By Leslie Scism, Nicole Friedman and Caitlin Ostroff
The vast majority of damage caused by Hurricane Dorian to the Bahamas and other Caribbean countries is unlikely to be covered by insurance, which could slow recovery in the region.
The storm ravaged the Bahamas as a Category 5 storm Sunday and Monday. It killed at least five people and destroyed thousands of homes.
Dorian weakened to a Category 2 storm Tuesday as it moved northward off the Florida coast.
Swiss bank UBS Group AG expects the insured damage in the Bahamas to be between $500 million and $1 billion, said Jonny Urwin, an analyst with UBS. For the storm overall, the bank is projecting $5 billion to $10 billion of insured losses. UBS used Hurricane Matthew in 2016 as a point of comparison given the similar paths between it and Dorian, Mr. Urwin said.
The economic loss, which includes uninsured assets, is expected to be much higher. For example, Matthew caused about $4 billion in insured losses, but the total economic damage was about $12 billion, according to Swiss Re Institute. In the Bahamas specifically, Matthew caused $900 million in economic damages, of which $500 million was insured, Swiss Re said.
Economic losses exceed insured losses following every catastrophe. But the gap is significantly larger in developing nations, where homeowners are less likely to have insurance. A lack of insurance payouts following a large disaster can hinder rebuilding and eventual economic recovery.
The Caribbean suffered $32 billion in economic losses from a slew of large hurricanes in 2017, but only $5 billion, or 16%, was insured, according to ratings firm A.M. Best. In recent years, insurance payments from hurricanes hitting the U.S. have ranged from less than one-third to about 60% of the economic losses, analysts said, depending on the level of flooding, which isn't covered under standard home policies.
Much of the insurance in place in the Bahamas covers the islands' hospitality industry, not individual residences, said analysts and consultants. The country is highly dependent on tourism, and the island's bigger hotels and resorts often have policies issued by global insurers, brokers and executives said. These companies typically buy policies that not only cover physical damage but also compensate for lost revenue after disasters, he said.
Commercial businesses "have the highest levels of insurance penetration" in the Bahamas, while many individuals lack coverage, said Steve Bowen, a meteorologist and head of catastrophe insights at Aon PLC, a major insurance brokerage.
As across much of the Caribbean, "a lot of people are impoverished and don't have the means to buy" policies, Mr. Bowen said. "There is a segment of the population that simply can't afford it. We saw that in Puerto Rico" after Hurricane Maria hit in 2017.
The Bahamas government is likely to receive an insurance payout. The country is a member of CCRIF SPC, which offers insurance to 21 governments for earthquakes, tropical cyclones and excess rainfall. The program was created as the Caribbean Catastrophe Risk Insurance Facility by governments and the World Bank after Hurricane Ivan caused billions of dollars of losses in the Caribbean in 2004.
The insurance pays out based on the severity of the natural disaster, not the size of the losses, so that governments can get the money more quickly. It can provide immediate money that governments can spend on cleanup or infrastructure repairs, but its payments aren't designed to cover the total economic damage. The facility's biggest payment on record was about $23 million to Haiti for its tropical cyclone and excess rainfall policies following Matthew in 2016.
About 13,000 houses in the Bahamas may have been severely damaged or destroyed, according to the International Federation of Red Cross and Red Crescent Societies, which said Monday it is providing emergency shelter and cash to about 500 families.
At Chubb Ltd., one of the biggest property-casualty insurers in the U.S., a spokeswoman said late Monday, "We have only minor personal and commercial property exposure in the Bahamas. Our team of adjusters will be on the ground to assess damages as soon as we can safely deploy them."
Even if Dorian spares Florida and other southeastern states a direct hit, coastal areas will still bear damage from hurricane-force winds and potential storm surge.
Wind damage is typically covered by home insurance, but flooding isn't. While homeowners can buy separate flood insurance from the U.S. government or from private insurers, many don't. Following hurricanes, the majority of uninsured damage in the U.S. is often due to flooding.
"The absence of a landfall in the U.S. by Dorian would result in significantly lower losses" for property-casualty insurers, Wells Fargo Securities analyst Elyse Greenspan said in an interview. She estimated that Dorian would cause insured losses between $1.9 billion and $7.6 billion assuming a landfall in the Carolinas or Georgia as a Category 2 storm, as opposed to $11.3 billion to $37.2 billion if Dorian had made landfall in Florida as a strong storm, or potentially higher had it hit densely populated Miami.
Most of the damage is expected to be absorbed by primary insurers, which sell policies to individuals and businesses, rather than to reinsurers, which sell insurance to insurers, according to analysts at Keefe, Bruyette & Woods. Payouts could also come from car-insurance policies, which often cover flood damage.
Dorian strikes as the global property-casualty insurance industry is well capitalized to pay claims. Hurricanes and wildfires in 2017 and 2018 caused more than $200 billion in total industry losses, the worst two-year period on record. Even so, capital has continued flowing into reinsurance from pension funds, endowments and other yield-hungry investors.
Write to Leslie Scism at firstname.lastname@example.org, Nicole Friedman at email@example.com and Caitlin Ostroff at firstname.lastname@example.org