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Complacency saps preparation

While rare, hurricanes remain a major threat in the Northeast

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Complacency saps preparation

BOSTON—Complacency about a major hurricane striking the Northeastern United States could contribute significantly to final loss tally of such a storm, risk management experts say.

That's despite the fact that a repeat of the 1938 Long Island Express, which devastated much of New England, would result in about $33 billion in property damage today, according to Boston-based modeler AIR Worldwide Corp. (see story, page 14)

Observers at the recent Risk & Insurance Management Society Inc.'s Annual Conference & Exhibition in Boston said the Northeast may be overdue for a large hurricane—the most recent being Hurricane Bob in 1991, which caused about $2.5 billion in damage, according to the Massachusetts Executive Office of Public Safety and Security.

“In 2004 and 2005, hurricanes were on the tip of everyone's tongue” because of the high number and destructive nature of hurricanes those years, said Alfred Tobin, managing director and national property leader for Aon Risk Services in New York.

“We've been overdue for one now,” said William Holland, vp and managing director-global technical services in Atlanta-based Crawford & Co.'s New York office. He noted that the concentration of property values in the Northeast could magnify losses from a major hurricane.

“It's quite a major exposure,” said Charles Bauroth, technical operations manager for Liberty Mutual Insurance Co.'s Liberty Mutual Property unit in Weston, Mass. But the biggest exposure is public complacency, he said in noting that there has been considerable building on Long Island and around Cape Cod since the one-two punch of Hurricanes Carol and Edna in 1954.

“We like to take the approach that we have a plan in place before the storm hits,” Crawford's Mr. Holland said.

For Montgomery County, Md., having a plan in place meant conducting an exercise drill to simulate how the county government would respond to a Category 3 hurricane, said Terry Fleming, director-division of risk management for the county in Rockville, Md., and president of RIMS.

“We take it very seriously,” he said, noting that the county suffered extensive damage and power outages as a result of 2003's Hurricane Isabel.

The county conducted the exercise a few weeks ago, said Mr. Fleming. Its emergency management group, which includes risk management, practiced moving schoolchildren to evacuation centers and what he described as a “reverse 911” line to advise residents about dealing with such as storm.

The possibility of a hurricane striking the Northeast is a concern for Scott Borup, director of corporate risk management at New Brunswick, N.J.-based Johnson & Johnson, even though the company does not have many production facilities in the area.

“All of our operations have continuity plans” to deal with such an exposure, Mr. Borup said. He said he also makes sure that key suppliers also have business continuity plans in place.

For Johnson & Johnson, the worst-case scenario would be a hurricane that struck its operations in Puerto Rico and Florida before heading north and hitting the company's headquarters, he said.

Liberty Mutual's Mr. Bauroth said contingency plans should take into account some of the lessons of Hurricane Katrina and apply them to a storm in the Northeast. With wind velocity that could be higher than Hurricane Katrina in 2005 and storm surge up to 20 feet, as it was in the Long Island Express, New York would experience a “very high level of water” where it normally does not occur, he said.

“It all starts with keeping the building intact,” said Jonathan W. Hall, executive vp at Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global.

First-tier counties in New England could expect 100 mph winds, he said. He noted that Katrina was barely a Category 3 hurricane when it hit New Orleans and added that as hurricanes move up the East Coast, “they're always picking up steam.”

“New York would be a devastating, devastating event,” he said.

Dealing with hurricanes “comes down to maintenance,” said Mr. Hall. “A lot of people don't have the flashing tied down” on roofs, and loose objects or equipment outside a building should be tied down or moved inside. Signs need to be secured and roof drains need to be checked, he said.

“Do a full review of the envelope of the building,” Mr. Hall said.

A Northeastern hurricane would cause similar damage to an ice storm but over a much wider area, said Liberty Mutual's Mr. Bauroth. Trees and power lines would be downed, making emergency generators essential for certain operations.

In addition, hurricanes typically accelerate in the Northeast, meaning there would be limited time to evacuate people. That means a facility might need a shelter plan in place, including emergency generators as well as adequate food and water for employees.

Still, it's a “tough message to say you have to continue to improve your property in possibly the worst economy in our lifetime,” said Aon's Mr. Tobin.

Crawford's Mr. Holland also stressed that risk managers should prepare for a hurricane by pulling together information about properties before a storm strikes so losses can be adjusted efficiently.

For example, a large account with a lot of properties in an area should prepare a spreadsheet with insured values as well as contact information that includes cell phone numbers.

In addition, “the biggest challenge is the infrastructure” in the aftermath of a hurricane, Mr. Holland said. Being able to know the approximate location of an affected property is helpful to adjusters, he said.