WASHINGTON — Residents along most of the East Coast on Tuesday began cleaning up the wreckage left behind by Hurricane Sandy, and it was immediately clear that all Americans will get slapped with the astronomical bill for the late-season storm.

“One of the big lessons here is there is going to be a very large gap between the insured losses and the total direct losses, and the overall economic losses due to Hurricane Sandy,” said Cynthia McHale, director of insurance services for the business advisory firm Ceres.

The insured losses from Sandy are initially estimated by Ceres and others to come between $5 billion and $10 billion. That’s a fraction of the total losses, however, since damage from flooding and Sandy’s storm surge would be covered not by the private sector but rather by the National Flood Insurance Program. Only a small percentage of homeowners — 5.6 million policies nationwide last year — are thought to actually have the federally provided insurance coverage.

That means taxpayers may be on the hook for a lot of the disaster assistance as well as the low-interest rebuilding loans given to residents and businesses in affected states along or near the East Coast.

“All of society is going to be affected by this,” said McHale.

Americans also will feel Sandy’s effect on gas prices, which are likely to spike for a short period as a result of the storm forcing refinery shutdowns and disrupting gasoline deliveries along the East Coast.

Sandy shut down the New York Stock Exchange on Monday and Tuesday, the first time weather has closed the symbol of American financial might for two consecutive days since 1888. Leaders of the exchange announced Tuesday afternoon that trading will resume Wednesday morning at normal hours, although with the subway system and schools closed in New York it wasn’t clear who would come to work and how they’d get there.

Initial estimates of broader economic losses range from $20 billion to $50 billion, although these numbers could go sharply higher in days ahead as more is known about the submerged New Jersey resort town of Atlantic City, parts of which Tuesday resembled the mythical submerged city of Atlantis.

One reason for the difficulty in estimating damage is that the slow-moving Sandy continued to drench inland portions of the nation Tuesday, said Annes Haseemkunju, a meteorologist with the risk-assessment firm EQECAT in Oakland, Calif.

“This is going to be (seen as) an unusual event,” he said, noting that gale-force winds were felt in a diameter of 1,000 miles from Sandy’s center. EQECAT initially estimated $5 billion in insured losses but expected that number to rise sharply.

Another big unknown is the extent of damage in and around the densely populated New York City area. Water levels in the Battery Park area on the edge of the financial district surpassed records set in 1960. The flooded New York subway system is expected to be closed for days, and for millions of New Yorkers, in a city proud of its toughness, it’s sure to be a week demanding patience.


“Early estimates of potential infrastructure damages currently stand around $10 billion of insured damages and about twice as much, or $20 billion, in terms of total damages,” wrote Nigel Gault and Gregory Daco, economists at forecaster IHS Global Insight, in a research note Tuesday. “This would put Sandy on par with (Hurricane) Irene (in 2011) in terms of total infrastructure damage estimated around $15 billion. However, with Sandy being a much larger storm, it is likely to end up causing more flooding damage than its 2011 peer, which would increase total damage estimates.”


As a point of comparison, Hurricane Irene, which hit New Jersey and Vermont the hardest, caused about $4.3 billion in insured losses last year. Sandy is sure to top that, but it still pales compared to 2005, when Hurricanes Katrina, Rita and Wilma combined for insured losses of $60 billion. Katrina accounted for $45 billion of that number.

To give a sense of Sandy’s massive reach, President Barack Obama signed emergency declarations for New York, Massachusetts, Connecticut, Rhode Island, New Jersey, Pennsylvania, Maryland, Virginia, West Virginia and the District of Columbia. Claims for damages are expected to range from flooding and wind damage to business interruption to losses from a blizzard in western Maryland and West Virginia.


To make matters worse, gasoline prices are expected to rise, at least in the near term.

“In addition to infrastructure damage, Sandy has forced the idling of about 70 percent of the East Coast’s oil refineries,” said Gault and Daco. “This does not bode well for the supply of refined oil products as capacity was already quite tight prior to the shutdowns. We are likely to see an accumulation of crude supply and a shortage of refined products in the coming days which will inevitably put upward pressure on gasoline prices.”

In the days ahead, attention will shift to the National Flood Insurance Program, which was in trouble far before Sandy, only the fifth named hurricane in the past 20 years to come ashore in the final three months of a calendar year.

“That particular program was about $19 billion under water itself in 2010, and 2011 continued at that same rate,” said McHale from Ceres. “It never financially recovered after Hurricane Katrina. They simply don’t have the wherewithal to pay out. It is an insolvent government-run program, which is ultimately a huge taxpayer liability.”

On a conference call with reporters, Craig Fugate, director of the Federal Emergency Management Agency, confirmed that the flood-insurance program his office administers still owes about $17 billion in debt assumed to pay out claims from Hurricane Katrina.

Fugate said his office hasn’t decided whether an increase in FEMA’s borrowing authority is needed to cover claims from flood insurance policyholders.

“We are currently doing assessment,” the FEMA chief said, noting the agency is using remote sensing technology to overlay images of flooded areas with data about the geographical distribution of flood-insurance policyholders.

Government-owned mortgage finance companies Fannie Mae and Freddie Mac said Tuesday that they have instructed loan servicers to give homeowners who sustained serious damage in Sandy up to a year to resume making mortgage payments.

Sandy is expected to drag on U.S. economic growth for the final three months of 2012. Some of the business losses will be gains as communities, businesses and homeowners rebuild and purchase supplies to do so.

But the losses at restaurants, movie theaters, bars and nightclubs and the like don’t get made up, and this subtracts from growth. Some 8.2 million residents and businesses along the East Coast were without power Tuesday, adding to losses, and lost business is also reflected in places such as the famed Atlantic City boardwalk, which televised images Tuesday showed to be little more than driftwood in some places.