are all difficult to recover from. But perhaps one of the more important distinctions is the strength of a city’s economy and labor-force prior to the event. And of course, recovering from wind-damage like Hurricane Andrew is different than recovering from inland flooding like Katrina and Harvey, since far less of the flood damage is reimbursed through insurance. More people have difficulty recovering from uninsured flood damage, because they do not have the money to quickly rebuild their lives.

RG: Do cost estimates factor in long-term effects of a storm that go beyond things like property?

Smith: We seek to measure what the best data allow us to measure. These loss estimates reflect the direct effects of weather and climate events—not including indirect effects—and constitute total losses, both insured and uninsured. The insured and uninsured direct loss components include: physical damage to residential, commercial, and government/municipal buildings, material assets within a building, time element losses like businesses interruption, vehicles, boats, offshore energy platforms, public infrastructure, and agricultural assets.

However, these loss assessments do not take into account losses to natural capital/assets, health care related losses, or values associated with loss of life. Therefore, the estimates should be considered conservative with respect to what is truly lost, but cannot be completely measured.

RG: Do you think cities are getting better at mitigating storm damage?

Smith: Not particularly. The cities that seek to mitigate against future storm damages are usually cities that were recently impacted by extreme events. They have a clear memory of the impacts and do not want to experience it again.

RG: Can you offer any insight into what the coming years may hold?

Smith: A large portion of the US infrastructure was designed and built during the 20th century. Today's weather extremes are testing the limits of these past designs. Once extreme events damage or destroy our infrastructure and towns, we should rebuild with more robust standards, to better mitigate our future losses. The increase in population and material wealth over the last several decades are an important factor for the increased damage potential.

These trends are further complicated by the fact that many population centers and infrastructure exist in vulnerable areas like coasts and river floodplains, while building codes are often insufficient in reducing damage from extreme events. Climate change is also playing a role in the increasing frequency and intensity of some types of extreme weather that lead to billion-dollar disasters.

For more information the NOAA is releasing an update on the 2017 U.S. Billion-dollar disasters on Friday, October 6 at 11:00AM - EDT.

Featured image courtesy of John McQuaid