NEW YORK (CNN/Money) - Isabel was downgraded from a hurricane to a tropical storm as it moved inland Friday, but that did not end the economic impact posed by the storm that came ashore Thursday afternoon.

Animation shows Isabel from 1:45 p.m. Thursday through 7:45 a.m. Friday.

About 3.5 million customers in six states were left without power after high winds knocked down power lines. Many federal offices in Washington and businesses in the storm's area were planning to stay closed Friday. (Click here for CNN.com storm coverage)

But the greatest risk to both safety and property is that expected rain, of up to 12 inches in some areas from North Carolina to the Great Lakes, could cause severe flooding.

State and federal officials warned that with heavy rains throughout the spring and summer in much of the East, the ground is already saturated and rivers, lakes and reservoirs nearly full, giving the heavy rains nowhere to go.

"It's the day after the storm that we're most worried about," said North Carolina Gov. Michael Easley. "We lost 24 lives to flooding [the day after Hurricane Floyd in 1999]. People driving out in what they thought was 2 or 3 inches of water ended up in a ditch 6 feet deep."

Floyd hit after a summer of relative drought. But the National Oceanic and Atmospheric Administration warned this week that the last eight months have been the wettest ever recorded in Virginia and Maryland, and the second-wettest recorded in North and South Carolina.

Isabel is also expected to travel up through West Virginia, Pennsylvania, New Jersey and New York, and those states have also had exceptionally wet springs and summers. For example, NOAA said the Scranton/Wilkes-Barre area of Northeastern Pennsylvania has had double the normal rainfall since June.

NOAA warned that communities in the Potomac, Susquehanna and Delaware river basins are at particular risk, as well as those near smaller streams in New Jersey, Delaware and eastern portions of Maryland, Virginia and North Carolina.

Many residents and businesses could find their insurance does not cover them from flood damage. Flood damage generally isn't covered by private insurers, although they can sell coverage offered by the National Flood Insurance Program. While real estate lenders require flood insurance on properties in flood plains, flooding is not likely to be limited to those areas in the case of this storm.

"There were a lot of anguished cries from people in North Carolina after Floyd that they weren't in flood plains and yet they were flooded," said Mark Stevens, spokesman for the Federal Emergency Management Agency, which includes the NFIP. Stevens said that about 25 percent of flood claims come from outside flood plains, although that does not reflect the damage in those areas because of the lack of coverage.

The most expensive storm in terms of flooding was Tropical Storm Allison in June 2001, which was downgraded from hurricane before it even made shore but still dumped heavy rain on 20 states from Texas to New Jersey. It resulted in $1.1 billion in claims to NFIP.

When Isabel was forming in the mid-Atlantic, it appeared there was a risk of being a storm with historically high winds. And since it had a shot to hit the densely populated corridor between Washington D.C. and New York, there were fears it could cause record damage.

But in the end, winds were not as bad as expected, and the path of Isabel took it across one of the least populated stretches of the eastern seaboard, all of which limited damages.

CNNfn's Jan Hopkins takes a look at the insurance impact of Hurricane Isabel. Play video (Real or Windows Media)

"Obviously Isabel is going to be a significant storm when all the losses are calculated, but not a historic storm," said P.J. Crowley of the Insurance Information Institute, an industry-sponsored information clearinghouse. "Obviously the property damage along the coast was significant, but it could have been worse. It moved quickly through the area, and if it had moved more towards Philadelphia, New Jersey or New York, it would have been a more major event."

Estimates on non-flood related property damage from III and from AIR Worldwide Corp., a catastrophe research firm serving the insurance industry, were that claims against private insurers will come in at just under $1 billion. That may still be enough to make the list of 10 most costly storms when all the claims are filed. But it is a little less than the $1 billion and $2 billion estimate AIR issued in days just before the storm hit land.

"The storm followed the path we expected, but it lost strength just prior to making landfall," said Peter Dailey, the head of atmospheric sciences for AIR. "That makes all the difference in terms of losses. It had actually been projected to gain a little strength prior to landfall. We're glad we're on the low side of our earlier estimate."

Dailey said that it now appears that flood damage from the storm could top wind damage, saying that it appeared flood damage will be more than $1 billion, although he couldn't estimate how much of that was covered by NFIP and how much would be uninsured losses.

Crowley said the economic impact will add several billion dollars to the impact of the storm. Unlike the recent August blackout, which was excluded from most business interruption insurance policies, business that prove they lost revenue due to Isabel will be able to file claims, Crowley said.

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. Most federal offices in Washington were closed Thursday in preparation for the storm.

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Economic losses can easily double the insured losses from a storm. 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 in advance of the storm to prepare their homes, and others expected to be using insurance money to make repairs in coming days.

One leading insurance executive said Friday it could cause problems for some insurers' balance sheets.

"It is too early to tell how big Isabel will be, but it is certainly going to put a capital strain on many companies," Martin Sullivan, vice chairman and co-chief operating officer of American International Group Inc. (AIG: Research, Estimates), the world's largest insurer by market value, told a meeting of insurers in London.

But executives of insurance rating agency AM Best said last week that insurers have done a better job of spreading their policies across a broader geographic area and limiting their exposure through reinsurance than they did in 1992, when the nation's costliest storm, Hurricane Andrew, caused 12 insurers to go bankrupt and many other leading insurers to turn to parent companies for infusions of capital.

It could be some time before the cost of the storm damage is completely assessed. John Eager, senior director of claims for the National Association of Independent Insurers, said that while many insurers would send teams of claims adjusters to the affected areas, insurers have been cutting back on staffing levels overall in an effort to control expenses.

"The response part of it has given the insurance industry a concern. We have fewer adjusters than out there before," he said earlier this week.

Travel along the East Coast was greatly disrupted Friday. Reagan National Airport, the capital's busiest airport, didn't resume flights until noon Friday due to flooding, said Jonathan Gaffney, spokesman for the Metropolitan Washington Airports Authority.

But Dulles International Airport remained open throughout the storm, and Baltimore-Washington International Airport, which was closed for about an hour Friday morning after losing power, reopened shortly after 7 a.m. ET.

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"The biggest problem is that most airlines removed their equipment in advance of the storm," said Gaffney. "Now it's just a matter of getting airlines to get their planes back in. There is no better example of a time that passengers should contact their airline before heading out to the airport."

About 7,000 flights were canceled Thursday and Friday, according to John Heimlich, managing director of economics for the Air Transport Association, the industry trade group. That was about 30 percent of the normal volume during that time. That will represent millions in additional costs that money-losing air carriers didn't need to spend, especially on the heels of costs associated with the Aug. 15 blackout.

But Heimlich said the greater time to prepare for the hurricane and greater demand for travel in August near the end of the summer travel season means that airlines will likely spend less money to get their systems back to normal this time than they did then.

CSX Transportation, the freight railroad whose tracks are also used by Amtrak, said that traffic was still shut down due to trees across the tracks. But the tracks' roadbed, which had been badly damaged by Hurricane Floyd in 1999, appeared to have weathered the storm fairly well, according to CSX spokesman Dan Murphy.

"We have stretches of track with literally dozens of trees down," he said. "We're hoping to have some service restored by 6 p.m."

Amtrak cancelled east coast service south of Washington again Friday, and cut back on other scheduled trains in the area due to both downed trees and overhead power lines.  

CNN.com and Reuters contributed to this report