- Record rainfall over Houston and the Texas coast caused flooding of enormous scale.
- Part of US oil refining capacity was shut down, with an effect on fuel prices.
- The disaster is a reminder that home insurance does not always cover floods and that it pays to know what each policy covers.
Hurricane Harvey made landfall on Friday 25 August 2017 on the Texas coast, near Rockport, as a category 4 hurricane with winds of around 130 miles an hour. It then stalled over the area and for several days brought torrential rain: in many places more than 1,000 millimetres fell in four days. Houston, the fourth-largest city in the United States, suffered catastrophic flooding.
By 29 August about 13,000 people had been rescued in Texas and the number displaced was estimated at 30,000; on the 31st around 32,000 people were in shelters. Damage figures were still provisional. Beyond the human dimension, which calls for respect, the episode leaves practical lessons on energy, insurance and risk management.
Energy: refining and prices
Texas holds a very large share of US oil refining. According to industry estimates, the floods and precautionary shutdowns took about 2.25 million barrels a day of capacity out of service for several days, around 12% of the national total, and Gulf of Mexico energy production fell by close to 21%. Two ExxonMobil refineries closed after suffering damage and pollutant releases. The Houston area is also a major petrochemical hub, so the disruption affects production chains well beyond fuels.
For Europe and Spain the direct effect is limited, but oil product markets are global: a shutdown like this pushes up petrol and diesel prices and can disrupt fuel export flows. Companies with high transport or energy costs should bear in mind that a local event can move international prices.
Insurance and property
In the United States, standard home policies generally exclude damage from flooding, which is covered by a specific policy linked to the federal flood insurance programme, and many homes in flood-prone areas did not have it. It is a lesson for every owner: cover depends on what the policy says, not on what it is assumed to cover. That difference between wind damage and water damage was a source of dispute after earlier hurricanes, which is why it pays to read the small print before, not after, a loss.
In Spain the scheme is different. The Insurance Compensation Consortium covers damage from extraordinary risks, including extraordinary flooding, provided the asset is insured under a policy that includes that cover and the corresponding surcharge has been paid. Even so, it is worth checking sums insured, deductibles, which assets are excluded and whether the insured value reflects the real cost of rebuilding. If you rent or live in a homeowners’ community, also check what the community’s policy covers and what yours must cover.
What to review
Review your home policy and your business policy: which events it covers, what it excludes, the insured value, deductibles and cover for loss of profit from interruption of activity. If you own property in flood-prone areas, on the coast or near rivers, also consider physical protection measures and evacuation plans. It is also worth photographing and documenting valuable items, keeping digital copies of policies and title deeds away from home, and knowing the procedure for reporting a claim.
Companies with suppliers or customers in regions exposed to extreme events should identify that dependence and have alternatives. The economic effects of a disaster of this size take weeks to quantify; it is better to wait for reliable data before drawing conclusions.
A distant catastrophe raises a question close to home: do you know exactly what your insurance covers?
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
