Risk Management Solutions today raised its estimate of total damages caused by Hurricane Katrina to US$125 billion and said it expects insured losses of $40 billion to $60 billion.

RMS, which does modeling for disasters, now has the highest estimate of any of the major modeling firms. It had previously estimated $20 billion to $35 billion of insured damages.

At least 50% of the total economic loss resulting from the hurricane is expected to come from the New Orleans flood, said RMS, where about 60% of the city is still under water

“This is the first urban flood that has affected such a vast and industrialized region,” said RMS vice president Laurie Johnson, who leads the Newark, California-based firm’s post- catastrophe response. She said it could take months to drain and assess the damage.

While flood damage is not covered by private insurers, distinguishing the portion of damage attributable to wind or flood will be difficult in many areas that were impacted by winds in excess of 100 miles per hour, RMS said.

“The final insured loss will depend on how flood claims are apportioned among the national flood insurance program, private insurers and individuals,” RMS said.

Mississippi Insurance Commissioner George Dale has warned insurance companies to “fully inspect any damaged property” to make sure water and not wind was responsible for the damage before denying a claim. He said he wants to ensure state residents are “treated fairly.”

RMS said economic losses would also depend on the duration of the flooding and resulting contamination.

Previous estimates of total hurricane damage had generally been no higher than $100 billion, or 80% of the RMS estimate.

For insured losses, RMS competitors EQECAT Inc. and AIR Worldwide Corp. are currently estimating only $14 billion to $25 billion, or less than half of what RMS expects.

The RMS figure follows growing estimates by the insurance industry itself about the damages from the August 29 hurricane, which gutted the Gulf Coast. British insurance group SVB Holdings Plc said it assumed losses would be in the range of $40 billion.

U.K.-listed Goshawk Insurance Holdings Plc said it was seeking fresh capital to prevent a ratings cut as it braces for claims from Katrina. A.M. Best Co., which rates insurance companies, expects at least $25 billion to $30 billion of insured damages.