Friday’s sudden storm caused tens of millions of dollars in residential damage locally, an economist estimates.
Pile onto that millions in business losses.
An Indiana Michigan Power official Tuesday estimated the storm will cost the utility company more than $12 million, the benchmark set by the ice storm that rocked Fort Wayne in December 2008.
I&M’s costs include replacing broken utility poles, repairing power line damage and paying overtime wages and living expenses for out-of-town crews.
The final total won’t be clear for weeks. But it’s a given that the violent winds have redistributed the region’s spending for the near future as consumers repair homes and restock refrigerators, using money they otherwise would have spent at restaurants, movie theaters and other entertainment venues, economist Michael Hicks said.
“The problem is, that money leaves the region pretty fast” when it’s spent at groceries, discount and home improvement stores that are part of national chains, he said.
First come damage assessments.
Fort Wayne officials have reported $250,000 in damage to streetlights alone. They are confident that additional damage to city property – and the manpower needed to repair it – will reach at least $1.2 million.
Then there’s the toll on homeowners.
Hicks, director of Ball State’s Bureau of Business Research, said wind damage is the hardest to calculate. But he has experience from doing a Hurricane Katrina damage estimate for the U.S. Army Corps of Engineers.
“The things that are the most costly are not the things you most immediately think of,” he said, citing plywood and generators bought for repairs and lost sales of businesses without power.
Property damage, which will have the biggest economic impact, can easily add up to $20 million in this kind of storm, Hicks said.
If 25,000 homes sustain an average of $1,000 in roof damage, that’s $25 million, he said. That’s not including the cost of removing fallen trees.
“Wind damages tend to be enormous,” he added.
Branches typically take power lines down with them, adding to storm damage estimates.
Hicks put the cost of an average home’s freezer and refrigerator at $500. If 25,000 homes lost power for 96 hours or more, the cost of replacing that food would be $12.5 million, he said.
“Power being off for a very brief time can impose huge costs on us,” he said. “Of course, if you’re smart, you’re out back barbecuing those steaks right now.”
As of Tuesday afternoon – four days after the storm – about 30,000 area homes were without power, utility officials said.
David Mayne, I&M spokesman, said early estimates indicate the cost of last week’s thunderstorm will far exceed the company’s $12 million price tag for the 2008 ice storm.
“It’s difficult to say what the total cost will be. But just based on anecdotal information, it’s going to cost more,” he said. “There’s overtime, double time for the holiday and other expenses.”
The storm initially cut power to 78,000 Allen County residents. Crews will work into the weekend to restore power. The company pulled in more than 500 utility workers from Michigan, Illinois, Kentucky, Oklahoma and West Virginia.
“We expect 80 percent of them to have power by midnight” today, Mayne said.
The insurance angle
Insurance companies are dealing with thousands of claims prompted by fallen trees, missing shingles, dented cars and spoiled food.
The good news is that insurance rates aren’t necessarily expected to go up as a result, industry experts say.
State Farm had received 2,300 homeowners claims from Indiana and 650 auto claims as of midday Tuesday, spokeswoman Angie Rinock said. State Farm insures 1 in 4 homes in Indiana.
The insurance company is sorting through more than 22,350 storm-related claims from a 10-state area, including the mid-Atlantic region. That includes more than 7,000 Ohio policyholders. State Farm has also received more than 7,000 auto claims from an eight-state area, including almost 1,500 from Ohio.
An Allstate Insurance spokesman said the publicly traded company can’t release claims estimates until it reports quarterly earnings.
It can take a few days for all claims to be filed, but the bulk of claims are usually filed in the first week, Rinock said. State Farm, based in Bloomington, Ill., doesn’t release claims dollar amounts. Rinock didn’t have an average dollar value of a typical homeowner’s claim, saying individual circumstances vary too much.
But that doesn’t stop State Farm’s actuaries from factoring in future storm damage claims when they set rates, Rinock said. The claims being filed now are – in some ways – expected.
“Typically, one storm wouldn’t have an impact on rates,” she said.
Jon Zarich agreed. He’s the Insurance Institute of Indiana’s vice president of government affairs.
Premium rates go up when claims are unexpectedly high for an area for an entire year. But so far this year, claims have been lower than expected, leading to flush reserve funds, he said.
Zarich said policyholders shouldn’t worry that making a claim will make their rates increase. A storm damage claim is different from a claim filed for a car accident caused by speeding, for example.
“It’s not like this event was anything unique to you,” he said.
I&M’s Mayne said the utility doesn’t approach storms the way an insurance company does.
“We can never budget for a storm, especially one of this magnitude,” he said. “We don’t put away millions of dollars.”
Consumers will probably see costs rise as a result.
Mayne said the storm could help justify I&M’s rate increase request before the Indiana Utility Regulatory Commission. The utility is seeking a rate hike that could add more than $148 million to its annual operating revenue. In 2011, I&M recorded $2.2 billion in revenue.
The commission is reviewing the request that would result in the typical ratepayer seeing the bill go from $86 a month to $106.
As the cleanup continues, life will return to normal.
Some local retailers could see a small flurry of sales if customers seek out items they need for the longer term, Hicks said.
As for employees who missed work – and paydays – because of the power outage, there isn’t much to be done, a local attorney said.
Unless you’re salaried or represented by a union with a severe weather agreement, “there’s nothing legally you can do,” said Andrew Teel, a lawyer who has dealt with employee rights cases.
“If you have a very generous employer, or that business has some type of business interruption coverage, there could be some compensation, but other than that, there’s no back salary they can collect,” he said.
State Farm ranks ninth in Indiana commercial policies, representing about 4 percent of the market, Rinock said. Any business with a standard State Farm commercial policy has business interruption coverage, she said. The policy pays if a business must shut down because of a covered loss, depriving it of income.
Missing employee wages might sound unfair, but power outages aren’t something companies want to deal with either, said Teel, an associate with Haller & Colvin in Fort Wayne.
“It’s not like they’re trying to stick it to the little guy,” he said. “It’s just one of those things. If your employer doesn’t get paid, you don’t get paid.”