Thursday, November 1, 2012

Eqecat Forecast Rises to More Reasonable $50 Billion

The forecasting firm Eqecat has upped its forecast. Previously on October 30 it had estimated total losses of $20 billion and insurance losses of $10 billion.

In my CityEconomist post the same day, October 30 (scroll down), I argued that the forecast was too low for  two reasons:

1. The rule of thumb that insured losses are half of total losses only applies to private losses. Therefore even if insured losses were only $10 billion, total losses including government losses should be more like $25 billion. What was missing from the Eqecat equation was (a) Federal losses from flood insurance payouts and FEMA costs, and (b) state and local costs from damage losses and cost of police, fire, sanitation and transportation.

2. The insured losses at $10 billion are too low. Loss of life and damage from wind were relatively low. But damage from flood and fire was high and business-interruption losses were likely to be costly.

Today, two days later, an AP story reports that Eqecat has raised its forecast of losses to a possible $20 billion in insured losses and a possible $50 billion in total losses. Now I think the numbers and proportions are more reasonable.