NEW YORK (CNN/Money) - Hurricane Isabel could still be among the nation's most costly natural disasters, even if its strength has apparently weakened slightly from earlier record levels.

While the outer edge of the hurricane approached the North Carolina coast Wednesday, the center of the storm was still 400 miles south-southeast of Cape Hatteras, N.C., late Wednesday morning. It had been downgraded to a Category 2 level from its Category 5 rating late last week, when wind speeds were being measured at record levels. (Click here for CNN.com's Hurricane Isabel coverage)

Animation shows the progress of Hurricane Isabel from 1:45 PM Tuesday through 7:45 a.m. Wednesday.

But given the overall size and strength of the storm, and the heavily populated areas at risk of being hit, the damages could make it one of the top two or three storms in terms of insured losses. Insurance analysts from UBS Securities estimate Isabel's insured losses will be about $4 billion, which would make it the third-costliest storm of all time, behind only the inflation-adjusted loss of $19.9 billion from Hurricane Andrew in 1992 and the $6.1 billion loss from Hurricane Hugo in 1989. Under a worst-case scenario, it could top Andrew's insured loss, which was measured at $15.5 billion in 1992 dollars.

That loss would be only the insured loss from private insurers. A storm dumping heavy rain could cause substantial flooding, which generally isn't covered unless the business or homeowner has a separate policy from the National Flood Insurance Program.

And the damage estimates don't include all the costs of lost business from store sales to tourism, including this year's Miss America Pageant, set for Atlantic City, N.J., this weekend. Merrill Lynch retail analysts estimated Tuesday that national retail sales for September could be off between 0.5 and 1.0 percent due to the storm, even with many coastal residents buying plywood or other emergency supplies to prepare their homes. Economic losses can easily double the insured losses from a storm.

The National Hurricane Center's latest estimate is that the storm will make landfall near North Carolina's Outer Banks sometime Thursday, though the precise timing and location remained uncertain.

Though its sustained winds are now down to 105 miles per hour, there is a risk that it will again gain strength before making landfall. And the current estimate of its storm track has major metropolitan areas such as Washington, Baltimore, Philadelphia, and New York at risk for heavy rains by the weekend.

Insurance experts say such heavy rains over a wide range of densely populated areas can cause greater economic damage than heavy winds hitting a less-populated area.

"When you've got a storm moving up coast, hitting state after state, you could definitely have exposure greater than or equal to hitting one specific area with a battering ram," said John Eager, senior director of claims of the National Association of Independent Insurers. "You'd have flood after flood after flood."

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Hurricane Floyd, which followed such a path along the Eastern Seaboard in 1999, did about $2 billion in damage, making it the sixth-most-expensive storm in the nation's history, even though it was only a Category 2 hurricane.

Part of the risk of flooding is that much of the region at risk from Isabel saw heavy snows this past winter and much heavier-than-normal rainfall this past spring and summer, filling reservoirs and bringing many major rivers to within a foot or two of flood levels.

"If this had happened last year, when we were in a drought, it'd be a much different situation," said Army Corps of Engineers spokesman Pete Shugert. "The conditions right now are the same as they were in 1903, the record flood year in this [New York-New Jersey] district."

Eager said continued development and population growth along the coasts in a much more recent time frame -- the last five-to-10 years -- make the cost of storms greater today, even when the cost of earlier storms are adjusted for inflation.

For example, had Hurricane Andrew -- one of three Category 5 hurricanes ever to hit the nation, followed the same path today that it did in 1992, its costs would be $25 billion, or about 20 percent greater than the inflation-adjusted loss estimate from the actual storm.

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A Category 3 storm that followed the path of the 1938 Category 3 hurricane across Long Island and into New England would do $25 billion in damage today, according to AIR Worldwide Corp., a catastrophe research firm serving the insurance industry.

Eager points out that the third-costliest storm in history was Tropical Storm Allison, which was downgraded from hurricane levels before making land but which dropped heavy rain across 20 states from Texas to New Jersey in June 2001. Allison had insured losses of $3.6 billion, with claims to the federal government's National Flood Insurance Program hitting a record $1.1 billion.

Eager said it's much too soon to make estimates of Isabel's eventual costs. A slight shift in path can dramatically change the economic impact of the storm.

Several experts say Andrew could have caused twice the economic damage had it shifted 50 miles and hit Miami and more expensive homes head-on when it crossed Florida and shifted 35 miles to the west when it later hit the U.S. Gulf Coast.