Insurers work to close complex business interruption claims from Superstorm Sandy
Business Insurance Magazine
October 20, 2013
The insurance industry is working to finish clearing its backlog of claims from Superstorm Sandy, while risk managers are trying to strengthen their organizations against harm from similar natural disasters.
According to the Insurance Information Institute, 93% of the 1.5 million claims filed by businesses and homeowners were settled by April, six months after the tropical storm.
John Dempsey, Wilton, Conn., managing director and global practice leader with Aon Global Risk Consulting, said the industry’s response to Sandy was swift, considering the challenges presented by the massive storm that virtually paralyzed most of New York City for a few days.
“While there are some very large losses that have not yet been resolved, there is an effort to get them resolved by year’s end and there have been an awful lot of settlements,” Mr. Dempsey said.
This is especially true for large companies with coverage programs, which involve multiple insurers, he said. “Sometimes policyholders have expectations that are out of the realm of possibility, which can serve to extend the process,” he said. “Getting agreement from one insurer is tough enough, getting agreement from 15 to 20 can take some time.”
Moreover, business interruption claims, which made up about 30% of commercial claims, are inherently time-consuming as claims personnel and risk mangers sift through causation issues and work to apply policy terms and conditions, Mr. Dempsey said.
“In the typical commercial business interruption policy, there are limits and sublimits that apply to the various causes,” he said. “So there are layers of decisions that need to be made to just get to the right part of the policy.”
The large number of business interruption claims is not surprising given that much of Sandy’s damage came from the knockout blow it delivered to businesses that depend on the Northeast’s communications and electrical infrastructure.
“Hurricane Sandy was a wake-up call,” said Robin Luo, Hartford, Conn.-based integrated risk officer at Munich Re Group/HSB Group Inc. “The economic loss, until we were able to restore full power to the region, was staggering because people cannot operate their businesses without power.”
Cliff Rosenberry, principal at Ardsley, N.Y.-based McCartney, Verrino & Rosenberry Insurance Agency, knows this well.
Mr. Rosenberry said his agency was without electricity for almost 48 hours after the storm, until a generator was delivered to restore power.
“My opinion is that for the first day or two after a disaster, you are going to be on your own, so you better prepare for that,” Mr. Rosenberry said.
Many of the common sense measures he applied prior to Sandy, such as printing employee phone lists and having a supply of diesel fuel ready, paid dividends.
Another lesson Mr. Rosenberry said he gleaned from Sandy is the need to have outside partners ready to aid in recovery, noting that his firm had retained Charlotte, N.C.-based Agility Recovery Solutions Inc., a provider of business continuity and recovery solutions.
“A lot of companies assume that they communicate the same way they always have the day after a storm,” Agility President and CEO Bob Boyd said. “That’s just not true.”
Indeed, Mr. Rosenberry said while his company’s landline telephone system was knocked out by the storm, company cellphones continued to work.
“Cellphones were a saving grace,” Mr. Rosenberry said. “When times are bad is when we as insurance agents are needed most.”
To help risk managers better gauge the likelihood of power outages, Mr. Luo said Hartford Steam Boiler teamed with Lexington, Mass.-based Verisk Climate, a unit of Verisk Analytics Inc., which will unveil a new consulting service this week that provides custom blackout modeling.
“A severe weather event with limited scope can have a huge impact hundreds of miles away because the interconnected nature of the electrical grid,” Mr. Luo said.
Kyle Beatty, division president of Verisk Climate, said risk managers’ interest in blackout modeling has increased because of Sandy.
“What happened in lower Manhattan with Sandy is a great example of what has driven people to take weather information and decisional analytics and include it into their operational processes,” he said.
Likewise, Lou Gritzo, Boston-based vice president of research at property insurer FM Global, said more risk managers now are receptive to many of the physical and operational mitigation measures recommended by the company’s engineers and underwriters.
“What Sandy did was bring to light the importance of resilience,” Mr. Gritzo said. “Savvy risk managers are now moving valuable equipment higher and having plans in place to make physical improvements to keep the water out.”