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Insurer risk management strategies adapting in wake of Sandy: Panel

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Insurer risk management strategies adapting in wake of Sandy: Panel

Superstorm Sandy's pummeling of coastal New York and New Jersey exposed a stark need among property/casualty insurers and their clients to adapt their catastrophe risk management strategies, a panel of senior industry executives said Tuesday.

Greater attention will need to be paid to the concentration and interconnectivity of catastrophe risk in densely populated areas, risk management and transfer education for policyholders and the implementation of risk mitigation measures in order to stem the rising tide of catastrophe losses in the U.S. and worldwide, according to a panel of property/casualty CEOs at the 2013 Property/Casualty Joint Industry Forum in New York.

Approximately 1.4 million claims for personal and commercial property damage, business interruption and other losses have been filed since Sandy struck in late October. Insured losses from the storm have been estimated at up to $25 billion.

Although it was not nearly as powerful as other recent hurricanes — Sandy was below the threshold of hurricane strength when it made landfall — the storm was among the costliest in U.S. history, due in large part to the region's high concentration of residents and businesses.

“The exposures in these very densely populated areas are going to need to be rethought,” said Michael McGavick, CEO of London-based XL Group P.L.C. “I think when you have that much interconnectivity of risk on both the commercial side and the personal lines side, it's something that our industry is really going to have to think hard about, because that density problem is only going to get worse.”

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The region's density has added layers of complexity to business interruption claims resulting from the storm, panelists said, and the event has exposed an overall lack of risk and coverage comprehension among business owners seeking to recover lost income, panelists said.

“As an industry, we need to do a better job of educating companies and entrepreneurs about the specific causes of business interruption losses, what triggers coverage and what doesn't,” said Liam McGee, chairman and CEO of Hartford, Conn.-based Hartford Financial Services Group Inc. “Particularly in an area of such great density, the impact on small and midsized businesses was pretty pronounced, and many of these business owners had little to no comprehension about whether or not they were covered.”

Not all of the potential solutions lie within the purview of the insurance industry, panelists said.

Legislators and administrators at all levels of government can help reduce the risk of catastrophe losses by adopting and implementing policies — such as stricter controls on the storage of hazardous materials, zoning and land use ordinances and building codes — designed to fortify properties against wind damage and water infiltration.

“The question is whether we learn from an experience like this and whether we actually act on what we learned,” said Edward Rust, chairman and CEO of the Bloomington, Ill.-based State Farm Mutual Automobile Insurance Co. “Minor steps can help a great deal in mitigation, and it's frustrating to see that these relatively easy steps aren't being taken, because failing to do it can be costly.”

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