Hurricane Dorian loss estimates at $25 billion: How is that calculated?

Hurricane Dorian, which wreaked havoc in the Bahamas before being downgraded to a category 2 storm, could cause $25 billion worth of potential losses for insurers, according to analysts at UBS, which would make it the most expensive natural disaster since 2017.

The storm is likely to move “dangerously close” to Florida’s east coast through Wednesday evening before heading up the coast to Georgia and South Carolina, according to the National Hurricane Center.

Insurance Information Institute Senior Vice President Michael Barry explained to FOX Business' Neil Cavuto on "Cavuto: Coast To Coast" how that sort of estimate is calculated.

"Normally, what the risk modelers do is, they have some sense of where the storm is going to make landfall, and then they work back from that," Barry said.

How many homes [or] how many businesses are on the line of the storm?

- Michael Barry, Insurance Information Institute Senior Vice President

Barry said UBS' analysis may be an outlier because the storm may not make landfall and may, instead, just skim the East Coast offshore.

"We have some recent history with this," Barry said. "Hurricane Michael hits the Panhandle in Florida alone. It's nearly $7 billion in claims from Hurricane Michael -- this is auto, homeowners, business insurance claims. You go back to 2017, Hurricane Irma, it's in excess of $11 billion in claims."

Barry said the UBS analysts took Florida's recent history of how many claims were filed during similar storms to calculate their estimate for Hurricane Dorian. He also said estimates include how densely populated the areas in the path of the storm are.

"The thing to look at is we're talking about very densely populated states here: Florida -- more than 20 million people, North Carolina -- in excess of 10 million," Barry said. "And from the insurance industry perspective, what they're looking at is what types of homes are there? What types of businesses and how expensive is it going to be to rebuild them if in the event of a partial or a total loss."


Barry mentioned since there's often a great deal of real estate in densely populated coastline cities, the estimate can grow quickly.

FOX Business' Jonathan Garber contributed to this report.