The insurance industry has estimated that the losses from Hurricane Katrina could range from $12 to $25 billion (Costliest storm ...). According to the WSJ's evening report the number was revised downward:
Eqecat, a risk-modeling firm based in Oakland, Calif., says that early estimates suggest damage to homes, small businesses and vehicles could range from $9 billion to $16 billion, which would make it one of the costliest disasters on record. The estimates don't include possible damage to drilling platforms and other oil operations. Eqecat initially estimated damages from Katrina at up to $30 billion, but it lowered its estimates after the storm veered away from New Orleans.
That is a lot of money. The midpoint estimate, $12.5 billion, is almost 0.5% of quarterly GDP.
But some economists said that the true cost of the storm may be hard to pin down. John Norris of Morgan Asset Management in Birmingham, Ala., wrote in a research note of the insurance estimates: "That is the accounting impact, not the overall economic impact. We will probably never truly know what Katrina 'cost' us. It will cost some more than others."
An additional cost is the time and money spent by those who evacuate.
One rule of thumb used by emergency managers is that evacuation costs are one million dollars per mile. Not so, of course. Aggregate evacuation costs depend on population and other factors, not so much geography. It costs a lot more to evacuate Miami and New Orleans than it does to evacuate Wilmington, NC. Related, the more people the greater the congestion and individual evacuation costs grow larger.
Another factor is the transporation and lodging infrastruture. The better the roads, the quicker the travel and the lower the costs. The greater the number of hotels nearby the evacuated area, the less travel required and the lower the costs.
So, what are the evacuation costs? Awhile back I estimated the household evacuation costs for NC hurricanes. Including time and money costs it is roughly $250/household. Applying this number to Katrina, if 8/10 New Orleans residents evacuated and the population of New Orleans is about 500,000, then the aggregate evacuation costs are $100 million. In NC evacuation costs are much lower than $1 million/mile (up to $50 million). In New Orleans (and Miam), evacuation costs are much higher.
Emergency managers sometimes worry that they order mandatory evacuations too often, imposing unnecessary costs on households. But evacuation costs are a small fraction of insured infrastructure and other market damages. More importantly, evacuation costs are a small fraction of the cost of potential lives lost with only voluntary evacuation orders (and, say, only 6/10 New Orleans residents evacuate).