According catastrophe modelling firm Eqecat, ‘Superstorm’ Sandy could result in up to $20bn in insured losses – possibly making it the third costliest storm in US history. Total economic damage will be in the range of $30-$50bn. The estimates seem to be increasing by the day as the real impact of the hurricane is realized.
As New York slowly starts to return to work, those of us in the insurance industry are expecting a potential unprecedented number of claims to be made. What is less sure, is how the insurance carriers and how the policy language will respond.
As with all insurance contracts, the devil will be in the detail. Policyholders who have suffered a loss and will be submitting a claim should review their policy wording with their broker to determine:
- Do their policies cover business interruption losses as a result of government action e.g. evacuation by order of government or is coverage contingent upon material damage?
- Property damage has been caused as a consequence of wind, water damage, snow, fire, inland flooding and storm surge. Determining the cause of the loss for a claimant could be vital to coverage – for example most policies that exclude storm surge flood coverage afford limited coverage for flooding caused by sewer or drain back-up.
- Other businesses may suffer a loss due to the impact of the storm on their customers or suppliers. Some insurance policies cover these types of contingent business interruption losses others will not.
- Sandy was downgraded to a post-tropical storm just before it made landfall in New Jersey. This fact has one important consequence to insurers and policyholders – will insurers be able to enact a hurricane deductible, typically a % of the loss, as opposed to a flat deductible. The states of New Jersey and Maryland have already issued bulletins stating hurricane deductibles should not apply.
Insurers could be exposed to different rulings on coverage as each underlying policy would be subject to its own governing law and jurisdiction from state to state. CBS news reported that the Hurricane’s impact covered across 20 states.
The good news is, despite suffering through a soft pricing market since 2005, as a whole the industry is well capitalized to withstand this type of loss. However, one of the first things I learnt when entering the insurance industry is that a policy is only a promise to pay and not all promises are equal.
Responding to and adjusting a large property and business interruption loss is an art, not a science and this is where appropriate contingency planning and broker loss adjusting support can really matter. At Bartlett, we employ a ‘Major Loss Advisor’ to respond to these kinds of losses. This ensures that the loss adjusting process is managed with minimal hassle and maximum support and our clients insurance policies respond as they were designed to – in our clients’ best interests.