Is Hurricane Irene really one of the 10 most expensive disasters in American history?

Liz Goodwin

The New York Times reported this week that Hurricane Irene may become one of the top 10 costliest disasters in American history, with insurers, individuals and the federal government paying between $7 billion and $10 billion to fix homes and businesses. The Times, which trumpeted the finding in the lead story on the front page of its print edition on Wednesday, was referring a report by Kinetic Analysis Corporation that said as much as 60 percent of the cost may not be covered by insurance companies. That means the Federal Emergency Management Agency and individuals will end up picking up much of that tab.

But will the cost of Hurricane Irene really surpass the price paid to recover from historical disasters like Galveston's 1900 hurricane and the 1906 earthquake and fire in San Francisco? Together, both disasters took at least 13,000 lives, a huge number compared to the still tragic 45 deaths caused by Irene.

Maybe, because while the country has gotten better at preventing the loss of thousands of lives in a disaster, the evidence suggests they cost us more in damage now.

But cost is probably not the best way to measure a natural disaster's toll.

"Poor people, poor countries pay more with their lives and wealthy countries pay with insurance and actual money," Margaret Arnold, the head of the World Bank's hazard-management unit, said in an interview with The Lookout.

Low-income countries accounted for just 1 percent of the total economic losses caused by natural disasters between 2000 and 2008, Arnold said. A tsunami can wipe out a small island state and cost 200 percent of its gross domestic product, yet do less damage in American dollars than moderate flooding in a rich country would do.

That's why she prefers measures that take into account how disasters affect economic growth over time, instead of counting only the dollars spent fixing property damage. Research shows that natural disasters hardly ever reduce the economic growth of rich countries.

But if the cost in American dollars is the measurement we're using, Irene may very well land in the Top 10--though its price will be much lower than a couple of recent tragedies. According to a World Bank analysis, the costliest disaster in terms of insured and uninsured losses since 1965 in today's dollars was Japan's earthquake and tsunami this year, at nearly $250 billion. Hurricane Katrina is second, at $160 billion.

What about American disasters that happened before 1965? It's hard to find good numbers. But using the examples of the Galveston hurricane and the San Francisco earthquake, when the United States was a poorer country, it paid more with lives and less with dollars.

The 1900 storm in Galveston killed 10,000 to 12,000 people, but it cost the city only $30 million in damage to homes and commercial buildings. That's about $775 million in today's dollars. (The Dust Bowl, in case you're wondering, cost $1.9 billion in agricultural losses in today's dollars, according to one analysis.)

As for the earthquake, there are 10 times as many people living in San Francisco now as there were in 1906, and the buildings there are valued at 500 times the amount they were more than 100 years ago, Charles Kircher, an earthquake engineer, told NBC News. The quake and fires cost $9.6 billion in damages in today's dollars, according to a 1972 study by the National Oceanic and Atmospheric Administration. If a quake of that magnitude happened in the city today, it would most likely kill far fewer people than the 6,000 who died in 1906, thanks in part to tougher building codes, but the price tag in property damage would likely be around $120 billion.

Hurricane Hugo in 1989 was the first natural disaster to cost the insurance industry more than $1 billion, according to an analysis by Howard Kunreuther of the Wharton School at the University of Pennsylvania. So all of the most expensive natural disasters for the insurance industry have occurred in the past 20 years.

This is, in part, because of the increase  in population along the coastlines, especially in Florida, Kunreuther speculates. More people are in the path of hurricanes, and more people are insured. Hurricane activity has also increased since 1994.