DANA POINT, Calif. Sandy's devastation to the Mid-Atlantic states provided an ideal setup for Tuesday's panel discussion about catastrophe modeling at the 2012 conference of the Property Casualty Insurers Association of America.
Bill Churney, senior vice president of modeler AIR Worldwide Corp., said Sandy highlighted the hundreds of billions of dollars of storm exposure in the Northeast, reminded people that storm risks can reach inland and demonstrated the ferocity of wind and coastal flooding.
Mr. Churney, one of four panelists, called Sandy “more significant” than Hurricane Irene last year, but “a moderate event” in terms of likely insured losses.
AIR estimated insured losses of $7 billion to $15 billion from the hurricane that belted the Mid-Atlantic and Northeast on Monday and Tuesday, before diminishing to a tropical storm.
Irene caused $4.3 billion in insured losses, but much of that was paid for by the National Flood Insurance Program.
Panelist Hemant Shah, CEO and co-founder of modeler Risk Management Solutions Inc. said that in the aftermath of Sandy, the complexity of insurance coverage and deductibles will unfold for the 50 million to 60 million people affected by the late-season storm.
“It's going to disrupt commerce for weeks to come,” said Mr. Shah. “And it will be interesting to see how claims get paid.”
Mr. Shah was alluding to what likely will end up sparking legal battles between insurers and policyholders over whether private insurers will have to pay claims caused more by high water than strong winds. Damage from flooding is the responsibility of the NFIP.
“The national flood program likely will bear the brunt of losses from Sandy,” said panelist Frank Nutter, president of the Reinsurance Association of America, “but the program is clearly distressed already.” The program was $18 billion in debt before Sandy came ashore, Mr. Nutter said.
Politicians and insurance regulators will be challenged to deal with scores of irate policyholders as they try to cope with Sandy's wrath. Panelist Matt Mosher, senior vice president of ratings at A.M. Best Co. Inc., said the regulators get “squeezed” between insurers and consumers.
Fear of that prompted a question from an insurer in the audience, who asked the panelists if they thought insurers are dealing with a “pro public attitude” from politicians in Sandy's wake.
That prompted PCI President David Sampson to say that the question “goes to the heart” of his day-earlier remarks citing concerns about overreaching state and federal regulators.
“Are we going to socialize this industry or are we going to rely on the sanctity of contracts and forms approved by regulators,” Mr. Sampson said to the panelists.