Our office in Houston has been without power for a week. Tina Nicholson, who heads up our Houston office, held out for awhile, but has worked out of Gulfport since Wednesday. Frank Chimento spent most of the week working out of the Houston Omni, which is flooded with adjusters from all over the country. Initial reports have ranged from $8 billion to $18 billion in covered damages. The sense I get is the $18 billion figure may be breached.

While not as catastrophic as Katrina, the Houston area has a much larger population than the Mississippi Gulf Coast and New Orleans combined.  We had requests to open an office in Texas for several years. A Tillinghast-Towers Perrin report indicated that Miami, Tampa, and Houston posed a great risk of covered loss by hurricane. One of the primary reasons we opened in Houston rather than Dallas was this report and Houston’s significant population. We opened the office in June. When friends ask me if I am clairvoyant regarding hurricanes, noting the timing of opening our Houston office, I jokingly remind them of my last name. Field reports suggest that the water and flooding problems in Western Louisiana are very bad. Water has still not receded.

While leaving New Orleans on Thursday, we ran into an Army helicopter pilot who said the flooding was "unreal." They were dropping hay to cattle stranded on "little islands" on various ranches. He said many were dead, and it was a matter of time for the rest. Two different public adjusting firms working the Baton Rouge area from Gustav reported that they were not able to access various areas around Lake Charles. They said the flooding has not receded. They expressed concern about whether businesses would have excess flood insurance above the minimal National Flood Program. Galveston and the surrounding water areas, especially on the Northeast side of Galveston, suffered catastrophic loss.

Wind versus flood causation will undoubtedly lead to litigation in those areas as it did in Katrina and Ivan. Houston is big. It is very Texas. The people are fun loving and a mixture of cultures, making for a flavorful lifestyle. It is also hot and muggy when power is off and your building has water in it. From field reports to us, there are a lot of hot and muggy structures that sustained not catastrophic damage, but the type of damage that can either be patched up cheap with paint or properly repaired and re-fastened. Re-fastening and properly repairing structures is not typical of insurance adjuster training. Quick and cheap, covered up with paint to look as good as new, is the normal insurer estimate. Haag engineering will undoubtedly provide all kinds of reports to the insurance industry suggesting ways to argue that the damage is not as bad as others argue.

This was the Haag mantra in pre-loss seminars, and I do not expect it to change afterwards. There will also be widespread disputes regarding whether mold damage is excluded, and whether water extraction damage is really the result of excluded mold. There will be litigation regarding these issues as there was in Louisiana following Katrina and, what most of our Hurricane Wilma lawsuits concern, the scope and price of properly repairing a structure damaged by wind with water infiltration. Once all these costs are added up, I expect Ike to be somewhat in the $20 billion range. Like Wilma, the high cost is directly the result of the storm striking a major metropolitan area. As we march closer to October and the waters start to cool, hopefully Ike will be the end of our significant hurricane season.