Compared to Katrina, Irene was a tempest in a teacup because we were well prepared and she was downgraded from a hurricane to a tropical storm. Nevertheless, the teacup was very large in size – the entire Northeast basically – and it’s overflowing with flooding problems now.
Unlike individuals in the shoreline whose houses were washed away or damaged severely, and whose farms flooded by swollen and still-rising rivers, residents and businesses in north central Connecticut are left with headaches of the fixable sort – trees falling through roofs and loss of business volume due to power outage.
“The biggest amount of damage is loss of income to businesses because of loss of power. In dollar terms, that’s nearly around 80 to 90 percent of claims we’ve received so far. Such damages are expected in the hundreds of thousands of dollars range,” Chris Howland, owner of the Howland & Sargent Group in Somers, said.
The majority of his affected clients are in the retail industry, including food services.
“I think businesses were not prepared for the length of time it would take to restore power. That’s why many did not get back-up generators,” he added.
Howland’s business neighbor, a Dunkin’ Donuts, was closed on Monday due to power failure. A Subway in the area was also shut.
“I expect power to be out for a few more days and that’s bad news for businesses, which are already having a tough time in this economy,” he said.
Yet, it was a big relief that individuals had manageable problems like water seepage into houses and leakage through roofs.
“Luckily, every tree that fell missed falling on a house here,” he said.
That’s not the case with clients at the W.J. Irish Insurance Agency in Manchester.
“We are seeing severe claims from trees hitting houses,” Wally J. Irish, Jr., president and owner, said.
One of his clients in Manchester had a tree fall through his roof and land on the second floor of his house. Luckily, no one was hurt.
“Such a claim could be in the $50,000 to $100,000 range, depending on the damage,” Irish said.
By late Monday morning, the day after the storm had passed, the agency had received 20 claims, most of which pertained to damages caused by the force of 60 miles an hour winds.
“The wind did an awful lot of damage to power systems, so most commercial claims are in this regard. Many businesses are claiming for food spoilage and damages to property because of sump failure,” he pointed out.
Lisa Murdock, who heads the Tolland office of Hoyt Insurance, said most of the calls she received on Monday pertained to water damage and fallen trees.
“One of my clients had roof damage, which should be under $3,000,” she said.
Because clients in her area were without power on Monday, many did not have access to the phone. Cell phone service was unreliable due to some damage at a local tower. Murdock said she was working from home since a fallen tree barred the entrance to her office.
“Given these communication problems, I did not receive too many calls on Monday. But this is just the beginning. Once people inspect the full extent of the damage and the power is restored, I expect a lot more claims coming in this week,” she said.
Jared D. Carillo, owner of the Charles S. Carillo Insurance Agency, Inc., in Windsor Locks, and most of the commercial claims were on the electrical side due to food spoilage and computer damage from surges.
“On the personal side, we’re getting claims for mostly downed trees,” he said.
Maryland-based Kinetic Analysis Corp., a risk-management firm, estimated damages from Irene’s at around $7 billion in the east coast. Insured losses are estimated below $3 billion.
It could have been worse. But even now, these damages are hitting small businesses hard.
In many cases, standard property insurance coverage does not include flood damage to property.
As in the aftermath of any natural disaster, economists are predicting an economic upswing due to recovery-related spending from Irene.
Granted, the construction industry will see money pouring in.
But not all economists see it that way.
I side with Frederic Bastiat, a brilliant nineteenth century French economist who so clearly explained why spending money on fixing damages is not exactly a positive economic outcome.
In an 1850 essay titled “That Which is Seen, and that Which is Not Seen,” Bastiat discusses the mechanism of unseen consequences. He illustrates this with an example: The fallacy of expecting that replacing a broken window would result in society’s economic well-being.
Sure, it will put money into the pocket of the glassmaker and the laborers who fix the new window. But what is not seen is that the money spent on replacing the broken window is money taken away from, say, the shoemaker.
In other words, Bastiat said the sum total of national labor is unaffected, whether windows are broken or not.
The opportunity of cost of Irene, at the end of the day, is not as low as one might think.
